It must have seemed like a great opportunity: three offshore wells in Qatar, pre-drilled, just waiting for someone to reopen them and carry the oil away. When he learned of the concession’s availability in 1975, Gene Holley—chairman of the Georgia Senate Banking and Finance Committee—reached out to an acquaintance, Roy Carver, from whom he had recently bought a private airplane. Holley was paper-rich thanks to some lucky pre-embargo investments in Texas oilfields, but he was also highly leveraged. Carver, a yacht enthusiast who had long-since made his fortune in retread tires, could provide enough liquidity to seize the moment.
As it turns out, the whole thing was a bit of a setup. The wells did have oil, but a sulfurous “sour” type that couldn’t be extracted without exorbitant precautions. That’s why the original investors had walked away—a fact surely known to Qatar’s Director of Petroleum Affairs, Ali Jaideh, when he first pitched the idea to Holley. Ali’s brother, Kassem, had been local agent for Sedco, the abandoned project’s Texas-based drilling contractor. After the project faltered, it was a Sedco executive who found Holley, introduced him to the Jaidehs, and helped hype the wells to the prospective new investors.
Carver and his estate would eventually countersue Sedco for the money he had sunk into the doomed venture, prevailing to the tune of about $13 million. What he couldn’t recover was the $1.5 million Ali had demanded be paid into his brother’s Swiss bank account as a condition of the deal’s approval.
The fact of the payment came to light when an ill-advised attempt to refinance the project was thwarted by the refusal of the new Director of Petroleum Affairs to renew the lease. (Ali Jaideh had moved on to become OPEC’s Secretary General in 1977.) Voicing his frustration in a side meeting with the U.S. Ambassador to Qatar and another foreign service officer, Carver recounted the earlier illicit payment and blurted out: “Who do I go see now, how do I get it done?” The Ambassador balked and the meeting soon ended. A year later, the DOJ obtained a permanent consent injunction.
Carver went back to his globetrotting lifestyle, passing away in Marbella, Spain in 1981. Holley got caught up in a bank fraud scheme and spent 16 months in prison before returning to his home in Augusta and a life of religious contemplation.
This post is part of "The FCPA Files" series, examining key enforcement cases under the Foreign Corrupt Practices Act and the lessons they offer for modern compliance. |
Last week, the U.S. Department of Justice announced that a subsidiary of Spanish company Telefónica S.A. agreed to pay $85.2 million to resolve an investigation into a scheme to bribe government officials in Venezuela.
The enforcement is unusual not just because there is no parallel resolution with Securities Exchange Commission, but because the amount of the fine is lower than the improper advantage that the subsidiary received. This may signal that the DOJ had other interests in mind as it pursued the case – perhaps against Chinese equipment makers.
Under Venezuela’s strict currency controls, most companies cannot exchange domestic bolivars for foreign notes; instead, they have to use a government platform that takes bolivars from local companies and pays out U.S. dollars to their foreign vendors, using a fixed official exchange rate. Because the official rate artificially values the bolivar much higher than the free-market does (and because free market exchanges are illegal), allocations under the platform are highly oversubscribed. The subsidiary, Telefónica Venezolana, improperly paid nearly $29 million to access this platform in 2014.
To do so, it needed help from two of its vendors – described by the DOJ as “multinational telecommunications equipment and systems” companies. They agreed to pad their invoices and, when paid their U.S. dollars, pass those extra funds along to a shell company that would then pay out the bribes.
The settlement documents reveal that, all in all, Telefónica Venezolana was able to exchange about 1.27 billion bolivars for $115 million. What they do not say is that, at market rates, that same sum would have cost 5.77 billion bolivars or more. Instead, they simply describe the exchange rate as “favorable.”
That favorable difference was worth at least $90 million, meaning the penalty amount does not even amount to disgorgement.
So what does the DOJ gain from this settlement, and why did it gloss over the scope of the Telefónica subsidiary’s gains?
While there may have been some sympathy for Telefónica Venezolana, which faced price controls and runaway inflation and had to take massive losses as a result, it may also have been that the DOJ was ultimately more interested in the case as a way to collect evidence about the company’s vendors.
The vendors are not identified by name, but some of the main players in Venezuela’s telecommunications sector work with Chinese suppliers. Similarly, Spanish media have reported in May that Telefónica was facing a fine from U.S. regulators with respect to Chinese vendors in Venezuela.
And the settlement documents include an interesting, seemingly extraneous detail – that employees from one of the vendors used U.S.-based email accounts in furtherance of the bribe. It is completely meaningless with respect to the Telefónica case, where jurisdiction is already clearly established; but given that many US email services are not available from Mainland China, it’s possible that these accounts were accessed while in the US – thus hinting at the jurisdictional hook needed to bring FCPA charges against that vendor.
At least one of the potential vendors has been reported to be the subject of FCPA scrutiny, and both are the targets of U.S. political ire.
To be sure, the DOJ would be brushing up against the statute of limitations, and we may yet see an announcement from the SEC. But given that these companies have been frequent targets of U.S. regulators and politicians, this enforcement might foreshadow more actions against Chinese telecom suppliers.
FCPA Compliance Consultant
From its debut in 1966, the Grumman Gulfstream II jet stood out as a turbo-powered symbol of luxury business travel. With room for a dozen passengers, a transcontinental flight range, and aerodynamics that would make a NASA engineer blush, it was the vehicle of choice for discerning executives and heads of state worldwide.
Still, they didn’t quite sell themselves; that prerogative belonged to Page Airways, founded in 1939 by James P. Wilmot in his hometown of Rochester, New York. The company began as a flight instruction provider, taking advantage of the U.S. government’s eve-of-war interest in strengthening the nation’s aviation capacity. Over the years it grew in both size and scope, alongside Wilmot’s own formidable clout as a political fundraiser.
The FCPA had been around for only a few months when the SEC filed a civil action against Page, Wilmot, and five other Page executives. The allegations concerned the company’s sales activities in half a dozen countries in Africa, the Middle East, and Southeast Asia.
We see some familiar patterns: presidential kickbacks in Gabon, for example, and side payments to well-connected development organizations in Malaysia and the Ivory Coast. Others details stand out a bit more: certain third-party arrangements in connection with Morocco and Saudi Arabia that “left over $5 million of the proceeds of Gulfstream II sales unaccounted for” and the creation of a secret subsidiary to do business with Idi Amin’s Uganda. (Plus giving the dictator a Cadillac Eldorado—the one allegation tying the case to the FCPA proper, given the events’ timing.)
The case didn’t go to trial. After getting venue transferred from the District of Columbia to Rochester, the company’s lawyer served a subpoena on the CIA demanding any information it might have concerning the above-described activities. Before long, the case was settled—individuals dismissed, company enjoined, monitor appointed—with the telling digest notation: “In reaching settlement of this action, the Commission and Page considered concerns raised by another agency of the United States Government regarding matters of national interest.”
Aviation and national interest have never been far apart. The FCPA itself was born amid concerns about corruption in the sale of military aircraft and its effect on the United States' international repute. It isn’t surprising that an intelligence agency might have connections with those selling private jets to world leaders in global hotspots. We’ll leave further speculation to others.
This post is part of "The FCPA Files" series, examining key enforcement cases under the Foreign Corrupt Practices Act and the lessons they offer for modern compliance. |