SEC Brings First Corporate FCPA Enforcement Action Under Its New Leadership
On July 27, 2017, the Securities and Exchange Commission (“SEC”) brought an enforcement action against Halliburton Company, a Houston-based oilfield services corporation. Specifically, the SEC alleged that Halliburton violated the books and records and internal accounting controls provisions of the Foreign Corrupt Practices Act (“FCPA”) by utilizing a local Angolan company to obtain business from the Angolan state oil company. In the Matter of Halliburton Company and Jeannot Lorenz, Admin. Proc. No. 3-18080 (July 27, 2017) (“Order”). Without admitting or denying the alleged conduct and charges, Halliburton agreed to pay approximately $29.2 million to settle SEC charges stemming from the long-running investigation which commenced in 2011. As part of the Order, former Halliburton Vice-President Jeannot Lorenz, who allegedly spearheaded the conduct that formed the basis for the company’s settlement, agreed to pay a $75,000 penalty for “causing” the company’s underlying violations, circumventing internal accounting controls, and falsifying books and records.
According to the SEC, in early 2008, officials at Angola’s state oil company—Sonangol—threatened to veto subcontracting work to Halliburton if the company didn’t utilize additional local content as required by Angolan regulations governing foreign companies operating in Angola. In response, Halliburton tasked Lorenz, who had previous experience cultivating relationships and business networks in Angola, to lead efforts to partner with more local Angolan-owned businesses. When a new round of oil company projects in Angola came up for bid in April 2009, Lorenz engaged in extensive, multi-year negotiations in an attempt to retain a local Angolan company owned by a former Halliburton employee. The former employee was a friend and neighbor of the Sonangol official who had the authority to award subcontracts.
Lorenz repeatedly attempted to get internal approval of various proposed contracts with the local firm. The Order notes that on a number of occasions over the course of these negotiations, personnel from various Halliburton departments raised concerns about the contracts being contemplated. Halliburton ultimately entered into an interim consulting agreement in February 2010, which was backdated to September 2009, and a Real Estate Transaction Management Agreement on May 1, 2010. The company eventually paid $3.705 million to the local Angolan firm as part of these contracts, and Sonangol subsequently approved the award of seven lucrative subcontracts to Halliburton, which resulted in approximately $14 million of profit to the company.
The Order explores in some detail the internal processes that Lorenz violated over the course of his negotiations with the local Angolan firm. First, Lorenz violated Halliburton’s internal accounting controls by (1) first selecting the local Angolan company as a potential business partner, and (2) subsequently backing into the list of services that were to be contracted for. Company policy was to first assess the company’s need for a particular material or service, rather than the potential supplier itself. Second, Lorenz failed to conduct competitive bidding relating to the selection of Sonangol or substantiate the need for a single source of supply. Third, Lorenz ignored a company internal accounting control that required contracts worth more than $10,000 in high-risk countries like Angola to be reviewed and approved by an internal committee.
According to the Order, Halliburton agreed to pay the SEC $14 million in disgorgement plus $1.2 million in prejudgment interest, along with a $14 million civil penalty. The company also agreed to an independent compliance monitor for eighteen months, which is in line with a recent increased focus by the DOJ and the SEC on requiring compliance monitors as part of significant FCPA enforcement actions. The imposition of a compliance monitor is also less than surprising given that Halliburton previously settled alleged FCPA violations with the DOJ and the SEC in 2009.
Halliburton’s settlement comes during a period of reported uncertainty about how vigorously the new administration will pursue FCPA enforcement. See generally Shearman & Sterling LLP, Recent Trends and Patterns in the Enforcement of the Foreign Corrupt Practices Act (July 5, 2017). Though some commentators have opined that the Trump administration would fundamentally change the FCPA, senior SEC and DOJ officials in the new administration have expressed a continued commitment to FCPA enforcement. See, e.g., Acting Principal Deputy Assistant Attorney General Trevor N. McFadden Speaks at Anti-Corruption, Export Controls & Sanctions 10th Compliance Summit, available https://www.justice.gov/opa/speech/acting-principal-deputy-assistant-attorney-general-trevor-n-mcfadden-speaks-anti (noting that the “[DOJ] remains committed to enforcing the FCPA and to prosecuting fraud and corruption more generally”). The SEC’s enforcement action against Halliburton is consistent with the statements of these Administration officials. Although the underlying investigation commenced under the prior Administration, the enforcement action was approved under the new leadership and corroborates their professed commitment to FCPA enforcement. We will continue to monitor and review developments in this space, to see if this recent enforcement action is a sign of more investigations and enforcement actions to come, or if it is instead more emblematic of the new SEC and DOJ leadership “closing out” cases that have been pending for some time.