Tuesday, November 26, 2019

Maritime Engineering Group Hit with Multi-Million Dollar Fines for Corrupt Practices

Shipbuilder Shamed in New Bribery Scandal but Penalty Reduced After Cooperation
Shipping News Feature

SOUTH KOREA – US – BRAZIL – Samsung Heavy Industries (SHI), the South Korean engineering company that provides shipbuilding, offshore platform construction, and other construction and engineering services, has agreed to pay total penalties of more than $75 million to resolve the US government's investigation into violations of the Foreign Corrupt Practices Act (FCPA) arising out of a scheme to pay millions of dollars in bribes to officials in Brazil.

SHI reached the agreement with the Department of Justice (DOJ) to settle an investigation into commission payments related to the company’s 2007 contract to build a drillship for a subsidiary of Pride International. The contract was premised on Pride (now part of Valaris plc) winning a contract to charter the drillship to a subsidiary of Petroleo Brasileiro (Petrobras). The investigation revealed that part of the commission payment for the transaction was improperly provided to Petrobras officials.

In recognition of SHI’s cooperation and improved compliance programme, the DOJ has agreed to a three-year Deferred Prosecution Agreement (DPA) with SHI. Upon successful completion, the DOJ will seek to dismiss the deferred charge, which relates to a drillship known as the DS-5.

Pursuant to its agreement with the Department, Samsung Heavy Industries has committed to pay a total criminal penalty of $75,481,600, 50% of which will be paid to the United States within 10 business days of the deferred prosecution agreement.

The remaining 50% of the penalty will either be paid to Brazilian authorities pursuant to agreements between SHI and the Controladoria-Geral da União (CGU), Advogado-Geral da União (AGU) and Ministério Público Federal (MPF), or will be paid to the United States if at least $37,740,800 in payments are not made to the Brazilian authorities on or before November 25, 2020.

In related proceedings in Brazil, Samsung Heavy Industries entered into a memorandum of understanding with the CGU and AGU and a complementary agreement for the negotiation of a leniency agreement with the MPF. SHI CEO Joon Ou Nam said:

“We deeply regret the company’s involvement in these events, which is contrary to our values and ethical standards. Many of the events described in our agreement happened more than a decade ago, and the individuals involved are no longer with the company. Over the past years, we have taken extensive steps, at our own initiative, to strengthen our anti-corruption compliance programme to meet the highest standards of compliance and ethics.”

According to admissions by SHI, beginning in 2007 and continuing until 2013, the company conspired with others to violate the FCPA by corruptly providing approximately $20 million in commission payments to a Brazilian intermediary, knowing that portions of the money would be paid as bribes to officials at Petrobras, the Brazilian state-owned oil and state-controlled energy company.

This tactic was in order to secure improper business advantages and to cause Petrobras to enter into a contract to charter a drill ship that SHI was selling to a Houston-based offshore oil drilling company, which facilitated SHI executing the sale of the drill ship. SHI took actions in furtherance of the bribery conspiracy from its branch office located in the US.

As part of the deferred prosecution agreement, SHI has agreed to continue to cooperate with the DOJ in any ongoing investigations and prosecutions relating to the conduct, including of individuals; to enhance its compliance programme, and to report to the Department on the implementation of its enhanced compliance programme.

In reaching the resolution with the Justice Department, Samsung Heavy Industries received credit for its cooperation with the Department’s investigation and for taking remedial measures. For example, the company made significant enhancements to its compliance programme, including hiring additional compliance staff, implementing enhanced anti-corruption policies and heightened due diligence controls over third party vendors, instituting mandatory anti-corruption training and improving whistleblower policies and procedures.

The company did not receive full credit for its cooperation, however, due to its failure to meet reasonable deadlines imposed by the department and delays it caused in reaching a resolution. Accordingly, the total criminal penalty reflects a 20% reduction off the bottom of the applicable United States Sentencing Guidelines fine range.