Houston a hot spot for bribery cases

As energy companies do business globally, local federal court bustles with activity

ANTHONY Mace, like many executives, relied on spreadsheets to track the money paid to vendors, contractors and agents. But in this case, the $16 million recorded as payments to firms in Brazil, the British Virgin Islands and Switzerland, were in fact bribes to officials in Africa and South America to steer business to Mace’s offshore oil services company.

Mace, the former CEO of SBM Offshore, and another executive recently pleaded guilty in U.S. District Court in Houston to conspiracy to violate the Foreign Corrupt Practices Act. It was an elaborate scheme that stretched back more than 20 years and involved three other SBM executives, two foreign intermediaries and several shell companies, according to court documents.

SBM, a Dutch company with a subsidiary in Houston, agreed last week to plead guilty to conspiracy and pay $238 million in criminal penalties for the role the company played in bribing foreign officials in Brazil, Angola, Equatorial Guinea, Kazakhstan and Iraq.

The guilty pleas capped the latest charges coming out of Houston against companies and their employees for paying bribes, arranging kickbacks and generally greasing the skids to win business in parts of the world where corruption is a common lubricant. Houston last year accounted for seven, or about one-fourth of the 26 cases brought by the Justice

“During the past decade, the pace of government enforcement actions has accelerated. In 2006, 14 enforcement actions were filed, eight by the SEC and six by the Justice Department. Last year, 55 were filed, 29 by the SEC and 26 by the Justice Department.”

Department under the Foreign Corrupt Practices Act.

Over the past decade, Houston federal court has become one of the busiest in the nation for cases involving foreign bribery cases, in large part because of the concentration of energy companies that do business around the world.

Of the 243 group cases brought by the government under the federal anticorruption law over the past 40 years, nearly one in five involved energy companies, which, in the search for oil and gas, often do business in areas susceptible to corruption, according to the Foreign Corrupt Practices Act Clearinghouse at Stanford University Law School.

‘Target-rich’

Houston “is a targetrich environment,” said Philip Hilder, a white-collar defense lawyer and former prosecutor.

The federal anti-corruption law was enacted in 1977 in response to revelations during the Watergate hearings that several multinational companies concealed millions of dollars in payments to foreign politicians to win business. The law not only prohibited companies and individuals from paying bribes and kickbacks, but also required companies to properly document the money they spend overseas.

The Foreign Corrupt Practices Act has ensnared some of the biggest energy companies, including Halliburton, a Houston oil field services company, which earlier this year paid a $29 million penalty to settle civil charges brought by the SEC that one of its executives rigged the bidding process in Angola to help the company win contracts with Sonangol, Angola’s state-owned oil company. Halliburton said it reported the improper activities to the Justice Department after its accountants and auditors discovered them and cooperated with the investigation.

Last year, another Houston company, Key Energy Services, paid $5 million in penalties to settle civil charges brought by the Securities and Exchange Commission that it failed to set up financial controls to prevent unauthorized payments to officials of Mexico’s national oil company, Pemex.

Vetco gets things rolling

During the first three decades of the foreign anticorruption law, years went by without the government filing a charge, according to data collected by Stanford’s Foreign Corrupt Practices Act Clearinghouse. But that changed 10 years ago when London-based Vetco International and three subsidiaries, including one in Houston, pleaded guilty in Houston federal court to funneling $2 million in bribes through a freight forwarding company to Nigerian custom officials to gain preferential treatment.

Vetco, which was providing engineering and subsea construction equipment for Nigeria’s first deep-water oil drilling project, settled the case for what was then a recordsetting criminal penalty of $26 million. Further investigation of the freight company, which acted as conduit for bribes from other companies, snared Shell Nigeria Exploration and Production Co., a subsidiary of Royal Dutch Shell, Transocean, a Swiss offshore drilling services company with a strong presence in Houston, and Tidewater Marine International, a Cayman Islands subsidiary of the New Orleans company.

The companies paid a combined $50.8 million in criminal penalties after admitting they approved or condoned bribes and falsely recorded them as legitimate business expenses, according to court records.

During the past decade, the pace of government enforcement actions has accelerated. In 2006, 14 enforcement actions were filed, eight by the SEC and six by the Justice Department. Last year, 55 were filed, 29 by the SEC and 26 by the Justice Department.

The surge dovetails with a global crackdown on corruption, led by the United Nations. Nearly every country — save for the African nations Equatorial Guinea, Chad and Somalia — have signed an 2005 international agreement to outlaw bribery and other business-related corruption and cooperate in the investigation and prosecution of these cases. That cooperation played a role in the SBM Offshore case.

In announcing the guilty pleas of Mace and Robert Zubiate, a sales and marketing executive who worked in Houston and California, the Justice Department credited the Brazilian prosecutor Ministério Público Federal, the Netherlands prosecutor Openbaar Ministerie, and Switzerland’s Office of the Attorney General and Federal Office of Justice.

Mace’s lawyer declined to comment. Zubiate’s lawyer did not return a call seeking comment.

Vincent Kempkes, a spokesman for SBM, said the company’s plea agreement was another step in bringing the case to an end.

The corruption case against SBM Offshore started in 2012 when the company, which makes floating platforms for offshore oil and gas producers, reported to Dutch and U.S. officials that it had paid about $200 million in potentially fraudulent sales commissions to foreign agents between 2007 and 2011. SBM launched an internal investigation and reported two years later that it uncovered evidence that payments to Equatorial Guinea and Angola were funneled to government officials, while commissions to Brazil were legitimate sales commissions.

SBM settled the case in 2014 with the Dutch government, paying $240 million in criminal penalties.

The U.S. government closed its inquiry, but two years later, the Justice Department reopened the investigation when the Brazilian public prosecutor brought corruption charges against several individuals, including an SBM employee who worked in the United States.

Back to 1996

SBM’s bribery scheme stretched back as far as 1996, according court documents, and involved officials at Petrobras, the state-owned oil company of Brazil, Sonangol, the stateowned oil company for Angola, and GEPetrol, the state-owned oil company of Equatorial Guinea.

Part of Mace’s job was to approve payments exceeding a certain dollar amount. Mace, who formerly led the SBM subsidiary in Houston, said in his plea agreement that he joined the conspiracy by deliberately failing to learn whether suspicious payments were bribes and approving them, despite convoluted methods that were used to send the money.

In one arrangement, Mace authorized bank transfers that went from the United Kingdom to the United States and then to an account in Switzerland. Another payment was broken in two, with one portion going to Brazil and another to shell companies in Switzerland, according to his plea deal.

Zubiate, 66, was a more active participant in the scheme, according to documents filed by the Justice Department. Zubiate worked in Houston and California for SBM beginning in 1990, overseeing the company’s sales and marketing efforts in Latin America, and profited from the bribery and kickbacks until about 2012, according to the government’s charge. Zubiate allegedly discussed with other executives the need to pay bribes and the way in which they would be paid to Brazilian officials.

Zubiate admitted that between 1996 and 2012, he and others used a thirdparty sales agent to pay bribes to foreign officials in exchange for help with bids, according to the Justice Department. He also admitted to engaging in a kickback scheme. The government charged that $5.5 million in kickbacks were forwarded to a Swiss bank account controlled by Zubiate, according to the indictment.

Sentencing for Zubiate is scheduled for Jan. 31 and Mace for Feb. 2.