[This post is part of a periodic series regarding "old" FCPA enforcement actions]
Certain of the “old” Foreign Corrupt Practices Act enforcement actions reviewed thus far in this periodic series were dubious (see here for instance).
Other “old” FCPA enforcement actions contain egregious allegations concerning high-level executive knowledge, acquiescence and cover-up of bribery yet were resolved in what can only be called – a light fashion. Case in point is the 1997 enforcement actions against Triton Energy and several executives. The Triton enforcement action makes reporting of Wal-Mart’s supposed corporate governance failures and oversight look garden-variety.
Learning of the Triton enforcement action causes one to ponder – what if the enforcement action were resolved today?
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In February 1997, the SEC announced the filing of this settled civil complaint against Triton Energy Corporation and Richard McAdoo and Philip Keever (former officers of Triton Indonesia Inc. – a wholly owned subsidiary of Triton). In summary fashion, the complaint alleged:
“This action concerns the activities in Indonesia of Triton Indonesia … During the years 1989 and 1990 defendants McAdoo and Keever, then officers of Triton Indonesia, authorized numerous improper payments to Roland Siouffi, knowing or recklessly disregarding the high probability that Siouffi either had or would pass such payments along to Indonesian government employees for the purpose of influencing their decisions affecting the business of Triton Indonesia. McAdoo and Keever, together with other Triton Indonesia employees, concealed these payments by falsely documenting and recording the transactions as routine business expenditures. Triton Indonesia also recorded other false entries in its books and records. During the relevant time period, Triton failed to devise and maintain an adequate system of internal accounting controls to detect and prevent improper payments by Triton Indonesia to government officials and to provide reasonable assurance that transactions were recorded as necessary to permit preparation of financial statements in conformity with generally accepted accounting principles. Triton Energy did not expressly authorize or direct these improper payments and misbookings.”
The complaint charged Triton Energy with violating the FCPA’s anti-bribery provisions and books and records and internal controls provisions. Keever and McAdoo were charged with violating the FCPA’s anti-bribery provisions and knowingly circumventing a system of internal controls and knowingly falsifying books and records.
The complaint noted that Keever retired from Triton in 1996 and that McAdoo was terminated by Triton in 1989.
The conduct at issue focused on Triton Indonesia being a party to a joint venture agreement which resulted in Triton Indonesia being a party to a Rehabilitation and Secondary Recovery Contract (“RSRC Contract”) with Pertamina, a national oil company owned by the Republic of Indonesia. As alleged in the complaint, the project Triton Indonesia was working on “was subject to taxation by the Indonesian Ministry of Finance and tax liability was determined by auditors from the Ministry of Finance’s audit branch (“BPKP”).
According to the complaint:
“During the Pertamina/BPKP audits, after the auditors completed their review of the books and records, they had an exit meeting with representatives of Triton Indonesia during which they provided their preliminary written findings, including problems with the books and records that might lead to reductions in cost recovery. Following the auditors’ presentation, Triton Indonesia prepared a written response to the audit exceptions. Triton Indonesia and Pertamina/BPKP auditors then entered into negotiations concerning the content of the final audit report. The Pertamina/BPKP auditors had discretion to make a determination as to whether audit exceptions would be included in their audit report or withdrawn. [...] These ‘negotiations’ culminated in numerous improper payments to Indonesian auditors.”
The complaint stated that “at the beginning of Triton’s Indonesia’s tenure as operator of the joint venture … the poor books and records and internal controls made it difficult for Triton Indonesia to calculate and document project costs, and threatened the company’s ability to obtain recovery of [project] costs incurred prior to Triton Indonesia’s tenure as operator.” The complaint noted that “from the outset, Triton Indonesia and Triton Energy management anticipated that the deficient state of the books and records of the [project] would adversely impact Triton Indonesia’s ability to obtain certification of the unrecovered costs pool for [two] fiscal years.”
According to the complaint, Triton agreed with its joint venture partner to “retain Roland Siouffi as its business agent for the purpose of acting as an intermediary between Triton Indonesia and Indonesian government agencies, including Pertamina and the Ministry of Finance.”
According to the complaint, “when Keever went to Indonesia … to become Commercial Manager, Triton Energy’s controller at the time told Keever that his performance would be measured by the extent to which [project] expenditures were found to be costs recoverable in the annual Pertamina/BPKP audits.”
The complaint alleged:
“During 1989 and 1990, McAdoo and Keever authorized a number of improper payments to Siouffi entities for the purpose of influencing specific actions by various Indonesian government agencies. To conceal the true purpose of the payments, Triton Indonesia employees created false documents that indicated that the funds were expended for transactions with Siouffi entities for legitimate purposes, such as the purchase of seismic data or repair of equipment used for oil exploration. The expenditures were then recorded on Triton Indonesia’s books and records as having been made for the purpose reflected in the false documentation. These false entries were made in the books and records of Triton Indonesia with the knowing participation of certain Triton Indoensia employees, including McAdoo and Keever.”
The SEC complaint contains separate allegations regarding improper payments: “in connection with a tax audit;” “Pertamina/BPKP Audits;” a corporate tax refund;” the refund of value added tax;” and “relating to a pipeline tariff.” The complaint also references payments of cash totaling $13,500 to Indonesian auditors for the purpose of developing general good will” and “cash payments totalling $1,000 per month to Pertamina clerical employees made for the purpose of expediting payment of monthly crude oil invoices.”
Under the heading “Triton Energy Management Received Information Concerning Improper Payments and False Books and Records” the complaint alleges, in pertinent part:
“From the start of Triton Indonesia’s role as operator [of the joint venture], some Triton Energy officers and managers had concerns about the relationship with Siouffi, including concerns about the vagueness of his contractual duties, the large amounts of money he was receiving, how he might be using that money, and his honesty. Despite these concerns, Triton Energy’s former management did not establish any policies or procedures concerning the circumstances under which Triton Indonesia could make payments to Siouffi for the purpose of influencing a government decision or what activities Siouffi could engage in on Triton Indonesia’s behalf. In addition, at the outset of Triton Energy’s involvement in Indonesia, Triton Energy’s former management became aware of additional information that should have led to a heightened degree of vigilance about the possibility of FCPA violations. Instead, Triton Energy management ignored danger signs and took no precautions.”
Among the facts alleged is that a finance manager (who acted as a liaison to Pertamina/BPKP auditors in connection with annual audits) who was terminated was reinstated in response to “pressure from Pertamina.” In addition, the complaint alleged that “Keever informed certain members of Triton Energy’s former management about certain of the payments being made to Siouffi in order to obtain favorable government decisions” and “although the Triton Energy officers expressed concern, none ordered Triton Indonesia to discontinue these practices.” The complaint further alleged that Triton’s new Internal Auditor, after visiting Indonesia, wrote a confidential memo to Triton Energy’s former management describing his concerns about, among other things, improper payments by Triton Indonesia to Indonesian government officials.” According to the complaint, “the former President of Triton Energy, after reading the Internal Auditors Memorandum in the internal auditor’s presence, ordered the internal auditor to collect all copies of the memorandum and destroy them.”
According to the complaint:
“Triton Energy’s former management made no meaningful effort to determine whether the allegations in the Internal Auditor’s Memorandum were supported by facts. Instead, after learning that the source of the information in the memorandum came from conversations with Triton Indonesia officers and personnel, Triton Energy’s former management dismissed the allegations in the Internal Auditor’s Memorandum. No investigation was conducted and no policies and procedures were revised as a consequence of the conduct described in the Internal Auditor’s Memorandum.”
According to the complaint, “when Triton Energy’s outside auditors raised concerns about possible unlawful activities by Triton Indonesia,” Triton Energy management made a partial disclosure, omitting most of the improper payments and most of the false books and records. At the meeting with the auditors, Triton Energy’s then senior management represented that there was no evidence that money was paid to Indonesian auditors.”
According to the complaint, the payments totaled approximately $450,000.
Without admitting or denying the SEC allegations, Triton Energy consented to entry of a final judgment that permanently enjoined the company from violating the FCPA’s books and records and internal controls provisions and ordered the company to pay a $300,000 civil penalty. The SEC’s release states:
“In accepting the settlement, the Commission has considered the fact that the violations occurred under former management and that certain remedial actions have been implemented by the current board of directors and senior management.”
Without admitting or denying the SEC’s allegations, Keever also consented to entry of a final judgment that permanently enjoined him from violating the FCPA’s books and records and internal control provisions and ordered him to pay a $50,000 penalty.
As noted in this SEC release, approximately four months later , McAdoo also consented to entry of a final judgment that permanently enjoined him from violating the FCPA’s anti-bribery provisions as well as the books and records and internal controls provisions. McAdoo was also ordered to pay a $35,000 civil penalty. This original source article indicates that McAdoo originally asserted his innocence and planned to contest the charges.
Simultaneous with the filing of the above civil complaint against Triton Energy, Keever and McAdoo, the SEC also instituted this administrative action against David Gore (a Director and President of Triton Energy from 1988 until his resignation in 1992), Robert Puetz (Triton Energy’s Vice President of Finance and Chief Financial Officer / Senior Vice President of Finance until his resignation in 1993), William McClure (a contract auditor with Triton Indonesia and thereafter Commercial Manager of Triton Indonesia in 1990 until he left the country) and Robert Murphy (CPA / Controller of Triton Indonesia until 1990) based on the same core conduct alleged in the SEC civil complaint.
The SEC found:
“As Commercial Manager, McClure assumed direct supervisory authority over the accounting function at Triton Indonesia. McClure was required to review and initial documents to authorize certain expenditures. These documents contained the descriptions of expenditures that determined how expenses were recorded in Triton Indonesia’s books and records. As Controller, Murphy had direct responsibility for preparing entries in Triton Indonesia’s books and records. McClure supervised Murphy’s preparation of entries for the books and records of Triton Indonesia. Murphy was responsible for determining that all underlying documentation was present when a bank voucher was issued and initialling the voucher to signify that all required documents were present.”
Consistent with the SEC’s allegations in the civil complaint, the SEC order found that Gore and Puetz “were well aware that Triton Indonesia has entered into contracts with Siouffi entities” and had concerns with various aspects of the relationship. The order further found that “Keever briefed Gore and Puetz about certain of the payments and false books and records” and then states that the “Triton Energy officers expressed concern about such practices which they had neither director nor authorized, but failed to require Triton Indonesia to discontinue these practices.”
As to the Internal Auditor Memorandum referenced in the civil complaint, the SEC’s order found that it was distributed to “Gore and Puetz, among others.” The SEC’s order found:
“Gore, after reading the Internal Auditor’s Memorandum in the internal auditor’s presence, ordered the internal auditor to collect all copies of the memorandum and destroy them. Gore and Puetz made no effort to determine whether the allegations in the Internal Auditor’s Memorandum were supported by facts. Instead, after learning that the source of the information in the memorandum came from conversations with Triton Indonesia officers and personnel, Triton Energy’s former management dismissed the allegations in the Internal Auditor’s Memorandum. As a result, they did not conduct an investigation or revise any policies or procedures relating to the various issues raised in the Internal Auditor’s Memorandum.”
The SEC order also found:
“… [S]hortly before Gore received the Internal Auditor’s Memorandum, Keever informed Gore that Triton Indonesia was making payments to Siouffi in connection with decisions by the Indonesian government and told Gore that money may have been paid to Indonesian auditors, including payments in connection with the predecessor’s tax audit, and the corporate tax refund. Keever also told Gore that the payments were recorded inaccurately in Triton Indonesia’s books and records. Gore responded that he had worked in another foreign country and understood that such things had to be done in certain environments.”
The SEC’s order concluded as follows regarding McClure and Murphy.
“As Triton Indonesia’s Controller, Murphy knowingly participated in creating and recording false entries in Triton Indonesia’s books and records. As Triton Indonesia’s Commercial Manager, McClure failed to assure that the entries prepared by Murphy accurately reflected the underlying transactions. Keever informed both McClure and Murphy that the payments were for a purpose other than what was indicated in documents presented for their signatures. Nevertheless, Murphy signed documents authorizing the expenditures and mischaracterizing them as legitimate business expenses. In addition, Keever informed Murphy about the false characterization of payments which Murphy did not have any role in authorizing. Thereafter, Murphy participated in making false entries in Triton Indonesia’s books and records characterizing the payments as expenses incurred for the purpose indicated in fabricated documentation. By engaging in this conduct, McClure and Murphy violated [the FCPA's books and records provisions].”
The SEC’s order concluded as follows regarding Gore and Puetz.
“As members of Triton Energy senior management, Gore and Puetz each received information indicating that Triton Indonesia was engaged in conduct that was potentially unlawful. Gore and Puetz received the Internal Auditor’s Memorandum … but took no action to initiate an investigation of the serious issues raised by the internal auditor. Indeed, Gore ordered the internal auditor to collect and destroy all copies of the Internal Auditor’s Memorandum. In addition, as described above, Keever described for Gore and Puetz certain payments made to Siouffi to obtain favorable Indonesian government decisions. After receiving such information, Gore and Puetz failed to investigate the potentially unlawful conduct. Instead, as the senior management of Triton Energy, Gore and Puetz simply acknowledged the existence of such practices and treated them as a cost of doing business in a foreign jurisdiction. The toleration of such practices is inimical to a fair business environment and undermines public confidence in the integrity of public corporations. Accordingly, Gore and Puetz caused Triton Energy to violate [the FCPA's anti-bribery provisions and books and records provisions].”
In the SEC’s order, McClure, Murphy, Gore and Puetz were ordered to cease and desist from committing or causing any future FCPA violations.
This original source New York Times article noted that the SEC’s complaint was “unusual” and that “it has been more than 10 years since the commission brought this kind of case against a United States company, but William McLucas, director for enforcement of the S.E.C., said the agency has ”a number of investigations under way” relating to improper foreign payments.”