On April 26, 2023, the US Securities and Exchange Commission settled its Foreign Corrupt Practices Act investigation into conduct in West Africa by Frank’s International N.V., a Netherlands-based global provider of tubular running services and specialty well construction.* Although based in the Netherlands, the company maintains offices, including those of senior executives, in Houston, Texas.
Frank’s first disclosed the SEC’s investigation, and a parallel investigation by the US Department of Justice, in June 2016. According to company filings with the SEC, the DOJ provided a declination toward the end of 2022, on condition that the company reach a satisfactory settlement of civil claims with the SEC. The facts, as recited in the cease and desist order, describe Frank’s efforts to increase its business in Angola’s oil sector beginning in 2007. Frank’s was made to understand that its efforts to obtain contracts with Angola’s state-owned oil company, Sociedade Nacional de Combustíveis de Angola, E.P. (“Sonangol”) would be impeded unless it established a consulting company and paid five percent of Sonangol contracts to the company. Frank’s did so, retaining an unqualified agent in Angola with the knowledge that the agent would likely use the company’s payments to bribe Angolan government officials. Frank’s paid the consultant for a year without conducting due diligence and without entering into a contract – and then eventually backdating a contract and continuing to pay commission payments to the consultant. Pursuant to that contract and other subsequent contracts with the agent, Frank’s Angolan operations paid hundreds of thousands of dollars of commissions, recording them as “business expenses – entertainment and meals” in the company’s books and records. Through 2012, additional payments were made to the Angola agent based on invoices for “representation fees.” These payments were recorded as commissions in Frank’s books and records.
In August 2013, Frank’s became an issuer subject to SEC jurisdiction after completing its initial public offering and registering with the New York Stock Exchange. Frank’s Angolan operations entered into five new contracts in Angola, and the company approved additional commissions despite the knowledge that there was a high probability the payments would be used to bribe government officials in Angola; the company also provided travel and entertainment benefits for an Angolan official, and falsely claimed on a travel visa application that the official was a Frank’s Angola sales employee.
The SEC found that Frank’s conduct violated the anti-bribery, books and records, and internal controls sections of the Securities Exchange Act of 1934 by using instrumentalities of interstate commerce corruptly in furtherance of payments to a foreign official for purposes of obtaining or retaining business, by failing to keep accurate books and records, and by failing to maintain an adequate system of internal accounting controls.
In determining to accept Frank’s offer of settlement, the SEC considered the company’s self-reporting, its subsequent remedial actions (including terminating employees involved in the conduct, terminating the Angola agency relationship, improving internal controls and compliance), and it’s extensive and voluntary cooperation with the investigation. In light of these considerations, the Commission deemed it appropriate to issue a cease and desist order, and to require the payment of a civil money penalty in the amount of $3 million, disgorgement in the amount of $4,176,858, and prejudgment interest of $821,863.
__________________
*Frank’s International is now known as Expro Group Holdings N.V.