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USA's SEC, DoJ and UK's SFO and Foster Wheeler - global business, local risk.

Nigel Morris-Co...

Foster Wheeler Limited a UK registered subsidiary of a complex group, part of which is listed on the USA's NASDAQ and therefore falls within the jurisdiction of many US laws even though it is a Swiss domiciled subsidiary of a UK group. Amongst those is the Foreign Corrupt Payments Act or FCPA. This relates to payments by a person with a US footprint making corrupt payments to persons outside the USA. Foster Wheeler Energy Limited is also part of the same group and is also a UK registered company. That brings its actions squarely within the remit of the Serious Fraud Office, regardless of where those actions take place. Moreover, there are agreements with Ministério Público Federal (‘MPF’), the Comptroller General’s Office (‘CGU’) and the Solicitor General (‘AGU’) in Brazil.

It is not easy to unpick how the this case ended up under the banner of John Wood Group PLC, registered in Scotland and listed in London and using the brand "wood" - without a capital W. Sometimes: oddly, while its website header doesn't have one, its text does.

When the John Wood Group made a market announcement on 25th June that it had reached a settlement with all of the above enforcement offices and that a Deferred Prosecution Agreement would be put before the Court in London for approval on 1 July, the Serious Fraud Office issued a statement saying that more details would be forthcoming after that hearing. That settlement relates to AMEC Foster Wheeler Energy Limited.

There used to be a company called Foster Wheeler, Inc. That moved its domicile to Switzerland and was subsequently, in 2014, taken over by AMEC, registered and listed in the UK. In 2017, the John Wood Group acquired the combined group.

Somewhere within the Foster Wheeler / AMEC group there were companies called Foster Wheeler Limited and AMEC Foster Wheeler Energy Limited. "Energy" was a subsidiary of "Foster Wheeler" which in turn was a subsidiary of the AMEC Foster Wheeler PLC.

AMEC Foster Wheeler no longer exists as an independent entity. But that doesn't mean that its liabilities have evaporated. Far from it. The USA's Department of Justice seems to be trying to corner the market in hostile hyperbole. Its release (https://www.justice.gov/opa/pr... ) is a masterclass in how to be obnoxious.

" "Amec Foster Wheeler has now admitted to paying bribes in Brazil to win a lucrative contract,” said Acting Assistant Attorney General Nicholas L. McQuaid of the Justice Department’s Criminal Division. " The word "now" suggests that, after three years of investigation, John Wood Group has only recently made admissions. That is not true: the company has co-operated in an investigation that has lasted for more than three years. Despite its attitude, which of course many media outlets will copy and paste without comment, the US Government recognises that reality "the criminal penalty reflects a 25% reduction off the applicable U.S. Sentencing Guidelines fine for the Company’s full cooperation and remediation."

The FBI says that the UK's Serious Fraud Office and the Brazilian Authorities "provided significant assistance" demonstrating that it was the USA's Department of Justice that drove the case, using the FCPA as its principle vehicle.

The combination of payments being made by John Woods Group in respect of bribery and corruption committed long before it owned the companies concerned, and which it has taken steps to ensure don't happen again, is complex.

Wood says "Under the terms of the agreements, the Company will pay compensation, [surrender of profits] and pre-judgment interest, fines and penalties totalling USD177m. This will be phased over the next three years with approximately USD62m payable in [the second half of] 2021 and the balance to be paid in instalments in 2022, 2023 and 2024. The amount and payment plan are as disclosed and provided for in Wood’s financial statements for the year ending 31 December 2020, published in March 2021."

Of that, the SEC gets USD22.7 million, less "offsets". The offsets are "up to USD9.1m" to the Brazilian Authorities and "up to 3.5m" to be paid to the UK's SFO.

The SEC, which persists in calling its civil allegations "charges" says "Foster Wheeler, a company that provided project, engineering, and technical services to energy and industrial markets worldwide, engaged in a scheme to obtain an oil and gas engineering and design contract from the Brazilian state-owned oil company, Petroleo Brasileiro S.A. (Petrobras), known as the UFN-IV project...2012 through 2014, Foster Wheeler's UK subsidiary, Foster Wheeler Energy Limited (FWEL), made improper payments to Brazilian officials in connection with its efforts to win the contract and establish a business presence in Brazil. The bribes were paid through third party agents, including one agent who failed Foster Wheeler's due diligence process, but was allowed to continue working "unofficially" on the UFN-IV project. According to the order, Foster Wheeler paid approximately USD1.1 million in bribes in connection with obtaining the contract."

The SEC is far more measured in its language than the Department of Justice, perhaps reflecting its professional rather than tabloid audience. It says, ""Continuing to use an agent who presented a significant corruption risk so that Foster Wheeler could expand its business and win a contract in Brazil demonstrates a fundamental flaw in the corporate compliance [system]. (see https://www.sec.gov/news/press...) Oh, and the SEC also "appreciates the assistance of the CGU/AGU and the MPF in Brazil and the SFO in the United Kingdom."

When Wood bought the AMEC Foster Wheeler group, it found a can of worms. Amongst other things it found that Energy (as was) had engaged a number of supposedly independent agents including an Italian who the company's own processes found to be dubious. Worse, the corruption was overseen by "a high-level executive" and lasted "multiple years."

Wood has reviewed all operations, removed those involved and undertaken to "further improve our ethics and compliance from an already strong foundation" and "we continue to invest in strengthening our governance in this area." The company "now prohibits the use of sales agents or similar unless required by law."

The various authorities are clearly satisfied with Wood: although the agreements last for three years and are, in effect, a form of probation or conditional discharge, depending on whose version of a Deferred Prosecution Agreement one follows, there are significant differences between these and such agreements usually presented. There is, for example the standard requirement for the submission of compliance reports but there are no requirements for the appointment of "monitors" to keep an eye on the way the company is doing business.

This, of itself, makes the Department of Justice's hostility seem very out of place, in failing to draw the distinction between the actual perpetrators of the fraud and the company that inherited the problems and took all reasonable steps to address them.

The last word should, perhaps, go to the SEC.

"The potential for a new market cannot be a siren's song that overwhelms good corporate governance," said Charles Cain, Chief of the SEC Enforcement Division's FCPA Unit."

That might just be the single clearest statement on corruption for a number of years. Maybe we should get it printed on mugs and t-shirts.

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