A well service corporation has been ordered to disgorge $5 million for FCPA violations arising from improper payments made by a Mexican subsidiary. The subsidiary made improper payments to an employee at a Mexican state-owned oil company in return for inside information and assistance on contracts with the oil company. The subsidiary then improperly recorded these payments as legitimate business expenses, and the subsidiary's books and records were then consolidated into the respondent's books and records, in violation of the FCPA (In the Matter of Key Energy Services, Inc., Release No. 34-78558, August 11, 2016).
Key Energy Services, Inc. provides rig-based well services. A subsidiary, Key Mexico, was formed to service wells owned by Pemex, the Mexican state-owned oil company. During the period at issue, from August 2010 through at least April 2013, Key Mexico's financial results were included in the consolidated financial statements that Key Energy filed with the Commission.
Improper payments. In August 2010, Key Mexico hired a consulting firm to provide advice on contracts with Pemex. The Key Mexico manager who hired the consultant knew that it had ties to a Pemex employee who worked in the department that negotiated and approved Key Mexico's contracts with Pemex. The manager also knew that payments to the firm were funneled to the Pemex employee in exchange for assistance with obtaining Pemex business; this included providing Key Mexico with non-public information about upcoming Pemex tenders and lobbying internally at Pemex for lucrative amendments to Key Mexico's contracts with Pemex.
With the manager's approval, Key Mexico paid the consulting firm at least $229,000 for its purported consulting services. These payments were described in Key Mexico's accounting system as "expert advice on contracts," but there was no record that any of the "consulting services" provided were legitimate. Key Energy did not uncover the consultant's relationship to the Pemex employee until 2014, when it began an investigation into other allegations concerning the Key Mexico manager.
Violations. According to the Commission, Key Energy had written compliance policies, but failed to implement accounting controls in the Mexican subsidiary sufficient to prevent the improper payments. The consulting arrangement violated Key Energy's policies because: it had been entered without pre-approval from Key Energy's legal department; no due diligence had been conducted; and there was no written contract. Despite these and other indicia of risk, Key Energy allowed the relationship to continue. Key Energy also failed to adequately monitor and supervise the senior executives at Key Mexico to ensure that they complied with the company's anti-corruption policies.
The Commission found that Key Energy violated Exchange Act Sections 13(b)(2)(A) and 13(b)(2)(B) because its books and records did not accurately reflect the purpose of Key Mexico's payments. Key Energy agreed to a cease and desist order and to pay disgorgement in the amount of $5 million. Based on Key Energy's cooperation in the Commission's investigation, a civil penalty was not imposed.
The release is No. 34-78558.
Companies: Key Energy Services, Inc.
MainStory: TopStory AccountingAuditing InternationalNews PublicCompanyReportingDisclosure
Interested in submitting an article?
Submit your information to us today!Learn More