Vantage Drilling Forks Over $5 Million for SEC FCPA Settlement
The SEC announced last week a $5 million FCPA settlement with Vantage Drilling International (“Vantage”), a Texas-based offshore drilling company. The violations involved Vantage’s predecessor company, Vantage Drilling Company (“VDC”), for transactions with its former outside director, largest shareholder and only supplier of drilling assets, and for failure to implement appropriate controls for its third-party marketing agents.
The Justice Department closed its related investigation.
The case against VDC grew out of Brazil’s Operation Carwash bribery investigation involving bribery payments to officials from Petrobas. In particular, the violations involved a lucrative 8-year drilling services contract from Petrobas for operation of VDC’s drillship.
VDC made substantial payments to its independent director in 2008 and 2012, who in turn made bribery payments through the director and company’s marketing agent to Petrobas officials.
VDC agreed, in an administrative order, to failure to devise appropriate financial accounting controls relating to payments made through the independent director and the marketing agent.
Petrobas canceled the drillship contract in 2015, and the parties have ongoing litigation relating to the contract and a $622 million arbitration award granted to Vantage. Vantage emerged from bankruptcy in 2016 as a private company.
Vantage voluntarily disclosed its role in the Petrobas probe to government authorities in 2015. According to the SEC settlement, Vantage had an ineffective anti-corruption compliance program.
Vantage cooperated with the SEC’s investigation, reconstituted its board, named a new management team and remediated its compliance program.
VDC’s illegal conduct focused on its independent director, a Taiwanese shipping businessman who was connected to a Korean shipyard for offshore drilling rigs. VDC acquired the rights to purchase the director’s drilling assets, including the Titanium Explorer, a deepwater drillship. In exchange the director was appointed to VDC’s board, paid $56 million and issued 40 percent of VDC’s common stock. VDC never conducted due diligence of the director or his related companies. The director eventually defaulted on the contract with the Korean shipyard construction contract, and eventually renegotiated the terms with the shipyard and VDC. Along the way, the director misrepresented several significant terms and conditions to VDC.
In 2007, VDC retained a third-party agent in Brazil to assist in marketing VDC to Petrobas. VDC failed to conduct due diligence of the agent, despite its policy requiring due diligence of an international agent. The agent assisted in marketing VDC’s drillship to Petrobas.
In 2008, VDC’s agent was contacted by a Petrobas official who informed the agent that Petrobas was willing to award the contract to VDC in return for a bribery payment to another Petrobas intermediary. VDC’s CEO and VDC’s independent director arranged a meeting with the agent in New York City, where the independent director agreed to make the bribery payment. The agent agreed to make a payment of $1 million to a Petrobas manager.
VDC’s director executed sham consulting agreements with the agent and a Petrobas official to make payments in three installments: $6.2 million when Petrobas signed the drilling services contract; $4.65 million six months after the contract was signed; and $4.65 million when the drillship was working for Petrobas. In total, VDC’s director agreed to pay $31 million in personal funds. The drillship contract had a value of approximately $1.8 billion.
VDC failed to respond to a number of red flags that indicated that VDC was making payments to Petrobas officials that may have violated the FCPA. Some of the examples of red flags included:
- A consultant who worked for the director hinted to the CEO that the director expected to be repaid for his “payment to P.”
- The agent reported to the CEO that he had personally made a “final payment” regarding the drillship contract.
- A Brazilian reporter’s request for comment concerning a story that she planned to run that the director made illegal payments to Petrobas to secure the drillship contract.
VDC took no steps in response to these red flags.