Despite the COVID-19 pandemic crisis, the SEC is continuing its FCPA enforcement activities.  The SEC lawyers and staff have brought two cases recently – an enforcement action against a former Goldman Sachs executive and the settlement with ENI which was announced on Friday. HERE.

During the relevant period, between 2007 and 2010, ENI held a 43 percent minority-control interest in Saipem S.p.A. ENI’s American Depositary Receipts (“ADRs”) are listed on the New York Stock Exchange.

In 2010, ENI’s wholly-owned subsidiary, Snamprogetti Netherlands, B.V. (“Snamprogetti”) settled FCPA violations with the Justice Department for $250 million and the SEC for $125 million arising from the notorious joint venture TSKJ to construct liquified natural gas facilities in Bonny Island, Nigeria.  Snamprogretti later merged into Saipem.

Going back to the period of 2007 to 2010, Saipem entered into four sham contracts with a third-party representative to secure contracts from Sonatrach, Algeria’s state-owned oil company.  Saipem conducted little to no due diligence before entering into the contracts.   The third-party provided no legitimate services.  Saipem falsely characterized 198 million euros in payments to the third-party as “brokerage fees” in its books and records.  These false entries were then consolidated into ENI’s financial reports.

Saipem’s CFO approved the third-party contracts despite knowing that Saipem had not conducted appropriate due diligence, and then approved the specific payments to the third-party even though he knew that the third-party had provided no legitimate services.  Saipem’s CFO later was promoted to serve as Eni’s CFO and continued to approve Saipem’s payments to the third-party.

Saipem secured seven separate contracts in exchange for the bribery payments made to Algeria government officials or their designees.

The SEC’s case is interesting because of parallel criminal cases in Italy against Eni and relevant executives.  In September 2018, an Italian court found Saipem, the CFO and others guilty of corruption for the payments from Saipem to the third-party to Algerian officials.  Eni, its former CEO and a senior Eni executive were acquitted at the same trial.  The court ordered Saipem to forfeit 198 million euros and pay a 400 thousand euro fine.  On appeal, the court reversed the trial court and acquitted Saipem and the CFO.  This decision is pending further appeal.

The third-party was retained at the behest of Algerian government officials. Saipem understood this important relationship between the third-party and Algerian energy officials.

The third-party had no legitimate qualifications to provide services in the complex energy design sector, had no employees or offices in Algeria, and maintained only a virtual office in Geneva Switzerland. 

Saipem’s CFO circumvented contracting procedures at Saipem and approved several of the contracts. 

The SEC cited Eni’s failure as a minority shareholder in Saipem to exercise good faith to influence to cause Saipem to design and maintain sufficient internal accounting controls. 

Saipem failed to conduct any substantive review of the intermediary contracts at Saipem.  For example, Saipem’s legal department conducted an inadequate review of the contracts and never investigated the intermediary’s qualifications, business or reputation.  Saipem’s internal audit department conducted a perfunctory review of the contract by matching invoices to payment amounts, and conducting no further examination or analyses.

Saipem’s CFO falsified information and backdated documents concerning the third-party contracts in Board notes and approvals.  Saipem’s CFO failed to secure required approval from a senior manager for one payment until nearly one year after the payment was actually made.

Even after being promoted to be the CFO of Eni, the CFO continued his involvement in the third-party contracts, and assisted in securing payment of an invoice by Saipem.  The CFO continued to conceal Saipem’s sham intermediary contracts.