Frank’s International Pays SEC $8 Million to Resolve FCPA Violations In Angola
Franks International (“Frank’s”) settled FCPA charges with the SEC for $8 million stemming from operations in Angola during the period 2008 to 2014. The Justice Department declined to prosecute Frank’s for the same events.
Frank’s was a global provider of engineered tubular services, tubular fabrication, and specialty well construction and well intervention solutions to the oil and gas industry, incorporated in the Netherlands. On October 1, 2021, Frank’s merged with Expro Group Holdings Internationa, which is publicly traded on the NYSE.
From January 2008 through October 2014, Frank’s paid commissions to a sales agent in Angola when Frank’s employees in the Angola area knew that there was a high probability that the agent would use the commissions to bribe Angolan government officials on behalf of Frank’s. A substantial portion of the funds were diverted to an Angolan government official to influence the award of oil and natural gas services contracts. The SEC further noted that, during this time period, Frank’s lacked adequate internal accounting controls related to retention and payment of agents that interacted with Angolan foreign government officials on behalf of Frank’s.
Many of Frank’s senior executives, including its CFO and General Counsel, were based in Houston, although some of its leadership and oversight of West Africa was located abroad. Frank’s Angola operations provided tubular services and technology to support the drilling of deep water wells in Angola’s offshore blocks.
Beginning in September 2007, Frank’s learned that it could not increase its business in Angola because Sonangol was blocking International Oil Companies from retaining Frank’s to provide tubular services. Frank’s senior managers learned that Sonangol directed use of a competitor because the competitor made a superior financial investment in Angola.
A senior Sonangol executive informed Frank’s that it could change its decision if Frank’s established a separate consulting company for the benefit of high-ranking Sonangol officials and paid 5 percent of the value of the contract to consulting company. A Frank’s employee commented on the situation stating, “I do not think it’s an exaggeration to say we are fighting for our survival.”
The Angola Agent
Instead of establishing a consulting company to execute this arrangement, Frank’s retained an Angolan Agent, who Frank’s country manager had known for over two decades. The Angolan Agent did not have an adequate technical background or experience in the oil and gas industry, but had long-standing personal relationships with Angolan officials and other Sonangol employees.
Frank’s did not conduct any due diligence, nor did it execute a written contract with the Angola Agent. Frank’s retained the Angola Agent despite the fact that employees based in the region were aware of the high probability that the agent would use the payments to bribe Angolan government officials, After hiring the Angola Agent, Frank’s meetings with Sonangol went from short, unproductive meetings to successful gathering with approximately 20 officials in attendance.
Frank’s continued to use the Angolan Agent without a contract or without having conducted due diligence throughout 2008. Frank’s CFO and Chief Accounting Officer started to question commission payments to the Angola Agent. In response, Frank’s senior executives executed an agency agreement and backdated the agreement to January 1, 2008, to support approximately $688,000 in commission payments. As a result of hiring the Angola Agent, Frank’s retained its previously at risk contracts and obtained two new contracts.
In January 2011, Frank’s began paying the Angolan Agent a 10 percent commission under a second agreement. In addition, Frank’s made additional payments for marketing expenses and other expenses, which were recorded in its books and records as “business expenses – entertainment and meals.”
The Angola Agent funneled a portion of the money he received to a specific Angola Official. In January 2011, Frank’s made a payment of $60,000 to the Angola Agent, who paid $54,000 to the Angola Official two months later. A similar pattern of payments occurred later in July 2011 when the Angola Agent diverted $191,000 of $212,000 paid by Frank’s to the Angola Official. Similarly, in January 2012, Frank’s received and paid a $328,000 invoice from Angola Agent; Two months later, the Angola Agent paid the Angola Official $289,000. During this time period, Frank’s obtained four new contracts in Angola.
In October 2012, Frank’s and the Angola Agent entered into a third agency agreement that granted Angola Agent a 2.75 percent commission for sales up to $40 million and 2.5 percent of sales exceeding that amount. The Angola Agent sent invoices requesting payments for “representation fees” from April to October 2012, which were in addition to authorized commissions. Frank’s incorrectly recorded the payments as legitimate “commissions.”
In August 2013, Frank’s successfully completed its IPO and became an issuer for purposes of the FCPA. Frank’s continued to pay commissions and recorded suspect payments as “commissions.” After the IPO, the Angola Agent diverted funds he received to offshore accounts held by companies untraceable back to the Agent. During this time period, Frank’s obtained five new contracts.
After becoming a public company, Frank’s approved additional benefits to Angola Official such as travel and entertainment in 2013 and 2014. In relation thereto, Frank’s obtained a travel visa for Angola Official by falsely claiming the official was a Frank’s Angola sales employee. The trips included roundtrip airfare, lodging, dining, sightseeing tours, and local transportation for Angola Official and his companion.
During the period between 2008 and 2014, Angola Agent received approximately $5.5 million from Frank’s, a significant portion of which was paid to Angola Official.
In resolving the case, the SEC noted that Frank’s voluntarily disclosed the conduct, took remedial actions and cooperated with the investigation. Frank’s remediation included termination of the involved employees, terminating the relationship with Angola Agent, improving its internal accounting controls and further enhancements to its internal controls environment and compliance program following its merger with Expro Group.