Foster Wheeler’s FCPA Lessons

We have our first FCPA enforcement action of the Biden Administration: a $177 million punch against engineering firm Amec Foster Wheeler, for bribery involving overseas agents to win a contract with Brazilian state-owned oil giant Petrobras.

The settlement was announced Friday by U.S. regulators and the parent company of Foster Wheeler, John Wood Group. Wood Group agreed to a three-year deferred prosecution agreement and will pay the $177 million to a variety of regulators in the United States, Brazil, and Britain (where the company is headquartered). 

The details were disclosed in an administrative order with the Securities and Exchange Commission, plus a criminal information document from the Justice Department. The U.K. Serious Fraud Office confirmed that a settlement had been reached, but said nothing further pending final court approval in that country.

As usual, compliance officers have numerous lessons to consider in this case. Today we’ll mostly talk about enforcing due diligence policies and automating controls over compliance processes, so business units can’t evade your anti-corruption goals. 

The gist of the story, as cobbled together from court filings and the SEC order, is that in the first half of the 2010s, Foster Wheeler executives conspired with intermediaries in Italy, Brazil, and Monaco to win a $190 million engineering contract from Petrobras. They did so through sham consulting agreements and inadequate documentation, which allowed Foster Wheeler to funnel $1.1 million in bribes to Petrobras executives. In exchange, Petrobras awarded the lucrative design contract, which netted Foster Wheeler roughly $17.6 million in ill-gotten profits. 

How the Scheme Started

In mid-2011, a man only identified as “Italian Agent,” working with a Brazilian energy consultant who was a former Petrobras executive, decided to court Foster Wheeler. Both men were customers of a high-end men’s clothing store in New York, where Foster Wheeler’s former non-executive board chairman was also a customer. Mr. Italian convinced the store manager to pass along confidential documents to the Foster Wheeler executive, and then to broker a meeting. 

Said meeting between Mr. Italian and the Foster Wheeler executive took place in October 2011, as Foster Wheeler was preparing to bid on that lucrative Petrobras engineering contract. That’s how the corrupt intermediaries first wormed their way into Foster Wheeler’s plans. 

So, lesson No. 1 is to shop off the rack at Target. The more interesting lesson, however, is how Foster Wheeler executives and Mr. Italian evaded Foster Wheeler’s due diligence procedures.

One important detail is that Mr. Italian was also affiliated with a “Monaco intermediary company.” Regulators never identified that Monaco company by name, but it’s most likely Unaoil, a Monaco energy company with a long history of anti-corruption trouble. 

In late 2011 as Mr. Italian kept angling for a role in the deal, Foster Wheeler’s Brazil manager clearly knew this guy was trouble. In one message he warned that “we would send a wrong message in the market here” by using Mr. Italian’s services; in another, he warned, “We should try to avoid the path he offers at all. If we do it in one project … we will be bullied to do it in all projects by him and others.”

And yet, Mr. Italian persisted. He even suggested that his fees be paid through Unaoil the Monaco intermediary because it had passed Foster Wheeler’s due diligence, whereas Mr. Italian’s background checks would raise red flags — except, he was lying about the Monaco intermediary. It hadn’t passed Foster Wheeler’s due diligence either.

April and May 2012 were a messy time for this misconduct. Mr. Italian kept emailing Foster Wheeler’s Brazil manager that he was working up a commission structure and talking about his role in the deal. Then a senior member of Foster Wheeler’s legal team drafted an interim engagement contract for Mr. Italian, even though company policy was not to allow interim agreements while due diligence was pending. Then the due diligence on Mr. Italian came back, and the report was negative. 

Rather than send Mr. Italian packing, however, the company kept him working on the contract “unofficially.” Or, as the SEC order put it:

Foster Wheeler did not terminate the interim agency agreement. Instead, Italian Agent continued to work on the project throughout its duration. During that time, Italian Agent corresponded regularly with the Brazil Country Manager using Brazil Country Manager’s personal email address. Italian Agent used various U.S.-based email providers in his work on the project.

Essentially, Foster Wheeler hired the Brazil intermediary as a “consultant,” and he then worked with Mr. Italian as a subcontractor. You can guess the rest: Mr. Italian and the Brazilian fixer established a channel to funnel a portion of their fee to Petrobras executives as bribes. 

Agents, Oversight, and FCPA Risk

The real issue for compliance officers is how to avoid sketchy third parties like Mr. Italian and his fixer friend in Brazil. 

For example, we have that instance of Foster Wheeler violating its own policy against interim agreements when due diligence hasn’t been completed. That’s the sort of problem any business might encounter. How might you design compliance processes to avoid it?

The ideal would be more automated control over contract management, where contracts that go against policy can’t be issued until due diligence is complete. Then include a rigorous exception request policy, so that even if you do need to force through a non-standard contract, there’s plenty of documentation to explain why that decision was made. 

Now, I appreciate that numerous Foster Wheeler executives were turning a blind eye to the corruption here. That’s precisely why compliance teams need to implement automated third-party oversight, along with rigorous exception request policies — so that when managers do try to override internal controls for nefarious purposes, those decisions stick out like a sore thumb. 

We’ve mentioned that idea before on this blog. The idea of better processes and documentation for management override comes up regularly in accounting fraud cases, where managers might insert their own estimates for a critical line item without documenting the decision. It even came up in another FCPA enforcement case last year, where ENI subsidiary Saipem short-circuited numerous third-party governance practices to bribe its way to business in Algeria. ENI ended up paying the SEC $24.5 million in that case. 

We should also add, this is yet another good reason why compliance and legal should be separate functions — so that when someone is seeking an exception request, you can require consent of both compliance and legal. Otherwise, legal can just overrule compliance and get the deal done. But if a strong, independent compliance function could veto the request, or even take the issue directly to the audit committee or regulators, that power would act as a brake on other executives tempted to engage in corruption.