Today’s post, and those that will follow in the near future, will focus on the separate enforcement actions (see here) announced by the DOJ/SEC on November 4th, in what I’ll call “CustomsGate.”

First up, GlobalSantaFe Corp. (“GSF”), the only enforcement action without a DOJ component.

GSF provided offshore oil and gas drilling services for oil and gas exploration companies. (GSF is a former issuer that completed a merger with a subsidiary of Transocean Inc. and became known as Transocean Worldwide, Inc. which is a subsidary of Transocean Ltd., an issuer).

In order to import equipment necessary to do such work in Nigeria, GSF needed to obtain a temporary importation permit (“TIP”) from the Nigerian government through the Nigerian Customs Service (“NCS”). Obtaining a TIP required mounds of paperwork. TIPS were initially issued for one year and were allowed to be extended twice for a period of six months each. Rarely, and only in the discretion of NCS officials, could a third six-month extension be granted.

Prior to or after a TIP expired, GSF was required to move its rigs out of Nigerian waters and to begin again the paper heavy TIP application process. Failure to export a rig after the expiration of a TIP, and all permissible extensions, would render a rig subject to potential forfeiture or seizure.

Moving a rig is no small task, it requires tug boats and money.

So begins the SEC’s complaint (here) against GSF.

According to the SEC, “instead of moving its oil drilling rigs out of Nigerian waters when GSF’s permit to temporarily import the rigs into Nigeria had expired, GSF, through its customs brokers, made payments to NCS officials in order to obtain documentation reflecting that the rigs had moved out of Nigerian waters, when in fact, the rigs had not moved at all.”

According to the SEC, there were four such instances.

The Adriatic VIII should have left Nigerian waters on or before October 15, 2004. However, in September 2004, the SEC alleges that “GSF, through its customs broker, took steps to obtain false documentation from NCS reflecting that the Adriatic VIII left Nigeria on September 29, 2004.” According to the SEC, “GSF paid its customs broker $87,500 (wired through a bank account in the name of GSF located in the U.S.) to obtain the new TIP, including a payment of $3,500 identified on the customs broker’s invoice as ‘additional charges for export.” According to the SEC, GSF managers in Nigeria “knew that the Adriatic VIII had never actually left Nigerian waters and knew, or knew that there was a high probability, that the explanation on the invoice as ‘additional charges for export’ was for purposes of disguising a bribe.” According to the SEC, a fews years later, GSF, through its customs-broker, again obtained false documentation from NCS reflecting that the Adriatic VIII had left Nigerian waters when, in fact, it had not.”

The Adriatic I should have left Nigerian waters on or before January 31, 2004. However, before this date, the SEC alleges that “GSF, through its customs broker, obtained documentation from NCS, reflecting that the Adriatic I left Nigeria on January 31, 2004 when, in fact, it had not.”

The Baltic I should have left Nigerian waters on or before June 3, 2004. However, before this date, the SEC alleges that “GSF, through its customs broker, took steps to obtain documentation from NCS, reflecting that the Baltic I left Nigeria on June 25, 2004. According to the SEC, the GSF managers “authorized and submitted for payment invoices containing charges described as ‘additional charges for export’ when the same GSF managers knew that the GSF rig had not been exported from Nigeria.” Thus, the SEC alleges, the “GSF managers either knew that the ‘additional charges for export’ were bribes, or knew that there was a high probability that they were bribes.

By engaging in the above referenced conduct, the SEC alleged that GSF: (1) avoided costs of approximately $1.5 million from not physicially moving the rigs; and (2) gained revenues of approximately $619,000 from not interrupting operations to move the rigs.”

The SEC charged GSF, on the above facts, with violating the FCPA’s anti-bribery provisions.

Because none of the above-described payments were “accurately reflected in GSF’s books and records,” the SEC also charged GSF with violating the FCPA’s books and records and internal control provisions in connection with the above payments.

There is more to the SEC’s complaint.

It is common for an enforcement agency (whether DOJ or SEC) to ask the “where else question.” In other words, if the company was making the above-described payments in country x, where else was the company also making similar payments?

This frequent question causes the company to do a worldwide review of its operations and report back the results to the enforcement agency.

This is why an SEC complaint or DOJ resolution vehicle often contains a laundry list of related allegations towards the end of the resolution vehicle.

Case in point, the SEC’s complaint against GSF.

The SEC alleges that “GSF, through its customs brokers, made a number of additional payments to government officials in Nigeria totaling approximately $82,000.” The complaint gives sparse detail as to these alleged “other suspicious payments.”

Further, the SEC alleges that “GSF, through its customs brokers, also made a number of other payments [...] totaling approximately $300,000 to government officials in Gabon, Angola, and Equatorial Guinea.”

These “other suspicious payments” in Nigeria and the Gabon, Angola, and Equatorial Guinea payments were not accurately reflected in GSF’s books and records and GSF failed to devise and maintain an effective system of internal controls to prevent or detect them, thus giving rise to FCPA books and records and internal charges. (These other payments were not included in the FCPA anti-bribery charges).

Based on the entire above-described conduct, and without admitting or denying the SEC’s allegations, GSF agreed to pay $5.85 million (approximately 3.75 million in disgorgement and a 2.1 million penalty).

However, in 2004, President Bush signed Proclamation 7750 “To Suspend Entry As Immigrants or Nonimmigrants of Persons Engaged In or Benefiting From Corruption” (see here). The Proclamation states:

“…that it is in the interests of the United States to take action to restrict the international travel and to suspend the entry into the United States, as immigrants or nonimmigrants, of certain persons who have committed, participated in, or are beneficiaries of corruption in the performance of public functions where that corruption has serious adverse effects on international activity of U.S. businesses, U.S. foreign assistance goals, the security of the United States against transnational crime and terrorism, or the stability of democratic institutions and nations.”

Section 2 of the Proclamation says that its prohibitions “shall not apply with respect to any person otherwise covered [...] where entry of the person into the United States would not be contrary to the interests of the United States.”

So what happens when the Forest and Agriculture Minister of Equatorial Guinea and the son of Equatorial Guinea’s president shows up at the U.S. “doorstep” on his way to his $35 million Malibu estate?

To find out, here is the article from today’s NY Times.

Short answer, he is let in. Despite the fact that federal law enforcement officials believe that “most if not all” of his wealth came from corruption related to oil and gas reserves in his home country. Despite the fact that the DOJ believes that he “may be receiving bribes or extortion payments” from oil companies operating in the country.

Why is he allowed in the U.S. in seeming contradiction to Proclamation 7750?

Well, at least according to the former U.S. ambassador to Equatorial Guinea it is “of course because of oil.”

A former State Department official says that the State Department (which is responsible for enforcing the proclamation) “seem[s] to lack the backbone to use this prohibition.”

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Interesting side note – in contrast to the FCPA’s “foreign official” definition, Proclamation 7750 applies to “public officials or former public officials.”