[This post is part of a periodic series regarding "old" FCPA enforcement actions]
Having left the 1970′s, lets start a new decade, the 1980′s. The FCPA began to mature and enforcement, while still measured, began to increase. The 1980′s witnessed nine “core” FCPA enforcement actions (including one involving several distinct companies) and this post starts off the decade by highlighting the SEC’s enforcement action against Tesoro Petroleum Corporation.
In 1980, the SEC filed a civil injunctive action against Tesoro Petroleum Corporation. In pertinent part, the SEC complaint alleged (as to conduct that occurred prior to 1977 – the year the FCPA was enacted) as follows. “Since at least the time Tesoro became a public company, Tesoro and others have engaged in a course of business in connection with acquiring material foreign assets, attempting to acquire material foreign assets, or conducting foreign business whereby they made or caused to be made substantial payments to ‘finders’ and ‘consultants’ where such payments, with respect to multi-million dollar contracts, were disproportionate to the business obtained or the services rendered, were not usual or customary and were made under circumstances such that Tesoro was and continues to be unable to account for or satisfy itself as to the final disposition of such corporate funds. In certain instances involving payments made in connection with foreign business activities, the circumstances of the payments indicate that the funds, in whole or in part, may have been directly or indirectly transferred to foreign government officials or political leaders.”
The SEC alleged that Tesoro: ”(1) made and kept books, records and accounts which failed in reasonable detail to accurately and fairly reflect the transactions and dispositions of Tesoro’s assets; and (2) made transfers and disbursements without adequate records and controls sufficient to ensure that such transfers and disbursements were actually made for the purposes indicated and without adequate records and controls to document whether the services provided therefore, if any, were commensurate with the amounts paid.”
Specifically, the SEC alleged that Tesoro, through the participation of the Chairman of its Board, Robert West, caused approximately $450,000 in payments to be made to James Morgan, a ”finder/consultant who assisted Tesoro in obtaining certain foreign oil and gas concessions from a foreign government.” According to the SEC, “these payments were disproportionate to the business obtained or the services rendered, were not usual or customary, and were made under circumstances indicating that the funds, in whole or in part, may have been transferred directly or indirectly to foreign government officials.” In one instance, the SEC alleged that Tesoro made a payment to Morgan’s home “where an official of the national oil company of the country involved was waiting.”
In another instance, the SEC alleged that Tesoro paid $120,000 to another consultant “in connection with an application to do business in another foreign country, and in connection with subsequent applications by Tesoro to do business in that country and a refinery joint venture.” According to the SEC, the payments ($10,000 monthly for a year) “were disproportionate to the business obtained or the services rendered, were not usual or customary, and were made under circumstances indicating that the funds, in whole or in part, may have been passed on to government officials. The SEC alleged that “during the period when Tesoro’s application to do business was pending” the company transferred money to the consultant’s bank account and that the consultant paid, at various times, a director of the national oil company. According to the SEC, Tesoro’s application to purchase oil was denied by the national oil company.
Based on the above conduct, the SEC charged Tesoro with filing materially false and misleading reports with the SEC. Without admitting or denying the SEC’s allegations, Tesoro consented to entry of a final judgment requiring, among other things, Tesoro: (i) to make and keep books, records, and accounts, which in reasonable detail, accurately and fairly reflect the transactions and dispositions of Tesoro’s assets; and (ii) to disclose in an SEC filing the amount and circumstances of all material ”finders,” “consultants” or other fees similar to those described above, paid in the future in connection with the acquisition or disposition of foreign assets or the conduct of foreign business.
Original source documents from the Tesoro enforcement action can be found here.