Tenaris to pay $78M to settle FCPA charges over bribes in Brazil

Tenaris, based in Luxembourg, is alleged to have paid approximately $10.4 million between 2008 and 2013 to an official at Brazil state-owned entity Petrobras through its Brazilian subsidiary Confab Industrial to gain a competitive advantage in a bidding process, the SEC said Thursday in a press release.

The settlement represented the company’s second FCPA violation. In 2011, Tenaris entered into a nonprosecution agreement with the Department of Justice and a landmark deferred prosecution agreement (DPA) with the SEC to settle charges related to bribes the company paid to government officials to obtain business with a state-owned entity in Uzbekistan.

Without admitting or denying the SEC’s findings, Tenaris on Thursday agreed to pay more than $78 million in combined disgorgement, prejudgment interest, and civil penalties. Tenaris also agreed to report on the status of its efforts to revamp and improve its anti-corruption policies and procedures to the SEC every six months for the next two years.

“Tenaris failed for many years to implement sufficient internal accounting controls throughout its business operations despite known corruptions risks,” said Charles Cain, chief of the SEC Enforcement Division’s FCPA unit, in the press release. “This failure created the environment in which bribes were facilitated through a constellation of companies associated with its controlling shareholder.”

According to the SEC’s order, the bribes were worth about 0.5 percent of contracts between Confab and Petrobras. The government official used his influence to forgo an international tender process for certain pipes and tubes, leaving Confab as the only local supplier.

The bribes were paid via a series of shell companies in Uruguay and Panama created and funded by San Faustin, a limited liability group based in Luxembourg that controlled Techint Group, a conglomerate that owned over 60 percent of Tenaris’s shares, according to the SEC. San Faustin also shared some officers and directors with Tenaris.

Fake contracts for purported past and future consultancy work were executed between the Uruguayan and Panamanian companies to conceal the bribe payments, the SEC said.

Compliance lessons: Despite known corruption risks in Brazil and Tenaris’s previous DPA regarding bribes paid in Uzbekistan, Tenaris “failed to devise and maintain a system of internal accounting controls sufficient to provide reasonable assurances to detect and prevent the payment of bribes and to adequately identify and disclose related party transactions,” the SEC said in its order.

As part of the settlement, the agency said Tenaris “made and continues to make enhancements to its internal accounting controls; global compliance organization; and its policies and procedures regarding due diligence, use of third parties, and maintenance of adequate records.” Tenaris implemented a code of conduct, a code of ethics for senior financial officers, a business conduct policy and several related procedures, and regular anti-bribery and compliance training, the SEC said.

Tenaris also terminated its commercial agents in Brazil and significantly reduced its use of commercial agents worldwide, the agency said.

In addition to producing reports on the progress of its anti-corruption program to the SEC for two years, Tenaris must also track “the use of funds available to Tenaris’s officers, directors, employees, and/or agents as a result of their dual affiliation with Tenaris and San Faustin and related entities,” the agency said. Any additional “questionable or corrupt” payments found during that process must be immediately reported to the SEC as part of the order.

Tenaris response: The company said it voluntarily notified the SEC of the improper payments in 2016 and fully cooperated with the agency’s investigation. The Justice Department notified Tenaris it had closed a parallel inquiry into the matter without taking any action, Tenaris said.

“Tenaris and its affiliates are committed to transparency and integrity based on the highest ethical standards and strict compliance with the laws and regulations of all jurisdictions in which they operate,” the company said in a statement.