Key Energy Services, an oilfield services company, will pay $5 million to the Securities and Exchange Commission in connection with a previously disclosed investigation into potential violations of the Foreign Corrupt Practices Act. Key neither admitted nor denied any of the SEC’s allegations.
According to the SEC’s administrative proceeding, these proceedings arose from violations of the books and records and internal control provisions of the FCPA by Key Energy. From August 2010 through at least April 2013, Key Energy’s Mexican subsidiary (Key Mexico) bribed a contract employee at Mexican state-owned oil company Petróleos Mexicanos (Pemex), to provide Pemex inside information as well as advice and assistance on contracts with Pemex and amplifications or amendments to those contracts.
These funds were transferred to the Pemex employee via an entity that provided purported consulting services to Key Mexico, despite the absence of appropriate authorization of the relationship with the consulting firm and lack of supporting documentation regarding the purported consulting work performed, the SEC said.
According to the SEC, Key Mexico improperly recorded the transfers to the consulting firm as legitimate business expenses in Key Mexico’s books and records. Key Mexico’s books and records were consolidated into Key Energy’s books and records. During the relevant period, Key Energy failed to implement and maintain sufficient internal controls including within Key Mexico relating to interactions with Pemex officials and failed to respond to indicia of risk relating to Key Mexico’s improper use of consultants.
Around January 2014, SEC staff contacted Key Energy regarding the company’s potential FCPA violations. In April 2014, Key Mexico employees reported to Key Energy information they had received suggesting the recently resigned country manager had promised bribes to one or more Pemex employees during his employment with Key Mexico. Upon learning of these allegations, Key Energy reported the allegations to the SEC.
The SEC also cited Key Energy’s prompt and simultaneous remedial measures, including hiring a new chief compliance officer, who oversaw a renovation and enhancement of Key Energy’s compliance program.
These enhancements include:
Suspension of payments to all vendors and third parties in Mexico shortly after the independent investigation/internal review began;
Engagement of a manual review of over 600 vendors in Mexico for purposes of clearing legitimate payments and assessing whether to move forward with those vendors in current and future operations;
Reviewing all vendors in use in Russia and Colombia and instituting an enhanced due diligence procedure for all vendors globally;
Establishing enhanced financial controls around the procedure-to-pay process in Mexico, Colombia, and Russia including interim employee certifications requirements, revised vendor onboarding requirements, and heightened payment approval requirements;
Implementing a new business opportunities protocol to help Key Energy legal better understand business risks including the role played by agents, consultants or other vendors/business partners, so as to enable better assessment of corruption-related risks in future business opportunities;
Installing new controllers in the Colombia and Mexico businesses and more effectively enforcing a solid line reporting relationship to the U.S. Controller and ultimately the CFO;
In-person visits to each international location by the CCO and others to, among other things, conduct training of all international employees;
Developing and/or reviewing several company policies and procedures including the Code of Business Conduct, the FCPA and anti-corruption policy, the Travel and Expense policy, and the New Hire Screening Form; and
A coordinated wind-down and exit of all markets outside of North America, and a commitment to exit Mexico by the end of 2016.
“Throughout the process, Key Energy provided cooperation with the staff,” the SEC said. Key Energy also provided investigation updates and shared its translations of certain important documents. “These actions,” the administrative proceeding stated, “assisted the staff in its investigation.”
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