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Settlements Near In Bribery Case

Shell, the Anglo-Dutch energy giant, is expected to pay around $30 million in penalties to settle charges stemming from its use of Panalpina as an agent in Nigeria, these people said.

OCTOBER 15, 2010


WASHINGTON—A big Swiss shipping and logistics company and Royal Dutch Shell PLC, one of its customers, are close to settling foreign-bribery charges stemming from a three-year U.S. investigation, said people familiar with the matter. It could be the first in a series of such settlements by major multinational companies.

Panalpina Group, which has 14,000 employees and branches in more than 80 countries, has been at the center of a sprawling probe into whether it paid officials in places including Nigeria, Saudi Arabia, Algeria and Kazakhstan to expedite services, such as clearing drilling rigs and other equipment through customs, according to people familiar with the matter and corporate disclosures.

The case could set new standards of vigilance for global companies that rely on contractors to operate in parts of the world where resources are plentiful but the rule of law is shaky, attorneys familiar with such cases said.

The investigation by the U.S. Justice Department and the Securities and Exchange Commission has extended to many of Panalpina’s customers, including Shell and oilfield-services companies Nabors Industries Ltd., Schlumberger Ltd., Transocean Ltd. and Noble Corp., according to securities filings by those companies.

Several of those companies also are expected to reach settlements with U.S. authorities in coming weeks or months, the people familiar with the matter said.

Schlumberger also is under investigation by the Justice Department in a separate bribery inquiry examining the company’s conduct in Yemen, The Wall Street Journal reported last week.

Spokesmen for the companies and agencies involved in the Panalpina probe either declined to comment or didn’t respond to requests for comment.

Panalpina is expected to pay around $85 million in fines to settle charges that it violated the U.S. Foreign Corrupt Practices Act, said people familiar with the matter.

Shell, the Anglo-Dutch energy giant, is expected to pay around $30 million in penalties to settle charges stemming from its use of Panalpina as an agent in Nigeria, these people said.

U.S. authorities are aggressively extending their jurisdiction to foreign companies that have shares trading on U.S. stock exchanges or have significant operations in the country.

The settlement talks aren’t over, the people familiar with them said, so the terms of any settlement could change. It isn’t clear if the companies will admit to any crimes.

Penalties collected by the U.S. for violations of the FCPA have soared in recent years, as tougher financial regulations have prompted companies to report violations to U.S. authorities in the hope of getting lenient treatment.

Some legal experts expect a flurry of new cases from a new provision in the Dodd-Frank financial-regulation law that allows company employees or others who bring instances of financial fraud, such as bribery, to the government’s attention to get 10% to 30% of any sum recovered.

In December 2008, German industrial giant Siemens AG was hit with a total of $1.6 billion in fines for foreign bribery, $800 million of which was assessed by the U.S., so a qualified whistleblower could theoretically have received a bounty of up to $240 million.

The Panalpina case could sharply expand companies’ responsibilities to supervise their agents under the FCPA, legal experts say.

Several recent FCPA cases have involved big companies whose agents, typically an individual or small, obscure contractor, were alleged to have paid bribes on behalf of their corporate clients. Ignorance is no defense under this law, so companies have been advised they must know exactly what their agents are doing in order to avoid liability.

However, in the latest crop of cases, the agent—Panalpina—is one of the largest and best-known companies in its field. Some legal experts question whether this means that companies now have the legal obligation to monitor the activities of even the most-established contractors.

“How much due diligence were [customers] expected to do on a large, publicly traded Swiss company?” said Alexandra Wrage, president of Trace International Inc., which advises companies on their compliance programs.

The Panalpina investigation has also cast a spotlight on the darker side of the global hunt for energy resources. As easily accessible resources dwindle, oil companies and their contractors must work in increasingly remote parts of the world, where the rule of law can be tenuous.

Nigeria, Kazakhstan and Turkmenistan, for example, all languish in the bottom third of the World Index of Corruption Perceptions, according to an annual ranking compiled by antigraft campaign group Transparency International.

The Panalpina probe, which began in 2007, prompted some oil-services companies to examine how their agents move critical equipment around the world, and some found other laws were potentially broken in the process.

An internal investigation by Global Santa Fe Corp., for example, found that it might have violated U.S. sanctions laws after a freight forwarder shipped goods to its rig in Turkmenistan through Iran, according to company filings.

The company, which has since merged with Transocean, said in a filing it had reported the possible infraction to the U.S. Treasury.

Panalpina has set aside around $133 million, according to securities filings, to resolve legal problems with the U.S. that have dogged it for several years and, it says, cost it business. On Sept. 30, it pleaded guilty to criminal price-fixing charges with five other freight forwarders and paid nearly $12 million to resolve the U.S. charges.

The foreign-bribery investigation has been by far the most damaging for the company, dragging its clients into the legal spotlight and resulting in a shareholder suit. Panalpina shuttered its operations in Nigeria and took a $42 million hit as a result, according to company filings.

Write to Kara Scannell at [email protected] and Thomas Catan at [email protected]


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