Eni S.p.A (Eni) joined the two-time Foreign Corrupt Practices Act (FCPA) loser ranks last week when it agreed to a Cease and Desist Order (Order) with the Securities and Exchange Commission (SEC) for violations of the Accounting Provisions of the FCPA, both in books and records and internal controls. The allegations centered around one of their subsidiaries, Saipem S.p.A. (Saipem), which at the time Eni held a 43% interest in, entered into four sham contracts with an intermediary to assist in obtaining contracts awarded by Algeria’s state owned oil company, Sonatrach.

Recidivist Conduct

Eni joins a select group of recidivist companies who have violated the FCPA multiple times. It was one of the four companies involved in the joint venture TSJK, which paid bribes in Nigeria for the now infamous Boney Island project. The Order noted, “In July 2010, in settlement of an action brought by the SEC, Eni and its then wholly-owned subsidiary, Snamprogetti Netherlands, B.V. (“Snamprogetti”), consented to a judgment entered by the U.S. District Court for the Southern District of Texas that permanently enjoined Eni from violating the books and records and internal accounting controls provisions of Sections 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act, and permanently enjoined Snamprogetti from violating the anti-bribery, books and records, and internal accounting control provisions of the FCPA.” Eni obviously did not fulfill its obligations under the Boney Island FCPA enforcement action.

Background Facts

The allegations centered on Saipem’s Chief Financial Officer (CFO), identified in the Order as “Executive A” known to be Alessandro Bernini. Talk about having a friend at the top, Bernini was CFO when he instigated the plan in 2006 and kept running the bribery scheme when he moved up to become CFO of the parent Eni in 2008. Bernini was convicted by an Italian court of his participation in this multi-year, multi-company bribery scheme and was sentenced to 49 months in prison. His conviction was over-turned by an Italian court of appeals.

In 2006, Bernini and Saipem management were told by the Algerian Energy Minister that not only would they need a local agent but were to hire a specific intermediary. Not only was this person the personal secretary to the Energy Minister but someone he considered as a “son”. The intermediary company had no experience in such matters, had no offices or employees in Algeria and only had a virtual office in Switzerland. While this intermediary was contracted to “help Saipem identify and evaluate business opportunities, assist with bidding processes, develop strategies for procuring contracts, and provide advice and assistance in connection with the performance of such contracts.” Of course, it goes without saying that this “intermediary never rendered any legitimate services to Saipem.” Yet,  the intermediary was paid some €198 million over three years by Saipem.

Books and Records Violations

Bernini lead a team dedicated to hiding these corrupt payments for multiple years, at both Saipem and while he was Eni CFO. The payments were fraudulently recorded as “brokerage fees”  and “By virtue of its consolidation of Saipem’s financial statements, Eni included the false line item for “brokerage fees” in its financial statements that it filed with the Commission in its annual reports on Form 20-F for the years 2007 through 2010.” Moreover, and certainly more brazenly, Saipem claimed a tax deduction of approximately $57 Million for its fraudulent payments. Finally, “approximately $19,750,000 of the unwarranted tax benefit obtained by Saipem also flowed to Eni as a result of its 43% interest in Saipem during the time when Executive A was Eni’s CFO.”

Internal Control Violations

Here Bernini and his team were equally creative. Initially there were no substantive due diligence performed on the intermediary. But the Order went further noting that Saipem’s internal controls were neither adequately implemented nor effective. This included no substantive reviews of the intermediary’s contracts. Indeed, the legal department approved the contracts with no knowledge of the counter-party(ies). After the contract was signed there was no audit or even substantive review other simply matching the amount of the intermediary invoice with the amount paid to the intermediary. Standard procurement controls were also bypassed through both falsifying of information given the Supply Chain function and back-dating of contracts. Finally, the payment amounts were at such a high level that senior management approval was required to be obtained prior to funding of payment. Yet no such approval was obtained.

When Bernini moved up the ladder to Eni, he continued to approve and even order the illegal payments to continue to be made to the intermediary. He even went so far as to approve under-reported and under-listed payments amounts for the intermediary. Bernini ordered prepayment of invoices not yet received from the intermediary. Finally, he “also circumvented Saipem’s anti-bribery internal controls by emailing the intermediary’s “strawman” owner and also meeting with the intermediary’s true owner.”

Lessons Learned

As Sam Spade knew in long ago San Francisco, it is good to have a friend on the force. When engaging in bribery and corruption, it is good to have the CFO involved. While Eni demonstrated itself to be a corrupt organization through its actions on the Boney Island project as well as Sonatrach, even Eni eventually became wise to Bernini in 2012 and “separated” him from Eni. Of course, all these actions happened while Eni was either under investigation for its actions around Boney Island or after it had signed the Deferred Prosecution Agreement (DPA). So much for living up to your agreements by Eni.

What can the compliance professional do when faced with systemic corruption at the CFO level? The answer is a second set of eyes. This means real review and audit of the lifecycle in a third-party relationship. If Eni had cared enough to look at any point, it would have seen that the intermediary for this Sonatrach contract was not fit as a business partner for the company. Moreover, the payment of some €198 million for non-existent services. Also, the payments made to an Algerian agent into Switzerland are clear red flags. Even if, as CFO, Bernini did hear, substantively, routinely and many times over-ride internal controls, a paper trail is created for a Board of Directors or regulators if the company is so corrupt that it either does not care or is actively facilitating the corruption at a level about the CFO.

This publication contains general information only and is based on the experiences and research of the author. The author is not, by means of this publication, rendering business, legal advice, or other professional advice or services. This publication is not a substitute for such legal advice or services, nor should it be used as a basis for any decision or action that may affect your business. Before making any decision or taking any action that may affect your business, you should consult a qualified legal advisor. The author, his affiliates, and related entities shall not be responsible for any loss sustained by any person or entity that relies on this publication. The Author gives his permission to link, post, distribute, or reference this article for any lawful purpose, provided attribution is made to the author. The author can be reached at tfox@tfoxlaw.com.

© Thomas R. Fox, 2020