SEC Announces Deferred Prosecution for Tenaris

Sue Reisinger

May 18, 2011

The Securities and Exchange Commission announced that it has entered into a deferred prosecution agreement with Tenaris S.A. of Luxembourg over bribe payments - the first time the agency has ever used such a deal.

In a statement, the SEC said it used the approach to reward the company's cooperation in the investigation and to encourage other companies and individuals to do likewise. (See the agreement here.)

"The Tenaris foreign bribery scheme was unacceptable and unlawful, but the company's response demonstrated high levels of corporate accountability and cooperation," said Robert Khuzami, director of the SEC's division of enforcement. "The company's immediate self-reporting, thorough internal investigation, full cooperation with SEC staff, enhanced anti-corruption procedures, and enhanced training made it an appropriate candidate for the first deferred prosecution agreement."

Not everyone hailed the SEC's new approach. Michael Koehler, a Butler University law professor who writes a popular FCPA blog, said, "This is a troubling development on many fronts, and it gives the public little confidence that our laws are enforced in a consistent and transparent manner or that regulators and companies are being held accountable."

Tenaris agreed to pay $5.4 million to the SEC in disgorgement and interest, as well as a $3.5 million criminal penalty to the Department of Justice.

The DOJ also signed a two-year non-prosecution agreement with the steel pipe company, which included three pages of compliance reforms. Justice officials called the fine a "substantially reduced monetary penalty...[reflecting] meaningful credit to Tenaris for its extraordinary cooperation." (See the agreement here.) Tenaris doesn't have a general counsel. Its deals were signed by its chief financial officer and its outside counsel Robert Giuffra, Jr., a partner at Sullivan & Cromwell in New York. Giuffra declined comment.

The documents say Tenaris sales employees bribed government officials in Uzbekistan to win four lucrative contracts in the state-owned oil and gas industry. The officials offered Tenaris access to confidential bidding information so that the company could submit lower bids.

In December 2006, according to the agreement, the four sales employees exchanged emails discussing the scheme. One of them wrote: "So dirty game is when . . . people from the [Uzbekistan company's] tender department...can carefully open required bids and check the prices and deliveries of competitors and advise you where you need to be lower and where you need to be higher...And if you decide to revise your prices & delivery, it can be done and physically your commercial offer will be replaced by a revised offer and envelope will be sealed again. But this is very risky for them also, because if people caught while doing this they will go automatically to jail. So as [bribe recipient] said, that's why this dirty service is expensive..."

For nearly a year the SEC has been looking for the right case and company for its first deferred prosecution agreement. Tenaris was chosen after it discovered the bribes and voluntarily reported them to the SEC and DOJ, and then continued its cooperation "in real time," the SEC said.

Under the terms of the two-year agreement, the SEC will refrain from prosecuting the company in a civil action for its violations if Tenaris complies with certain requirements. Among other things, Tenaris has agreed to enhance its policies, procedures, training, and controls to strengthen compliance with and anti-corruption practices.

Koehler complained, "We used to have a law-enforcement system in this country where companies and individuals who...engaged in wrongdoing were prosecuted criminally and/or civilly. That system has to a large extent been abandoned."

He predicted the enforcement of the FCPA "will now be further removed from judicial scrutiny, and resolutions will now be negotiated over private conference room tables."