Red Flags of Bribery – Using The Case Study “Griffiths Energy International Inc & Chad Oil (March 2018)”
Griffiths Energy International Inc (“the Company” registered in Canada) secured exclusive oil development rights in Chad by bribing Chadian diplomats in the United States and Canada, specially the former Ambassador to the United States and Canada and the Deputy Chief of Mission. (explained below)
In March 2018 the High Court granted the SFO’s order to the value of £4.4mn under the Proceeds of Crime Act (2002), representing the sale of 800,000 company shares.
This is the first time money has been returned overseas in a civil recovery case.
The SFO had first obtained a freezing order in respect of these proceeds in July 2014, since then the order has been subject to appeals on legal grounds.
This follows two earlier SFO cases where funds recovered in bribery and corruption prosecutions were returned and reinvested in the country:
- Smith & Ouzman led to confiscation orders of some £900,000 which paid for seven new ambulances in Kenya;
- the DPA with Standard Bank involved a payment of US$7mn to the Government of Tanzania.
The Company itself had discovered the bribery during due diligence for a planned flotation of its shares.
The Company voluntarily reported itself to the Canadian authorities and subsequently cooperated with the authorities’ further investigation, including disclosing privileged materials.
The Canadian authorities acknowledged that they would not have otherwise unearthed the corruption and therefore offered a plea bargaining arrangement
THE BRIBERY AND ITS NEXUS WITH THE UK
The bribery giving rise to the proceeds subject to the UK order took the form of a discounted share deal.
In September 2009, the wife of the Ambassador of Chad in the USA and the wife of the Deputy Chief of Mission for chad in the USA were offered by private placement and subscribed to heavily discounted founder shares in the Company
- 2mn and 800,000 respectively at a nominal price of one  Canadian cent each
THE WIFE OF THE DEPUTY CHIEF OF MISSION FOR CHAD IN THE USA
- The 800,000 shares acquired by the wife of the Deputy Chief of Mission were for a total consideration equivalent to US$745.
- On being acquired by another company in July 2014, these 800,000 shares were sold for £5.50 each, producing a profit of £4.4mn.
- As this share sale was via a UK broker, the corrupt proceeds entered the UK’s jurisdiction, and the SFO began civil recovery proceedings to secure the proceeds.
THE WIFE OF THE AMBASSADOR
- The 3.2mn shares in the name of the wife of the Ambassador — not covered by the UK order — were therefore worth £17.6mn at that time.
- At the same time as the private placement of shares, the Company had entered into a “consultancy agreement” with a US company called Chad Oil, in which the wife of the Ambassador was the sole officer, director and shareholder.
- Under this agreement, Chad Oil received a “consulting fee” of US$2mn if it secured the development rights to the two oil blocks in Chad.
- This “consulting fee”, not covered by the UK order, was paid in February 2011.
The SFO has introduced diagrammatic presentations of the bribery schemes it investigates into its press announcements - below is the one for Chad Oil (which relates only to the monies recovered in the UK proceedings).
The recovered money will be transferred to the Department for International Development (“DFID”).
DFID has announced that it is working in Chad, investing in humanitarian programmes and supporting safety nets to tackle poverty and will now be working on the details of how these recovered funds can best help its programmes in that country.
The bribery scheme described above demonstrated some red flags:
- Chad Oil was an entity without commercial substance or relevant history and involved a related party (the wife of the Ambassador). It was established just five days before the transactions described above.
- The “consultancy agreement” appeared not to describe substantial services to be provided to justify the “consultancy fee” due.
- It is this consultancy agreement that alarmed the Company’s board during the due diligence.
- The “consultancy agreement” with Chad Oil was in more or less identical form to a previously cancelled agreement with a company called Ambassade du Tchad owned by the Ambassador.
- The Company had received legal advice that it could not deal with him commercially.
- It was reasonable to suspect why the Ambassador and the Deputy Chief of Mission would be interested in investing in a recently-formed private Canadian oil company unless they were in a position to know about the pending allocation to it of the two Chad oil blocks.
- The private placement was at a nominal cost per share.
Source - https://assets.ey.com/content/dam/ey-sites/ey-com/en_uk/topics/assurance/uk-bribery-digest-patterns-in-the-last-10-years-of-uk-bribery-prosecutions/ey-uk-bribery-digest-edition-13.pdf
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