Key Energy Services was found liable for FCPA books and records and internal controls violations, even though the SEC found that certain employees of an indirect Mexico subsidiary “abused their privileges, approving suspect arrangements with and payments to consultants and gifts to Mexican government officials at Pemex, and concealing these arrangements and payments from Key Energy.”
Per the SEC’s administrative order:
“From August 2010 through at least April 2013, Key Energy’s Mexican subsidiary (“Key Mexico”) made improper payments to a contract employee at Petróleos Mexicanos (“Pemex”), the Mexican state-owned oil company, to induce him 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 (the “Consulting Firm”) despite the absence of appropriate authorization of the relationship with the Consulting Firm and lack of supporting documentation regarding the purported consulting work performed.
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.”
The key take-away points are the following:
The SEC faulted Key Energy for allowing its Mexico subsidiary to enter into a third party relationship with a consultant without conducting due diligence on the consultant and without an actual written agreement.
The SEC also faulted Key Energy for failing to respond effectively to signs indicating that gifts provided by the Mexico subsidiary to the alleged foreign officials were being given as rewards for providing the subsidiary with increased business.
The enforcement action is an important reminder of how parent company internal controls should be cascaded down through a business organization and effectively monitored and supervised.
Read more about this FCPA enforcement action on the FCPA Professor Blog.