In 2005, two giants, Singaporean shipbuilder Keppel Offshore & Marine and American engineering contractor McDermott International formed a 50:50 joint venture (JV) in the US specialising in tension-leg platforms for the oil and gas offshore industry. In 2014, the joint venture successfully installed the 23,000 ton platform designed to handle over 100,000 barrels of oil per day for its Petrobras-Chevron client.
Petrobras awarded the US1 billion contract to the joint venture to build and operate the platform for three years. It brought the joint venture a $323 million profit.
There was a dark side. Brazilian investigators digging into the huge Petrobras-Politicians corruption scandal discovered a bribery scheme involving this and other Keppel contracts for over 10 years. Keppel had paid out $55 million in bribes to win 13 Petrobras contracts. Keppel earned roughly $350 million in profits from these projects. Keppel pleaded guilty to violating the FCPA and signed a deferred prosecution agreement with the US Department of Justice (DOJ). The fine: $422 million.
By the time the P-61 project began in 2009, Keppel had paid over $30 million in bribes to win a series of contracts from Petrobras. The bribes were paid through an agent, Zwi Skornicki who disbursed the funds to a number of Petrobras executives and politicians. Bribe sums were paid based on percentage of contract value.
The P-61 project brought an added complication. McDermott, the joint venture partner was American, listed in New York and very aware of the FCPA.
Keppel had to balance their agent’s demands and not alarm their JV partner. The DOJ papers show some of the frantic e-mails.
Skornicki was an agent who delivered results. He had ensured Keppel was on the bid lists, secured awards and managed the “insiders”, impatient for their payments. He even advised Keppel
how to alter their bid to remain in the running for the P-51 project.
Snapshot from DOJ’s “KOM Information”, para 30(c) attached to their press release on the DPA with Keppel.
As the JV eyed the P-61 project, the joint venture manager expressed concern about retaining Skornicki to pay government officials. It was against the JV’s corporate governance rules.
Skornicki however did not want to be tied to a US company. He suggested to Keppel executives that he work for a Keppel subsidiary in Brazil, with the “fees” built into the subsidiary’s price charged to the JV through a subcontract.
A week later, one of Keppel executives said in an e-mail that if McDermott and the JV are “so hand tied to the US Code of Business Conduct, it would not be possible to involve [Skornicki] which in reality diminishes our chances in the project. How we go?”
Petrobras invited the JV to bid P-61 in 2008. There were two other bidders – Modec Inc and SBM Offshore. Rigzone reported, “The lowest P-61 bid was from Modec Inc., which pegged construction costs at $1.72 billion, sources told Estado. Floatec posted a bid of $1.96 billion, while SBM’s bid was $2.08 billion.”
Discussions had heated up towards the end of 2008 between Keppel and their agent. There was pressure to confirm the “fees”.
Skornicki e-mailed the Keppel executives for confirmation, “based on our telecom, some days ago,” that for his work on the P-61 project, he would be paid his regular commission, i.e. “rates actually used in the existing contract,” plus an additional two percent comprised of 0.5% for “the Party” (the Worker’s Party governing Brazil at the time), 0.5 percent for “Group A” (a Petrobras employee and others) and one percent for “Group B” (Skornicki).
The JV’s bid, according to Rigzone, was $1.72 billion. Two percent was roughly $35 million.
Internal Keppel e-mails show the conflict the executives faced.
“The problem is that when broken down the parts look reasonable, but the whole is something else… how to deal with this? We have to get this past our partner somehow, else it will remain a matter of we stand alone (too risky) or no bid???”
“[I]f the fees are not reasonably close to what is expected by the various interested parties, there is little incentive for anyone two push our offer. So what is “expected”?? If we are not willing or able to offer similar to previous projects, we need to make a very unambiguous statement to those parties.”.
DOJ describes, “after discussions about limiting the scope of Consultant’s [Skornicki] services on the P-61 project in light of FCPA and bribery concerns expressed by the joint venture partner”, one of the executives emails the others stating that Skornicki “also mentioned that the [JV] was not originally invited for this project until much lobbying with his friends help. And the fees were told to us sometime ago. If they perceive us as not honouring our commitment, it may be bad for future business.”
It is not clear how Keppel responded.
Petrobras decided the prices were too high and in January 2009, aborted the bid.
It reissued the bid in 2009 and invited the JV again. From the previous bid, Petrobras had gained detailed commercial information from the 3 bidders. Valuable information for any bidder prepared to pay.
Sometime in 2009, two Keppel executives authorised Skornicki to pay bribes – a percentage of the P-61 contract value – to a Petrobras employee who responsible for the bidding process and the Workers Party
Jeffery Chow, a senior in the legal department prepared a marketing and sales representation agreement which was signed by Skornicki and a Keppel subsidiary. Chow realised that the agent was being overpaid by millions of dollars to bribe Brazilian officials. “I should have refused to draft the contract that we used for paying bribes and I should have resigned from Keppel,” he said. He pleaded guilty to conspiring to violate the FCPA.
The P-61 was clearly high on Keppel Corporation’s radar screen. In Keppel Corporation’s 2009 Annual Report. then CEO, Choo Chiau Beng highlighted deepwater production in Brazil as a key thrust and that “we are ready to cinch orders in this segment. The P-61 Tension Leg Wellhead Platform contract awarded by Petrobras and Chevron to FloaTEC LLC, our joint venture with J. Tay McDermott will contribute towards building our track record in this area.”
He continued, “ We believe what stands us apart is our keen sense of what works in the offshore
and marine business. We know the business better than others, and we understand the cycles and the risks associated with the business. We have very close relationships with our customers, and we anticipate their needs even before they are made known to the public.”
Corporate pressure was clear – the expectations that the Keppel O&M team win the contracts. Brazil brought about 11% revenue for Keppel Corporation in 2009.
“Petrobras has announced a massive five-year E&P spending plan of around US$174 billion, which includes ordering an additional 28 drilling rigs to be built in Brazil between 2013 and 2018. With our established yard, long-term relationships and sound track record of deliveries in Brazil, we are confident of our ability to build some of these rigs for Petrobras.”
Keppel Corporation CEO, Choo Chiau Beng
In February 2010, the joint venture was awarded the P-61 Project.
From July 2010 to September 2014, a Singapore based Keppel subsidiary paid the bribes totalling US$17.6 million to the US bank account controlled by Skornicki. He paid half of this to the Petrobras employee and the Workers Party.
Snapshot taken from DOJ’s KOM Information Paper.
DOJ has confirmed that Keppel took action against 17 employees. 7 were fired, 7 demoted and 12 subject to financial penalties. Skornicki named 5 Keppel executives, including Choo Chiau Beng and Keppel Offshore CEO, Chow Yew Yuen who retired in March 2017. Keppel originally denied any bribes but since DOJ’s investigations has refrained from identifying the culprits.
But the Lawyer Knew! What about the Board?
Jeffery Chow was a senior member of the legal department. He admitted knowing that the agreement he drafted was a front to channel bribes.
In house lawyers will not knowingly commit wrongdoing unless –
- they are part of the conspiracy, and will keep the matter away from the Legal or Compliance departments,
- they have been pressured by people senior to them to obey orders and not tell anyone, or
- the arrangement was sanctioned at a higher level, known to senior levels within the Legal Department.
People in Legal, Compliance and Audit are well aware that at times, business groups view them as an obstruction to doing business. If the business groups are up to any questionable conduct, they are likely to keep compliance executives far away. Yet, in this case, they brought in a senior legal person to draft the agreements. This brings some form of legitimacy to their behaviour. If Legal is ok, then it must be ok!
If you are not the general counsel or compliance head, you can approach them. They in turn, are duty bound to report wrongdoing to the board. What did Chow do? Did anyone from Legal inform the Board? The Keppel Corporation and Keppel Offshore & Marine boards state that they were unaware of the scheme as the bribes were hidden as part of project costs.
According to Skornicki, senior executives sanctioned the bribes. He named five people including CEO Keppel O&M Chow Yew Yen, Tong Chong Hong and Choo Chiau Beng. Chow Yew Yen is also a Keppel O&M board member and retired as CEO in 2017.
Choo and Tong served on both the Keppel Corporation and Keppel O&M boards in 2009 when the P-61 contract bribe scheme was “sanctioned”.
- Choo was CEO of Keppel Corporation and Chairman of Keppel O&M
- Tong was CEO of Keppel O&M and executive director on Keppel Corporation’s board.
These were not just mere directors but CEOs and a chairman.
If Skornicki’s allegations are true and the payments were not formally sanctioned by either board, then these directors had deliberately hid knowledge of wrongdoing from the board.
What about approaching other Board members?
Where senior management sanctions wrongdoing and instructs an in house lawyer to execute it, what is he to do? Both Keppel Corporation and Keppel O&M had practising lawyers on the boards serving as independent directors. Could Chow have approached either of them directly?
He may have worried about retaliation. Jeffery Chow was a US national, resident in Singapore for many years since joining Keppel in 1990. If he had been terminated, would he have had to leave Singapore?
It is easy for us to judge people in such circumstances and say, they should have refused and resigned. Some people have. For others, it is harder – you have kids to put through college, the job market sucks. Why should good people be put in these situations in the first place?
There needs to be support for in house lawyers and auditors who are pressured to commit or ignore wrongdoing. Because of their duty of confidentiality, they can’t tell anyone. It is a lonely place to be.
Why did no one say STOP?
17 people is a large cast but no one raised the red flag or called a stop to the bribes. Keppel is a GLC which is 20% owned by the Singapore government’s investment arm, Temasek Holdings. Temasek’s CEO is Prime Minister Lee Hsien Loong’s wife, Ho Ching.
Singapore prides itself on being tough against corruption. It ranks 7th cleanest on Transparency International’s CPI. Singapore is tough on small time bribery in the civil service but its laws are inadequate to address high level corporate corruption.
The fact that Keppel stands at no 7 of FCPA’s highest FCPA penalties shows a big gap between perception and reality in Singapore.
Employees of a GLC in a clean country should have felt confident to yell out STOP. But they didn’t. There are no whistleblowing protection laws in Singapore. Employees can be terminated by notice. Some of Keppel’s senior executives like Jeffery Chow were expats. If they lose their job, they would have to leave Singapore.
Keppel does not have an ethics hotline, let alone an independent one allowing anonymous reporting. The “whistleblowing policy” requires people to report to internal audit. We don’t know whether the “consulting arrangements”, the marketing and sales agreement drafted by Chow or the large payments hidden through a construction sub contract were ever picked up by internal audit. If they had, would Keppel’s audit team have had the courage to challenge the senior executives who sanctioned it?
This is, after all, Singapore. Singaporeans are an obedient lot. Dissent is rare and frowned upon. It could very well be that those in the know justified paying Petrobras as the way to do business overseas.
EY’s 2017 Fraud Survey for Asia Pacific is revealing, showing a mindset of keeping ones head down. 44% executives feel offering cash payments to win business is justified. 49% believe senior management would ignore unethical behaviour to achieve corporate targets and 51% of senior management feel pressured to withhold information about misconduct
Reporting externally may not have been a safe option either. The Corrupt Practices Investigation Bureau (CPIB) head is appointed by the Prime Minister. As said earlier, his wife runs Temasek Holdings. The opposition in Singapore is weak and the media muzzled by the government.
If the Petrobras corruption scandal had not uncovered Keppel’s scheme, it may very well be continuing today.
The story is pieced together based on DOJ’s papers, announcements by Keppel Corporation and McDermott International Inc, press coverage by Reuters, Bloomberg, Straits Times and Rigzone.
Animah Kosai originally wrote this piece for Anti-Corruption Digest which was published on 10 January 2017 here.
Image , The P-61 Tension-Leg Wellhead Platform installed offshore Brazil by a Keppel and McDermott JV designed to handle up to 180,000 barrels of oil per day Image courtesy of Offshore Energy Today