PDVSA Contracting Cases: Paying to Bid, Paying to Get Paid

The PDVSA contracting cases include an FCPA case in which two energy-company owners admitted paying bribes for access to bids, approved-vendor status and payment ahead of other suppliers. For someone inside purchasing or accounts payable, those are recognizable decisions: who gets invited, whose company gets approved, and whose invoice moves while others wait.

PDVSA, Venezuela’s state-owned and state-controlled energy company, bought equipment and services from the owners’ businesses. The Justice Department’s accounts of their guilty pleas describe bribery reaching into different parts of that purchasing process. A later indictment alleged another arrangement at PDVSA joint ventures: inflated contracts paid into South Florida accounts, with some of the money used to benefit officials.

The Florida Contractor Bought Access to Bidding Panels

In his March 2016 guilty plea, the Florida-based owner of multiple U.S.-based energy companies admitted paying PDVSA officials to help his businesses win contracts. The Justice Department’s account of that plea explains that he worked with a Texas-based owner to submit equipment and services bids through their companies. Beginning in 2009, they agreed to pay bribes and provide other things of value to purchasing analysts who could put those companies on PDVSA bidding panels.

Panel placement enabled the companies to win lucrative energy contracts. The Florida owner also admitted bribing other officials for approved-vendor placement and payment priority. The admitted scheme bought influence over who could compete and who would get paid.

That is how procurement bribery works before a contract is awarded. A purchasing employee may know how a business reached the panel, while a vendor employee knows who arranged the payment that got it there. We look at those decisions together, because a bid file can show the result while leaving the purchased access out of view.

The same Justice Department announcement describes admissions from the receiving side. In their guilty pleas, three former officials admitted accepting bribes while employed by PDVSA or its wholly owned subsidiaries or affiliates, taking actions to help the owners’ companies win energy contracts, and conspiring to launder the proceeds.

The Texas Contractor Paid for Priority Over Unpaid Vendors

In his June 2016 guilty plea, the Texas-based energy-company owner admitted paying bribes for bidding-panel placement, approved-vendor status and priority over other vendors with outstanding invoices. The Justice Department’s account of his admissions describes the arrangement with the Florida owner and the payments to purchasing analysts and other PDVSA officials.

The owner admitted buying a place ahead of other suppliers waiting for their money. We call that paying to get paid: the favored vendor bought its way to the front, leaving honest suppliers waiting.

For an accounts-payable employee, the relevant decision may be a payment-priority instruction. For someone on the vendor’s finance team, it may be the connection between an overdue invoice, a payment to an official and the customer’s decision to release funds.

The Alleged Management Team and the Swiss Account

A separate indictment described officials and former officials using their influence within PDVSA to solicit bribes from vendors. In its February 2018 account of the charges, U.S. Immigration and Customs Enforcement reported that the group was known as the “management team.” The indictment alleged that its members sought bribes and kickbacks in exchange for helping vendors with PDVSA business, including vendors who owned U.S.-based companies.

According to that indictment, the Florida and Texas owners sent more than $27 million in bribe payments to a Swiss account. One alleged team member was both a beneficial owner and one of the account’s two authorized signers. The funds allegedly moved onward to other Swiss accounts.

The indictment also alleged money laundering through international transactions involving U.S. accounts and, in some instances, U.S. real estate and other investments. That account gives a vendor or banking insider something more specific than an overseas payment to recognize: who controlled the receiving account, who could move its funds, and how that person was connected to the customer’s business decisions. The account holder and the person benefiting from the payment belong in the same inquiry.

Inflated Joint-Venture Contracts and South Florida Accounts

An indictment alleged that a businessman paid officials at PDVSA joint ventures to obtain highly inflated contracts for goods and services. The Justice Department’s announcement of the indictment placed the alleged scheme between January 2013 and December 2017. It concerned joint ventures between PDVSA and foreign companies in Venezuela’s Orinoco belt, majority owned and controlled by PDVSA.

According to the indictment, companies controlled by the businessman received approximately $160 million from those joint ventures into accounts he controlled in South Florida. He allegedly used a portion of those funds to make payments to or for the benefit of Venezuelan officials. The charges concerned money laundering and transactions involving criminal proceeds from the alleged bribery scheme.

The alleged sequence connects the contract price to the official’s benefit. Money paid for goods and services reached vendor-controlled accounts, and part of it allegedly went back toward the officials whose influence helped secure the contracts. In that alleged arrangement, the customer paid an inflated price while officials benefited from the flow of funds.

A payment trail across companies and accounts can explain how that sequence fits together. The joint venture signing the contract, the person approving it, the company receiving the money and the ultimate beneficiary each have a distinct role. For an insider, knowing who controlled one of those decisions can connect a procurement file in Venezuela to a transfer in Florida.

The Petrobras Parallel Puts the Kickback in the Asset Account

Petrobras shows how inflated purchasing costs can conceal a payment to an official in the company’s own accounts. In its September 2018 order, the Securities and Exchange Commission found that corrupt executives helped a contractor cartel obtain inside information, manipulate bidding and inflate project costs. Contractors used overpayments to fund bribes.

The SEC’s finding shows how the bribes disappeared into the asset accounts:

The SEC also found that an executive shared a confidential list of invited contractors in advance, helping the cartel coordinate its bids. The procurement record and the accounting entry therefore exposed different parts of the scheme: access to the competition, then the treatment of the resulting overpayment as an asset cost.

For a project accountant, that is a reason to understand what sits inside an approved contract price. For a procurement employee, it is a reason the invitation list matters alongside the winning bid.

What an Insider Can Connect

The most useful foreign-bribery evidence connects a business advantage to the people who arranged and benefited from a payment. In these PDVSA accounts, the advantage took concrete forms: admission to a bidding panel, vendor approval, priority for an unpaid invoice, or an inflated joint-venture contract. A person who knows one of those decisions can explain why a transaction happened when it did and who made it happen.

The connections cross purchasing, vendor finance and bank accounts, where the apparent recipient may differ from the person who actually benefited. We build those connections with the insider who understands the transaction, including where the paperwork leaves out what people agreed.

Foreign-bribery information can lead to an award through the SEC whistleblower program or the Justice Department’s whistleblower program. A separate whistleblower case under the False Claims Act can pay 15% to 30% of what the government recovers. We work through which law and program fit the conduct you know.

You Know Who Moved the Invoice

If you know who bought a place on the bid panel or whose payment moved a vendor to the front of the queue, talk with our whistleblower experts about the PDVSA transaction you saw. We develop the case with you and bring in foreign-bribery whistleblower lawyers who understand procurement decisions and cross-border payments. We stay beside you through the case and the pursuit of your whistleblower reward.