Paradigm B.V.: The IPO Diligence That Found the Bribes

In the Paradigm B.V. FCPA case, the company acknowledged improper payments to foreign officials after due diligence for a planned public offering uncovered the conduct. The Justice Department announced the non-prosecution agreement on September 24, 2007. Its account connects a software tender, an official’s recommended consultant, offshore banking and payments to employees of prospective customers. If you handled consultant appointments, sales commissions or software procurement, those connections may look familiar.

The Software Business Behind the Payments

Paradigm supplied enterprise software to the global oil and gas exploration and production industry. The Justice Department described it as a private limited liability company headquartered in the Netherlands, with its principal place of business in Israel until July 2005 and in Houston afterward. The company was preparing to list on a U.S. stock exchange when it disclosed the conduct.

This foreign-bribery case concerned the decisions behind software sales. In Kazakhstan, Paradigm wanted a geological-software tender. In China, the business included selling software to a subsidiary of China National Offshore Oil Company and paying employees of national oil companies or state-owned entities to influence procurement.

The customer’s employees and purchasing decisions belong in the same picture as the seller’s commissions. A sales employee may know who recommended a consultant, while finance sees the beneficiary account and procurement sees who promoted the product. Connecting those views can explain what a payment was buying.

A Kazakhstan Consultant With No Apparent Work

Under its non-prosecution agreement, as the Justice Department described it, Paradigm admitted paying $22,250 into a Latvian bank account belonging to a British West Indies company. An official of KazMunaiGas, Kazakhstan’s national oil company, had recommended that company as a consultant. The payment was intended to secure a tender for geological software.

The supposed consulting relationship lacked the things someone inside the business would expect to explain the expense. The Justice Department described the gaps directly:

The recommendation came from the customer whose business Paradigm wanted. We find it hard to call that consulting.

That is the useful question behind sham consulting arrangements: what service explains the money? Someone who knows the tender or the consultant’s actual role can explain a connection that the transfer record alone leaves obscure.

China’s Agent and Customer Employees

Paradigm’s admissions under the same agreement described separate ways of influencing Chinese software purchases. The company acknowledged using an agent to make commission payments to representatives of a China National Offshore Oil Company subsidiary in connection with software sales to that subsidiary.

Paradigm also directly retained and paid employees of Chinese national oil companies or state-owned entities as internal consultants. According to the Justice Department’s account, the company paid those employees to evaluate its software and influence their employers’ procurement divisions to buy its products. The seller was paying people inside the customer’s business to help sell the seller’s software.

The Kazakhstan account describes no apparent services, while the China account identifies evaluation and procurement influence as the work the customer employees were retained to do. In China, the revealing connection is between the consultant’s employer, the software recommendation and the company paying for it.

Nigeria’s Contract and the Other Country Admissions

The Justice Department’s account of the agreement says Paradigm representatives agreed to make corrupt payments of between $100,000 and $200,000 through an agent to Nigerian politicians. The objective was a contract to perform services and processing work for a subsidiary of the Nigerian National Petroleum Corporation. The release also says Paradigm admitted similar conduct in Mexico and Indonesia.

The Review Before the Public Offering

Paradigm identified conduct that appeared to violate the Foreign Corrupt Practices Act in January 2007, during due diligence for its anticipated initial public offering. The company then commissioned an investigation, voluntarily disclosed its findings to the Justice Department, cooperated fully and instituted extensive remedial compliance measures.

A review prompted by a proposed stock-market listing exposed payments made in pursuit of customer business. The same company that had paid a recommended consultant without diligence later uncovered the conduct during diligence for its own offering.

In its 2015 remarks on agents and internal controls, the SEC’s enforcement director emphasized understanding the business rationale for hiring an agent and checking that third-party payments represented legitimate business expenses. Applied to Paradigm’s Kazakhstan transaction, that perspective focuses attention on the consultant’s selection and apparent lack of work. For the Chinese arrangements, it focuses attention on the paid consultants’ positions inside the customers.

What an Insider Can Connect

The useful foreign-bribery evidence connects the customer decision, the person able to influence it, the intermediary, the bank beneficiary and the company’s approval. Consultant files, commission approvals, payment instructions and procurement communications can each explain a different part.

The same problem appears in other energy business. In the statement of facts accompanying its guilty plea, Gunvor admitted using fake consulting invoices and offshore transfers to conceal corrupt payments for Petroecuador business. Its payments continued despite intermediaries’ repeated failures to provide complete documentary responses or attend a requested meeting with compliance personnel.

The comparison makes the response to missing support worth examining. Paradigm’s Kazakhstan payment went to a recommended consultant without diligence or a written agreement, while Gunvor’s admitted conduct included continuing payments after requests for documentation went unanswered. For someone who raised a question inside a company, the response to that question can be as revealing as the original invoice.

An accounts-payable employee may know who authorized the transfer. A sales employee may know why the consultant was introduced. Someone involved in the customer’s evaluation may know whose recommendation changed the buying decision. We work with that knowledge to connect the money to the influence it was intended to purchase.

Eligible whistleblowers can share an SEC whistleblower award of 10% to 30% of the qualifying sanctions collected. We can assess how your knowledge of the payments fits the foreign-bribery whistleblower programs.

You Know Why the Consultant Was Hired

If you know why a software customer recommended a consultant, who approved the commission or what the pre-IPO review uncovered, talk with our whistleblower experts about the payments. We build the case with you and bring in foreign-bribery whistleblower lawyers who understand intermediary payments and state-owned customers. We stay alongside you as your knowledge of the business becomes the evidence behind the case.