Statoil: The Consultant Was Missing From the Contract

In the Statoil FCPA case, the company agreed to pay $10.5 million in a civil settlement with the Securities and Exchange Commission over allegations that it bought an Iranian official’s influence through a consulting contract. The agency said the access could position Statoil for future Iranian business potentially worth hundreds of millions. The alleged arrangement left the official out of the contract and sent the money to an account held by another company.

The commission’s October 13, 2006 announcement described the payment obligation as disgorgement, the surrender of gains. Statoil was based in Norway, but its New York Stock Exchange listing brought it within the reach of the Foreign Corrupt Practices Act. The case addressed alleged bribery, false accounting and failures in the controls meant to prevent illegal payments.

South Pars and the Official Who Could Open Doors

Statoil wanted a participation interest in developing three phases of Iran’s South Pars oil and gas field. According to the commission’s settled order, the company was expanding internationally and had identified Iran as a place to secure operatorships. The Iranian Ministry of Oil controlled development rights through the National Iranian Oil Company and other wholly owned companies.

That structure gave a state-controlled business partner power over the opportunity. The development company offering Statoil a participation interest was itself indirectly owned and controlled by the ministry. The contract was a way into an offshore development project and, Statoil hoped, further Iranian business.

The Securities and Exchange Commission alleged that Statoil employees tested the official’s influence before the consulting agreement was signed. They had him send a message back to Statoil through Iran’s oil minister. Employees also learned that he advised the minister and belonged to a family with substantial influence in the oil industry, but did not investigate publicly reported corruption accusations against the family.

The official headed the Iranian Fuel Consumption Optimizing Organization, a National Iranian Oil Company subsidiary. The order alleged that he supplied nonpublic project information and showed Statoil competitors’ bid documents that it could not obtain through proper channels. That is the competitive injury in plain sight: other companies’ bids became part of the access Statoil allegedly bought.

A Consulting Agreement That Left Out the Consultant

The commission alleged that Statoil’s chief executive approved a $15.2 million consulting arrangement payable over approximately eleven years. The official’s initial proposal included a success fee tied to the South Pars award, payments to charities of his choice and payments through an offshore company. The chief executive objected, then approved a contract for vaguely defined services through an offshore company anyway.

The final agreement named an intermediary incorporated in the Turks and Caicos Islands, nominally owned by someone in London. The order explained why the official himself was absent:

The alleged omission protected the very business the relationship was meant to win. We see a contract built to conceal who was doing the influencing while giving the payments an ordinary commercial description.

The order placed the consulting arrangement alongside the project negotiations. Statoil reached an agreement in principle on the central South Pars participation terms in May 2002, signed the consulting contract in June and signed the project participation agreement in October. Statoil expected the project to yield millions of dollars in profit.

Those parallel negotiations matter to someone inside the project team. The commercial file explains what Statoil wanted from the development company, while the consulting file describes what it agreed to pay elsewhere. Read together, they show the opportunity and the alleged means of securing it.

The Invoice Named a Different Payee

The Securities and Exchange Commission reported that Statoil made the initial $5.2 million in payments before suspending further payments under the consulting agreement. The order’s account of the invoices supplies the route: through a bank in New York to a Swiss bank account held by a company not named in the contract. The supposed service provider and the account holder did not match.

The first invoice called for $200,000 and the second for $5 million, both with the same payment instructions. Statoil paid both. The agency alleged that management directed payments to parties outside the agreement without investigating either the named or unnamed parties.

The Journal of Forensic and Investigative Accounting’s 2022 review, How to Avoid Inadvertently Violating the Foreign Corrupt Business Practices Act Abroad, identifies unusual payment installments to holding companies among the warning signs that reviews can uncover. In Statoil’s case, the concrete discrepancy was already in the payment record: money sent under one company’s contract reached another company’s account.

What Conduct Can Violate the Foreign Corrupt Practices Act?

The Statoil case concerned alleged bribery to obtain business, false descriptions in the books and failures in internal accounting controls. The same consulting arrangement exposed different conduct depending on whether the reader followed the official, the accounting entry or the approval.

On bribery, the commission alleged that the payments were intended to influence the National Iranian Oil Company’s decision on Statoil’s participation in South Pars and secure an advantage in future business. The alleged benefit included access to project information and competing bids. Someone in business development could recognize the information received and the decision it was supposed to affect.

The books-and-records allegation concerned the description of those payments as ordinary consulting fees. The order said Statoil recorded them as fees for special consultants and analyses of technical, administrative, tax and financial matters. That accounting description gave no indication of the official influence the commission alleged the company was buying.

The control failures reached management itself. The order alleged that executives concealed the contract’s true parties and purpose, bypassed procurement policies and performed no due diligence on the parties. The agency also said Statoil lacked adequate systems for reviewing the agreement, allowing the executives responsible for it to conceal the payments.

The Internal Warning Reached the Top

Statoil’s internal auditors identified the mismatch between the contract and the payee, according to the Securities and Exchange Commission order. They reported it to the chief financial officer, and the company’s security group began an inquiry at the direction of the finance and audit leadership.

The security inquiry identified the official as the actual consultant and confirmed his position and family ties. Its report raised concerns about corrupt practices and possible violations of Norwegian and U.S. anti-bribery laws.

The security group recommended stopping payments and terminating the contract. The commission alleged that the chief executive agreed to suspend payments but refused to terminate the agreement or address the investigators’ principal concerns. We see investigators telling management to end the arrangement, and management choosing to keep it alive.

The order records public disclosure of the contract in the Norwegian press, followed by its termination. The recommendation management had refused became the action it took once the contract was public. For audit and compliance employees, the report and management’s response can explain what the payment records alone cannot: who knew, what they were told and which recommendation they rejected.

What an Insider Can Connect

The useful foreign-bribery evidence in this case crosses the project, consulting, payment and internal-review files. An employee involved in the project may know what information arrived from the official or which decision the company was pursuing. A finance employee may know why a payment went to a company absent from the agreement, while an auditor may know what happened after that discrepancy was reported.

Rolls-Royce shows a related pattern in the energy business. Under its criminal deferred prosecution agreement, Rolls-Royce admitted using adviser commissions and other payments to fund bribes for official information and contracts. The connection is the purchased access: the adviser payment belongs alongside the information obtained and the business it helped secure.

In the Statoil order, the people authorizing the arrangement, the company on the contract, the company holding the bank account and the official providing access occupied different places in the transaction. Your work may explain one of those connections in detail. We work with insiders to connect that knowledge to the decisions, payments and descriptions that made the arrangement possible.

If the conduct you know also involves false claims for U.S. government money, we examine that with you too. An FCPA tip to the SEC can earn 10% to 30% of sanctions over $1 million; where a government contract is involved, a False Claims Act case can pay 15% to 30% of what the government recovers.

You Know Why the Consultant Was Hired

Your knowledge of who a consultant really represented or why payment instructions departed from the agreement can expose what the paperwork concealed. We build your case around those commercial facts, bring in foreign-bribery whistleblower lawyers who understand energy contracts and offshore payment routes, and stay beside you as the case moves forward. Speak with our whistleblower experts about the arrangement you know.