Tenaris: The Agent Could Replace the Bid

Tenaris agreed to pay more than $78 million in the 2022 Tenaris FCPA case to resolve Securities and Exchange Commission allegations of bribery involving its Brazilian subsidiary and business with Petrobras. The steel-pipe supplier’s separate Uzbekistan case shows what an agent could sell alongside the pipe contract: access to competitors’ confidential bids and a chance to replace Tenaris’s offer. If you worked on tenders, agent commissions or subsidiary accounts, you may recognize how an agent’s work entered the deal.

These Foreign Corrupt Practices Act cases concern different customers and payment arrangements. Under its 2011 non-prosecution agreement with the Justice Department, Tenaris admitted the Uzbekistan conduct. The commission’s June 2, 2022 announcement described the Brazilian allegations and the company’s agreement to give up profits and pay interest and civil penalties.

The Uzbekistan Agent Sold a Second Look at Rival Bids

Under the Justice Department’s non-prosecution agreement, Tenaris admitted using an agent to obtain competitors’ confidential bidding information and submit revised offers. The customer was OJSC O’ztashqineftgaz, an oil-and-gas company wholly owned through Uzbekneftegaz by Uzbekistan’s government. The pipe was for the development and production of oil and natural gas.

Tenaris supplied steel pipe and related services to oil-and-gas companies and engineering businesses. In the Caspian Sea region, it won some of that work by bidding on contracts from state-owned companies and government agencies, often with agents’ help. Its regional business ran from Azerbaijan and Kazakhstan, with no office in Uzbekistan. That arrangement put the agent between a regional sales operation and the public customer making the award.

The admitted facts describe an agent introduced in December 2006 who offered access to information from the customer’s tender department. Officials would open competing bids, examine prices and delivery terms, and let Tenaris change its offer after seeing them. The most senior Tenaris employee involved was the regional sales director for the Caspian Sea region.

An employee’s email explained exactly what the agent’s service would buy. It described the physical replacement of the commercial offer, right down to resealing the envelope:

The same email described officials advising where Tenaris should price lower and where it could price higher. We call that selling the answer sheet. An honest competitor’s price and delivery promise became information available to the company bidding against it.

For the first contract, Tenaris agreed to a 3.5% agent fee. The employees understood that some or all of the money would be offered to the customer’s employees. After obtaining the confidential information and submitting a revised bid, Tenaris won the contract in April 2007.

The admitted scheme then extended to three additional pipe contracts. Tenaris again obtained rival bid information, revised its offers and won the awards, agreeing to a 3% commission for each. Its employees used the term “left-handed” for the agent’s illegal activities in their correspondence. The fee agreement, the bid revisions and the emails described different parts of the same purchase of inside information.

When Competitors Challenged the Tender

The admitted statement of facts also records a proposed payment to head off scrutiny of the bidding. In November 2007, employees exchanged emails saying the agent had reported complaints from competitors to an Uzbek government agency with authority to cause an investigation.

The agent recommended paying that agency’s officials to avoid an investigation or reopening the tenders. According to the emails described in the agreement, the agent said the officials would “close their eyes” in exchange. The Tenaris employees authorized the proposed payment. Their decision extended the arrangement from obtaining business to protecting the awards already won.

The customer later canceled one contract and outstanding portions of another in the summer of 2008. The admitted facts nevertheless put Tenaris’s profit on the contracts identified in the agreement at approximately $4,786,438.

The Bid Scheme Reached the Company’s Accounts

In its non-prosecution agreement with the Justice Department, Tenaris admitted that it knowingly failed to keep accurate books and records for the Uzbekistan contracts and agent payments. Records of those transactions entered its consolidated year-end financial statements from at least 2007 through 2009. The sales arrangement therefore reached beyond the people exchanging tender emails into the company’s financial reporting.

That connection matters to someone in finance or accounting. The contract explains the revenue, the agent agreement explains the commission, and the messages explain what the commission actually purchased. A ledger entry examined by itself may say much less than the same entry read alongside the bid history and payment approval.

The investigation began with information about another country. According to the non-prosecution agreement’s account, a third party told Tenaris in March 2009 about apparently improper sales-agency payments outside Uzbekistan. The audit committee commissioned an investigation, and the company disclosed the allegations to the Justice Department and the SEC.

Tenaris then undertook a worldwide review of business operations and internal controls, including company and third-party records, interviews and controls testing. That review uncovered the Uzbekistan transactions, which the company disclosed in June 2010.

The Brazilian Petrobras Allegations Followed a Different Payment Route

The Securities and Exchange Commission alleged that agents and employees of Tenaris’s Brazilian subsidiary participated in a bribery scheme to obtain and retain Petrobras business. Its announcement says approximately $10.4 million in bribes went to a Brazilian government official between 2008 and 2013 in connection with Petrobras bidding. We see the familiar bargain: more than $78 million to resolve alleged bribes, without admitting the conduct.

The funding is the revealing part of the Brazilian allegations. According to the commission, companies affiliated with Tenaris’s controlling shareholder funded the bribes on behalf of the Brazilian subsidiary. The business beneficiary, the companies supplying the money, the agents and the official were different parts of the payment arrangement.

An employee reviewing only the subsidiary’s payments would be looking at one part of the picture described by the commission. The allegation directs attention to who authorized money elsewhere in the corporate ownership network and what Petrobras business it supported.

The commission described failures to implement sufficient internal accounting controls despite known corruption risks. Tenaris agreed to resolve charges involving anti-bribery, books-and-records and internal-controls provisions and to undertake remedial commitments for two years.

We see the same practical question beneath these different arrangements: what did the intermediary get paid to make happen? In Uzbekistan, Tenaris admitted buying confidential bid information and revised submissions. In Brazil, the commission alleged bribes funded through shareholder-linked companies to obtain and retain a public customer’s business.

The Commercial Records Explain the Payment

For a pipe tender, prices and delivery terms are part of the competition, and both appeared in the Tenaris email. The useful whistleblower evidence connects those commercial terms to the agent’s engagement, fee approval, communications with the customer and resulting award. In the Brazilian allegations, it also reaches the companies funding payments on the subsidiary’s behalf.

Different employees see different connections. A sales employee may understand why the bid changed, an agent’s employee may understand who supplied the information, and an accountant may understand who authorized the fee. We bring those accounts together around the transaction, including the official decision the money was intended to influence.

The 2022 Journal of Forensic and Investigative Accounting paper How to Avoid Inadvertently Violating the Foreign Corrupt Business Practices Act Abroad recommends reviews of foreign operations that can identify abnormal credit terms and unusual payment installments involving holding companies. Applied to the Tenaris allegations, that means examining the connection between the company funding a payment and the subsidiary benefiting from the business.

A similar purchase of confidential tender information appears in SAP‘s separate Securities and Exchange Commission matter. The commission’s order described an intermediary sharing draft Tanzanian tender materials with an SAP employee on a thumb drive, and SAP executives contacting bribe facilitators to help obtain the materials. Different product, familiar advantage: access to the customer’s bidding information before the award.

What the Civil Settlement Means for a Whistleblower

Under the SEC whistleblower program, eligible whistleblowers can share 10% to 30% of the money collected in a qualifying case. Your knowledge of the bid, the agent’s real service or the source of the payment is the starting point for our work with you. We assess how that information supports a foreign-bribery case and the award opportunity that fits it.

You Know What the Agent Was Selling

If you saw a bid rewritten around confidential information or an agent paid through another company, talk with our whistleblower experts about the transaction you know. We work beside you to build your strongest foreign bribery whistleblower case and bring in FCPA whistleblower lawyers who know cross-border payments and public procurement. From the first account of the deal through the pursuit of an award, we stay on your side.