By Koh Hui Xin
The Business Times and The Straits Times reported on Feb 11 and Feb 12 respectively that Keppel Corp said it has not yet been served with the court papers relating to a new racketeering lawsuit brought against Keppel Offshore & Marine (Keppel O&M) by certain funds managed by EIG Global Energy Partners in the United States.
Keppel was responding to a report published by legal news website Law360 on Feb 8, titled “EIG Hits Keppel With $660M RICO Suit Over Brazil Bribery”.
It is understood that the lawsuit was filed to the New York Southern Court on Tuesday, Feb 6, titled “EIG Energy Fund XIV, L.P. et al v. Keppel Offshore & Marine LTD.,”. The relevant court documents filed are available on Law360’s website.
The report stated that the EIG funds filed a $660 million racketeering suit against Keppel O&M over the latter’s role in a “Brazilian bribery scheme connected to a failed drill ship venture, for which Keppel recently reached a $422 million criminal settlement with U.S. prosecutors.”
RICO refers to the Racketeer Influenced and Corrupt Organizations Act, a United States federal law. Racketeering is the act of offering a racket. A racket, simply defined, is a planned or organised criminal act to earn illegal or extorted money.
In the RICO Act, racketeering includes a list of 35 crimes, including bribery, counterfeiting, theft, embezzlement, and fraud. A person who has committed at least two acts of racketeering activity within a 10-year period can be charged with racketeering. If convicted, those found guilty may serve up to 20 years in prison and/or be fined up to $25,000.
The RICO Act also permits a private individual “damaged in his business or property” by a “racketeer” to file a civil suit.
In the lawsuit filed by the EIG funds, it states that Keppel’s bribing of public officials at Petrobras and Brazilian politicians in order to win shipyard contracts with Petrobras and Sete has caused the funds to “lose the entirety of their $221 million investment in Sete”, and the funds’ “over US$221 million investment in Sete is now worthless”.
Law360 reported that “(w)hen the bribery reports first surfaced — as part of a sprawling investigation by Brazilian authorities involving Petrobras and politicians known as Operation Car Wash — other Sete lenders withdrew their funding, causing the company to default on its contracts and ultimately declare bankruptcy.”
The lawsuit states,
Keppel admitted that it ‘did knowingly and willfully conspire’ to violate the Foreign Corrupt Practices Act (the “FCPA”) through its participation in a long running bribery and kickback scheme. In the DPA, Keppel and its wholly-owned U.S. subsidiary agreed to pay a criminal penalty in the amount of US $422,216,980. Keppel’s admission in the DPA that it committed violations of the FCPA constitute an admission that it conspired to commit and did commit the RICO predicate acts of Travel Act violations and money laundering.
The DPA here refers to a Deferred Prosecution Agreement that Keppel reached with the U.S. Department of Justice on Dec 22, 2017, in which Keppel agreed to pay more than $422 million to resolve charges in the U.S., Brazil and Singapore that it paid millions of dollars in bribes to Brazilian officials.
The relevant parts of the lawsuit are reproduced below:
(Note: Plaintiffs refer to the EIG funds that filed this lawsuit)
Sete was created in 2011 by Petrobras for the sole purpose of raising outside capital on an “off balance sheet” basis, to fund the construction of twenty-eight offshore drillships at a cost of over US $700 million per driliship. The drillships were to be chartered by Sete to Petrobras for ten to twenty years, and the revenue from this chartering would be Sete’s sole source of income. Keppel, through subsidiaries, contracted with Sete to build six of the proposed drillships. The RICO conspiracy utilized Sete as a vehicle to expand an already existing massive bribery and kickback scheme. Keppel authorized and paid over US $14 million of bribes in the form of kickbacks to enrich senior executives at Petrobras, Sete and the Workers’ Party in return for being awarded six lucrative drillship contracts with Sete.
As Keppel well knew, in order for the bribery scheme to work, a critical and necessary component of the scheme was that Petrobras and Sete would fraudulently raise from third parties billions of dollars of capital for Sete, including from U.S. investors such as plaintiffs, without disclosing that the investors’ capital would actually finance millions of dollars of bribes and kickbacks. Without funding from outside investors, Sete could not pay Keppel for the construction of drillships and Keppel could not kick back a percentage of those payments as bribes.
Keppel facilitated Petrobras’ and Sete’s fraudulent fund raising activities. (…) At the times that Keppel met with EIG as representative of plaintiffs, Keppel had already agreed to pay millions of dollars in bribes and kickbacks to secure Sete drillship contracts. Keppel, in furtherance of the RICO conspiracy, did not at any time disclose to EIG or plaintiffs that Keppel secretly planned to and did pay millions of dollars of bribes and kickbacks relating to the Sete drillship contracts.
As a result of multiple RICO predicate acts committed by the RICO conspirators, from 2012 to early 2015, plaintiffs invested over US $221 million in Sete by wires emanating from banks in California and New York City. These investments were used to fund payments due under the corruptly obtained drillship contracts, a percentage of which was kicked back by Keppel in the form of bribes to senior executives of Petrobras and Sete and to the Workers Party.
In the DPA, Keppel admitted to knowingly and willfully conspiring to pay and paying bribes from 2001 to 2014 in connection with thirteen projects in Brazil tendered by Petrobras and Sete. The total bribes paid by Keppel over this time period amounted to approximately US $55 million, and were paid to Petrobras and Sete employees and the Workers’ Party. The bribes relating to Sete contracts totaled approximately US $14.4 million. Keppel further admitted that it and its subsidiaries earned profits totaling approximately US $351.8 million from the business Keppel obtained through its participation in the illicit scheme.
The lawsuit also detailed specific cases of Keppel’s involvement in apparent “bribery and kickback scheme” dating back to 2001.
The EIG funds are seeking redress against Keppel O&M for their lost investment, including treble damages under RICO of an amount no less than $663 million. Treble damages refer to tripling the amount of the compensatory damages to be awarded to the plaintiff. It is a mandatory provision in the RICO Act.