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Shruti J. Shah
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Russell A. Stamets
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Bill Steinman
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Pride Discloses Global Corruption Probe

Pride International, Inc., a Houston-based drill-rig provider to the oil and gas industry, disclosed in its February 29, 2008 Form 10-K (annual report) an ongoing internal investigation into potential violations of the Foreign Corrupt Practices Act. The countries involved may include Venezuela and Mexico, India and Malaysia, Saudi Arabia, Kazakhstan, Brazil, Nigeria, Libya, Angola and the Republic of the Congo.

Wide scope of alleged practices . . . and Panalpina too. The company says it has already found evidence that from 2001 through 2005 payments were made directly or indirectly to government officials “in connection with clearing rigs or equipment through customs or resolving outstanding issues with customs, immigration, tax, licensing or merchant marine authorities.” Pride says it is also responding to requests from the Department of Justice about its “relationships with a freight and customs agent and . . . importation of rigs into Nigeria.” That inquiry apparently relates to the DOJ’s wide-ranging investigation of global-logistics firm Panalpina and its oil and gas services customers in Nigeria and other countries.

Self-disclosure. Pride — which has over 7,000 employees and offices in the United States, Africa, Asia, Europe and South America — said it self-disclosed to the DOJ and the Securities and Exchange Commission the potential FCPA violations when the company’s audit committee first heard about them. Since then it has been keeping U.S. authorities up to date on the progress and results of the investigation.

Remedial action has started. Pride said members of its senior operations management probably knew or should have known about the improper payments. It said its former chief operating officer retired from his post on May 31, 2006 and the audit committee will decide whether it has cause to terminate his employment and strip him of retirement benefits. Other employees, including officers, have already been fired, placed on leave or resigned, and more workplace discipline may be imposed, the company said.

Of special note. We’ve written and read a lot of FCPA disclosures. But Pride’s — which is reprinted below — stands out. It’s the most complete and clearest statement about an ongoing investigation and the company’s response to it that we’ve seen. It conveys not only the required factual information, but through a dogged recitation of the facts in unusually direct language, it also imparts something more. There are, we think, hints of the company’s shock on discovering an apparently corrupt culture; its disappointment with senior people and others who betrayed the trust of their positions; the professional and personal wreckage being left behind by the scandal; and the company’s bracing for whatever institutional punishment U.S. prosecutors, foreign governments and customers will impose. The honest tone and plain words also convey that Pride’s leaders are taking responsibility. That they’re fixing what’s been wrong at the company and preparing to move forward with a new culture of compliance. Presumably, we’ll hear more about the next chapter from Pride and the U.S. authorities in the coming months.

Pride International, Inc. trades on the New York Stock Exchange under the symbol PDE.

View Pride’s February 29, 2008 Form 10K (annual report) here and read from it the FCPA disclosure immediately below.

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Although we implement policies and procedures designed to promote compliance with the laws of the jurisdictions in which we operate, our employees, contractors and agents may take actions in violation of our policies and such laws. Any such violation, even if prohibited by our policies, could materially and adversely affect our business. We are conducting an investigation into allegations of improper payments to foreign government officials, as well as corresponding accounting entries and internal control issues. The outcome and impact of this investigation are unknown at this time.

During the course of an internal audit and investigation relating to certain of our Latin American operations, our management and internal audit department received allegations of improper payments to foreign government officials. In February 2006, the Audit Committee of our Board of Directors assumed direct responsibility over the investigation and retained independent outside counsel to investigate the allegations, as well as corresponding accounting entries and internal control issues, and to advise the Audit Committee.

The investigation, which is continuing, has found evidence suggesting that payments, which may violate the U.S. Foreign Corrupt Practices Act, were made to government officials in Venezuela and Mexico aggregating less than $1 million. The evidence to date regarding these payments suggests that payments were made beginning in early 2003 through 2005 (a) to vendors with the intent that they would be transferred to government officials for the purpose of extending drilling contracts for two jackup rigs and one semisubmersible rig operating offshore Venezuela; and (b) to one or more government officials, or to vendors with the intent that they would be transferred to government officials, for the purpose of collecting payment for work completed in connection with offshore drilling contracts in Venezuela. In addition, the evidence suggests that other payments were made beginning in 2002 through early 2006 (a) to one or more government officials in Mexico in connection with the clearing of a jackup rig and equipment through customs, the movement of personnel through immigration or the acceptance of a jackup rig under a drilling contract; and (b) with respect to the potentially improper entertainment of government officials in Mexico.

The Audit Committee, through independent outside counsel, has undertaken a review of our compliance with the FCPA in certain of our other international operations. In addition, the U.S. Department of Justice has asked us to provide information with respect to (a) our relationships with a freight and customs agent and (b) our importation of rigs into Nigeria. The Audit Committee is reviewing the issues raised by the request, and we are cooperating with the DOJ in connection with its request.

This review has found evidence suggesting that during the period from 2001 through 2005 payments were made directly or indirectly to government officials in Saudi Arabia, Kazakhstan, Brazil, Nigeria, Libya, Angola, and the Republic of the Congo in connection with clearing rigs or equipment through customs or resolving outstanding issues with customs, immigration, tax, licensing or merchant marine authorities in those countries. In addition, this review has found evidence suggesting that in 2003 payments were made to one or more third parties with the intent that they would be transferred to a government official in India for the purpose of resolving a customs dispute related to the importation of one of our jackup rigs. The evidence suggests that the aggregate amount of payments referred to in this paragraph is less than $2 million. We are also reviewing certain agent payments related to Malaysia.

The investigation of the matters described in the prior paragraph and the Audit Committee’s compliance review are ongoing. Accordingly, there can be no assurances that evidence of additional potential FCPA violations may not be uncovered in those or other countries.

Our management and the Audit Committee of our Board of Directors believe it likely that members of our senior operations management either were aware, or should have been aware, that improper payments to foreign government officials were made or proposed to be made. Our former Chief Operating Officer resigned as Chief Operating Officer effective on May 31, 2006 and has elected to retire from the company, although he will remain an employee, but not an officer, during the pendency of the investigation to assist us with the investigation and to be available for consultation and to answer questions relating to our business. His retirement benefits will be subject to the determination by our Audit Committee or our Board of Directors that it does not have cause (as defined in his retirement agreement with us) to terminate his employment. Other personnel, including officers, have been terminated or placed on administrative leave or have resigned in connection with the investigation. We have taken and will continue to take disciplinary actions where appropriate and various other corrective action to reinforce our commitment to conducting our business ethically and legally and to instill in our employees our expectation that they uphold the highest levels of honesty, integrity, ethical standards and compliance with the law.

We voluntarily disclosed information relating to the initial allegations and other information found in the investigation and compliance review to the DOJ and the Securities and Exchange Commission and are cooperating with these authorities as the investigation and compliance reviews continue and as they review the matter. If violations of the FCPA occurred, we could be subject to fines, civil and criminal penalties, equitable remedies, including profit disgorgement, and injunctive relief. Civil penalties under the antibribery provisions of the FCPA could range up to $10,000 per violation, with a criminal fine up to the greater of $2 million per violation or twice the gross pecuniary gain to us or twice the gross pecuniary loss to others, if larger. Civil penalties under the accounting provisions of the FCPA can range up to $500,000 and a company that knowingly commits a violation can be fined up to $25 million. In addition, both the SEC and the DOJ could assert that conduct extending over a period of time may constitute multiple violations for purposes of assessing the penalty amounts. Often, dispositions for these types of matters result in modifications to business practices and compliance programs and possibly a monitor being appointed to review future business and practices with the goal of ensuring compliance with the FCPA.

We could also face fines, sanctions and other penalties from authorities in the relevant foreign jurisdictions, including prohibition of our participating in or curtailment of business operations in those jurisdictions and the seizure of rigs or other assets. Our customers in those jurisdictions could seek to impose penalties or take other actions adverse to our interests. In addition, disclosure of the subject matter of the investigation could adversely affect our reputation and our ability to obtain new business or retain existing business from our current clients and potential clients, to attract and retain employees and to access the capital markets. No amounts have been accrued related to any potential fines, sanctions or other penalties, which could be material individually or in the aggregate.

We cannot currently predict what, if any, actions may be taken by the DOJ, the SEC, the applicable government or other authorities or our customers or the effect the actions may have on our results of operations, financial condition or cash flows, on our consolidated financial statements or on our business in the countries at issue and other jurisdictions. If we are unable to renew or obtain new and favorable contracts for rigs whose contracts are expiring or are terminated, our revenues and profitability could be materially reduced.

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