Houston-based Key Energy Services, Inc. agreed to disgorge $5 million to settle Foreign Corrupt Practices Act offenses caused by bribes from its Mexican subsidiary to an employee at state-owned Pemex.
The SEC Friday charged Key Energy in an internal administrative order with violating the FCPA’s internal controls and books-and-records provisions.
In May, Key said the Justice Department told the company it had closed its FCPA investigation and wouldn’t bring an enforcement action.
In 2014, Key said it was investigating allegations of possible bribery involving its Mexico operations.
Key accrued $5 million earlier this year to pay for the SEC settlement.
The company provides onshore energy production services.
Pemex, formally known as Petróleos Mexicanos, is Mexico’s state-owned oil and gas monopoly.
The SEC said Friday Key Mexico paid the Pemex contract employee in exchange for inside information and help landing Pemex contracts.
Between 2010 to 2014, Key Mexico made 58 payments to a purported consulting firm totaling about $561,000. At least $229,000 went to the Pemex employee.
Key Mexico’s then-country manager arranged and approved hiring the consulting firm. The manager concealed from Key Energy the connection between the consulting firm and the Pemex employee.
“Key Mexico improperly recorded the transfers to the consulting firm as legitimate business expenses in Key Mexico’s books and records, which were consolidated into Key Energy’s books and records,” the SEC said.
The Pemex employee used his influence to add $60 million to a contract between Pemex and Key Energy.
The SEC found no evidence the Pemex employee or the consulting firm provided any legitimate consulting services for Key Mexico.
“Instead, the consulting firm was used as a conduit through which the Pemex employee received payment from Key Mexico,” the SEC said.
The country manager resigned from Key Mexico in February 2014.
Key Energy learned about the consulting firm at least as early as 2011. Key Mexico hadn’t done any due diligence and didn’t have a written agreement.
But weak internal controls at Key Energy allowed the relationship with the consulting firm to continue and payments to be made, the SEC said.
In 2014, Key Energy “ultimately uncovered the consulting firm’s relationship to the Pemex employee . . . when Key Energy began an investigation into other allegations concerning the country manager.”
The SEC said Key Energy cooperated and took remedial action. The company said it would wind down its Mexico business and exit the market by the end of 2016.
“In determining the [$5 million] disgorgement amount and not to impose a penalty, the SEC considered Key Energy’s current financial condition and its ability to maintain necessary cash reserves to fund its operations and meet its liabilities.”
Key Energy has about 8,500 employees. It serves customers “across the Americas, Russia and the Middle East,” according to its website.
Key Energy Services, Inc. trades on the NYSE under the ticker symbol KEG.
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The SEC’s Securities Exchange Act of 1934 Release No. 78558, Accounting and Auditing Enforcement Release No. 3794, and Administrative Proceeding File No. 3-17379 (all dated August 11, 2016) In the Matter of Key Energy Services , Inc. are here (pdf).
Richard L. Cassin is the publisher and editor of the FCPA Blog. He’ll be the keynote speaker at the FCPA Blog NYC Conference 2016.