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Harry Cassin
Publisher and Editor

Andy Spalding
Senior Editor

Jessica Tillipman
Senior Editor

Bill Steinman
Senior Editor

Richard L. Cassin
Editor at Large

Elizabeth K. Spahn
Editor Emeritus

Cody Worthington
Contributing Editor

Julie DiMauro
Contributing Editor

Thomas Fox
Contributing Editor

Marc Alain Bohn
Contributing Editor

Bill Waite
Contributing Editor

Shruti J. Shah
Contributing Editor

Russell A. Stamets
Contributing Editor

Richard Bistrong
Contributing Editor

Eric Carlson
Contributing Editor

What’s behind Key Energy’s ‘disgorgement-only’ settlement?

Key Energy Services, Inc. resolved an SEC enforcement action Friday by disgorging $5 million but not paying any other penalties.

The company’s Mexico unit had bribed an employee at state-owned Pemex for at least four years.

In most cases, the SEC resolves FCPA-related offenses with a civil fine and disgorgement. Why didn’t the SEC assess a separate penalty against Key Energy?

Two reasons. First, Key Energy’s precarious financial condition. These are tough times for the oil and gas services sector. The SEC said Friday it “considered Key Energy’s current financial condition and its ability to maintain necessary cash reserves to fund its operations and meet its liabilities.”

Second, the SEC credited Key Energy’s remediation and cooperation.

Here are some details, adapted from the SEC findings:

In January 2014, the SEC contacted Key Energy about potential FCPA violations.

(Was there a whistleblower? The SEC and the company haven’t said.)

In April 2014, Mexico employees told Key’s head office they had information suggesting the country manager, before he resigned, had promised bribes to at least one Pemex employee.

Key Energy reported the allegations to the SEC.

Key then launched “a broad internal investigation and risk assessment” of its international operations. When the internal investigation identified “additional issues of concern,” Key Energy updated the SEC.

While the internal investigation was happening, Key Energy began fixing its compliance function.

It hired a new chief compliance officer.

He “oversaw a renovation and enhancement” of Key Energy’s compliance program.

The renovation and enhancement included:

(1) suspending payments to all vendors and third parties in Mexico

(2) manually reviewing over 600 vendors in Mexico to clear legitimate payments and assess whether to move forward with those vendors in current and future operations

(3) reviewing all vendors the company was using in Russia and Colombia and adopting an enhanced due diligence procedure for all vendors globally

(4) establishing enhanced financial controls around the procedure-to-pay process in Mexico, Colombia, and Russia — including interim employee certifications requirements, revised vendor onboarding requirements, and heightened payment approval requirements

(5) implementing a “new business opportunities protocol” to help Key Energy’s legal department better understand business risks, including the role played by agents, consultants or other vendors and business partners, to enable better assessment of corruption-related risks in future business opportunities

(6) installing new controllers in the Colombia and Mexico businesses and more effectively enforcing a solid-line reporting relationship to the U.S. controller and ultimately the CFO

(7) in-person visits to each international location by the CCO and others to conduct training of all international employees

(8) developing or reviewing several company policies and procedures including the code of business conduct, the FCPA and anti-corruption policy, the travel and expense policy, and the new hire screening form, and

(9) winding down and exiting all markets outside North America, and committing to exit Mexico by the end of 2016.

Key Energy not only reported the Mexico allegations early and gave the SEC updates, it also shared its translations of important documents.

“These actions assisted the [SEC] in its investigation,” the agency said.

Key Energy’s financial condition, and its cooperation and remediation, could also have been reasons why the DOJ declined to bring an FCPA enforcement action. The DOJ hasn’t said why it issued the declination.

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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.

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1 Comment

  1. To me, the current financial situation of the company is a huge contributor to what, at first sight, seems to be a very lenient determination. The amounts and conducts disclosed would have pointed to a much larger penalty.


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