EIG accuses Keppel unit of planning to pay bribes till 2019

Several funds managed by EIG Management have filed a lawsuit in New York against Keppel Offshore & Marine under the Racketeer Influenced and Corrupt Organisations Act (Rico).
Several funds managed by EIG Management have filed a lawsuit in New York against Keppel Offshore & Marine under the Racketeer Influenced and Corrupt Organisations Act (Rico). PHOTO: KEPPEL

A US fund manager has accused Keppel Offshore & Marine of planning to pay bribes until 2019 but for the Brazilian government's investigation, according to US court papers seen by The Straits Times.

Several funds managed by EIG Management have filed a lawsuit in New York against the Keppel Corp unit under the Racketeer Influenced and Corrupt Organisations Act (Rico).

EIG is suing Keppel O&M in a second attempt to recover US$221 million (S$292 million) in investments in Sete Brasil - a unit of Brazilian oil giant Petrobras - that were rendered "worthless" after the massive corruption scandal exposed through Brazil's Operation Car Wash in 2014 led to Sete's bankruptcy.

Shortly after EIG funded its first investment in Sete, Keppel issued a press release on Aug 7, 2012, stating it had "firmed up contracts" with Sete for the construction of five drillships for about US$4.1 billion.

The drillships were "scheduled for delivery (until the third quarter of) 2019", EIG said in the court papers, citing the press release.

"Given that Keppel's bribes and kickbacks were funded by Sete's construction payments, Keppel would be paying bribes and kickbacks through... 2019," it alleged in court papers filed on Feb 6.

Keppel told the Singapore Exchange on Tuesday that it has been served with a summons in the new suit, but said "the reported cause of action is without merit and Keppel O&M will vigorously defend itself".

When contacted, Keppel said that it was "unable to add anything further".

EIG first sued Keppel, Keppel O&M, Sembcorp Marine and two others in 2016, alleging that US$9.5 million in bribes had been paid by agents of Keppel and SembMarine to officials of Petrobras, its unit Sete Brasil and Brazil's Workers' Party to procure contracts.

The suit was dismissed last April. But EIG got a break when Keppel O&M in late December reached a US$422 million global settlement with the United States, Brazil and Singapore over violations of the Foreign Corrupt Practices Act (FCPA).

This related to US$55 million in bribes paid by Keppel O&M from 2001 to 2014 to officials at Petrobras and the then ruling Workers' Party in Brazil to secure 13 contracts with Petrobras and Sete.

In its new suit, EIG is seeking at least US$663 million, triple the damages under Rico.

It said: "Keppel's admission in the DPA (deferred prosecution agreement) that it committed violations of the FCPA constitutes an admission that it conspired to commit... the Rico predicate acts of money laundering."

EIG said Keppel "admitted that it drafted and executed agreements with consulting companies controlled by (former Keppel agent Zwi Skornicki)... to facilitate the bribe payments".

"Under the guise of these agreements and instructions by Keppel, Skornicki made payments to bank accounts in the US and elsewhere in the name of shell companies he controlled," said the US firm.

"Skornicki then wired the money from those bank accounts in the US to bank accounts outside the country... for the benefit of executives at Petrobras, Sete and members of the Workers' Party."

EIG also alleged that Keppel O&M, from 2001 to 2011, had authorised bribes of about US$40 million to Petrobras and the Workers' Party to secure seven contracts worth US$4 billion.

From 2012 to 2014, Keppel allegedly authorised US$14.4 million of bribes to secure six drillship contracts with Sete, EIG added.

The court documents also spotlighted the role played by former senior Petrobras executives Pedro Jose Barusco Filho and Joao Carlos de Medeiros Ferraz.

As part of a plea agreement, Barusco had testified to the Brazilian Congress that he and Ferraz had opened accounts in the names of "phantom offshore companies for the purpose of laundering the Sete-related bribes including that from Keppel".

Barusco was originally sentenced to 18 years' jail in 2014 but that was reduced to two years of alternative confinement because of his cooperation with the authorities.

"When Barusco requested a bribe, Skornicki 'reported that to Singapore directly', and Skornicki 'ended up going to Singapore five times a year' and 'they authorised' him to pay bribes," EIG alleged, citing Skornicki's testimony.

Ferraz, Barusco and a Sete executive have subsequently agreed to disgorge nearly US$100 million of the bribes that they received from Keppel and secreted into Swiss bank accounts opened in the names of phantom entities, EIG alleged.

A version of this article appeared in the print edition of The Straits Times on February 16, 2018, with the headline 'EIG accuses Keppel unit of planning to pay bribes till 2019'. Print Edition | Subscribe