What’s wrong with bribing a foreign official or two?

Last month, the Financial Times reported that Goldman Sachs-backed Cobalt International Energy had partnered up with a local Angolan company as it sought rights to drill a world-class offshore oilfield. The company to which Cobalt offered the equity stake was partly owned by three senior Angolan officials, the FT wrote. Three months ago, Houston-based Cobalt went on to declare a discovery in a well called Cameia-1. Now, U.S. authorities are investigating Cobalt. [Update: Cobalt responds below.]

Angola has received much attention on the issue of payoffs in recent months. Global Witness, the U.K.-based investigative firm, has issued a report about $550 million in "social payments" provided to the state-owned oil company Sonangal by Cobalt, BP and a private Angolan-Hong Kong joint venture.

But this is just the way the oil business works on the frontier, as I write today at The New Republic. In December 2010, for example, Halliburton paid $35 million to Nigeria to settle a bribery case involving a big liquefied natural gas project that had drawn in former Vice President Dick Cheney. And not just the oil business – what makes the subject topical right now is a New York Times allegation of extensive bribery by Wal-Mart in Mexico.

I started looking at the phenomenon while based on the Caspian Sea in the 1990s. At the time, oil executives’ faces would go uncomfortably pale when you mentioned a certain known go-between for bribes to senior Azerbaijan officials. In Kazakhstan, feet would shuffle and voices get rattled at the mention of James Giffen, the New York lawyer who later was charged with serving as a conduit of foreign oil payoffs to President Nursultan Nazarbayev. Two years ago, Giffen was acquitted in federal court in New York — he did not contest the facts of the bribery accusations, but said he was innocent because the whole time he was serving his homeland, slipping inside dope to American intelligence agencies.

Things have changed. I talked to Joseph Covington, a Washington lawyer who in the 1980s headed the foreign bribery section at the U.S. Justice Department. He suggested that, unlike just a few years ago, American businessmen are no longer terrified of the Foreign Corrupt Practices Act, which outlaws bribery of foreign officials to obtain business. In the Caspian days, businessmen would fess up to bribery and pay for an extensive internal clean-up to avoid prosecution. That still is usually the case, but after Giffen showed that with the money and the gumption one can beat the FCPA, we are seeing more cases of executives electing to fight.

Covington says he advises clients to strictly follow the law, but that if they find that someone in their organization violated the FCPA anyway, that they not turn themselves in.

First, he said, there is less of a stigma about foreign bribery than a few years ago because "lots and lots of companies have been identified as having this problem over the last five to 10 years."

Second, Covington thinks that the Justice Department has become unreasonable by slapping large fines on violators whether or not they have confessed and gone to great lengths to remediate the problem. "I don’t recommend disclosure because I just don’t think the benefit is there," Covington said. He said:

I’ve gotta have a fairly high degree of risk this is going to get detected and prosecuted and some other factors, and weigh it in the balance. I’ve changed because the enforcement has.

So bribery will go on, many times suggested not by the locals, but by the foreigners competing for prized oil and other business. It is reality in many places, which look at payoffs not as bribes but as compensation for allowing a deal to go through. If Western authorities want to reduce this, they will have to scale back the punitiveness for the folks who come clean.

Cobalt responds: Cobalt emailed the following letter this evening. The lead paragraph has been corrected to show that a company in which the three Angolan officials allegedly held interests, and not directly the trio themselves, received a stake in the offshore oil venture.  

Steve,

I just read your piece in Foreign Policy entitled "What’s Wrong With Bribing a Foreign Official Or Two?" Let me start by clearly stating Cobalt absolutely agrees that bribery is illegal and ethically wrong and we have not and will not engage in such behavior.  Unfortunately, your piece misrepresents the facts and misinterprets the Financial Times story.  We hope this was unintentional but felt it important to bring this to your attention. To be clear, it is categorically false that Cobalt provided equity stakes to three senior Angolan officials — and the FT article did not state that Cobalt did, or even remotely imply so.

The opening line of your piece leads the reader to believe that Cobalt knowingly approached Angolan officials and offered them equity to secure drilling rights. While it is true that the FT reported allegations that Angolan officials owned stakes in one of our partners in Angola, they did not intimate that there was a direct connection between the alleged stakes and Cobalt securing drilling rights. The reality is that Cobalt did not play a role in selecting the partner companies. As is customary in the industry, the concessionaire determines who the partners will be.

Prior to the publication of the FT article, Cobalt went on the record asking for any documentation that the Financial Times could offer which was at odds with Cobalt’s position. The Financial Times declined Cobalt’s repeated requests for supporting documentation.

Cobalt began its investigation into its Angola business relationships in 2007 and enlisted the services of two international law firms to perform the due diligence to ensure that the company was in full compliance with all U.S. and Angolan laws.  Cobalt strongly refutes any allegations of wrongdoing in its operations in Angola and stands behind its principles of full compliance with all laws in all jurisdictions in which it operates. In fact, well over a year ago, it was Cobalt, not the Financial Times, that publicly disclosed the existence of these allegations regarding a partner in Angola.

As such, we request an update of your article to reflect the truth about our operations in Angola which the readers of Foreign Policy demand and deserve, or, at the very least, a formal correction.

 Regards,

Jeff

Jeff Starzec

Senior Vice President and General Counsel

Cobalt International Energy, Inc.