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Abb Vetco Gray Inc., an oil services firm with a history of bribing foreign officials, may sound like an unlikely buyout candidate. But a private equity group is on the verge of plunking down big money for the confessed serial briber in the wake of a settlement reached last week. On July 6, the U.S. government settled its investigation of Vetco Gray, and in the process laid out a blueprint for buyers who wish to avoid successor liability under the Foreign Corrupt Practices Act of 1977 (FCPA). The Swiss-Swedish engineering giant ABB Ltd. agreed to disgorge nearly $6 million in profits to settle a civil claim filed by the U.S. Securities and Exchange Commission (SEC) under the FCPA, alleging that two ABB units paid bribes, falsified their records and failed to maintain effective internal controls. The two ABB units, Vetco Gray of Houston and Vetco Gray UK of Aberdeen, Scotland, pleaded guilty to two felony counts of bribery and agreed to pay a $10.5 million penalty in a parallel FCPA case brought by the Justice Department before U.S. District Judge Vanessa Gilmore in the Southern District of Texas. The settlement and guilty pleas clear the way for ABB to close a $925 million sale of oil, gas and petrochemicals assets, including Vetco Gray, to a private equity group comprising J.P. Morgan Partners LLC, London equity investor 3i Group PLC and Candover Partners. Limo service and pedicures According to the SEC complaint, ABB units paid bribes of at least $1.1 million between 1998 and 2003 to Nigerian, Angolan and Kazakh officials with influence over the awarding of government contracts. In one vivid instance, ABB’s country manager allegedly handed out $21,600 from a brown paper bag to five Angolan oil officials. Though ABB neither admits nor denies the civil allegations, Vetco Gray has admitted details of its criminal conduct in Nigeria. The largest payments, totaling more than $800,000, were made in connection with a contract awarded to a Vetco Gray joint venture in 2001 for supplying undersea drilling equipment to Bonga Oil Field in Nigeria. In an internal e-mail, a Vetco Gray employee encouraged a colleague to “understand the importance of keeping these people happy.” One such person from Nigeria’s National Petroleum Investment Management Service received a country club membership and limousine service. Another received pedicures. “This is some of the most egregious conduct we’ve seen in the FCPA context,” said Paul Berger, associate director of enforcement at the SEC. “What you’ve seen over the last few years is the commission bringing more FCPA cases and imposing stiffer sanctions for violations. This is the first time the SEC has sought disgorgement of ill-gotten gains in the FCPA context. Perhaps listed companies will consider the consequences or costs of engaging in this type of misconduct.” Despite the lurid details that came to light, lawyers on all sides are delighted to have cleared the way for a sale. They were reminded of the alternative only a week earlier, when a $1.6 billion bid by Lockheed Martin Corp. to acquire Titan Corp. collapsed over corruption concerns. Perhaps the most extraordinary aspect of Vetco Gray’s compliance review is that it was conducted jointly by the unit’s seller and buyer. There is only one precedent. In December 2002, Syncor International paid a $500,000 civil penalty, and its Syncor Taiwan unit paid a $2 million criminal fine, paving the way for the acquisition of Syncor International by Cardinal Health Inc. In January 2003, the Justice Department issued an FCPA Opinion Procedure Release, to assure Cardinal that, on certain conditions, it would not be tagged with successor liability. If the Vetco Gray deal follows the same pattern, the Justice Department will soon issue a similar release for the benefit of the private-equity purchasers. The seller’s lawyer, Danforth Newcomb, the head of banking litigation at New York’s Shearman & Sterling, said that although the Syncor settlement was the first, the ABB deal provides a practical model for a corruption compliance review conducted jointly between a seller and a purchaser. “This is proof of concept,” Newcomb said. The buyers’ lawyer agrees. “This provides a road map,” said Ray Banoun, who heads the business fraud group at New York’s Cadwalader, Wickersham & Taft, “for what purchasers need to do to avoid successor liability under the Foreign Corrupt Practices Act.”

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