7 June 2012
The Wall Street Journal publishes commentary by Andrew Mac

Oil Giants Launch Bribe Probes; Eni, Chevron, BG Group Investigating Whistleblower's Allegations of Payments to Kazakh Officials

By Christopher M. Matthews And Joe Palazzolo

Kazakhstan's Aksai City, a dusty outpost just across the border from Russia, is a key gateway for energy companies seeking to tap one of the country's richest oil and gas deposits, the Karachaganak field.

A nondescript office building in the heart of this 30,000-person town is now at the center of an unusual international investigation into allegations of bribery involving Eni SpA, Chevron Corp. and OAO Lukoil Holdings, among the world's biggest oil exploration companies, and Kazakh customs officials.

In March, members of Karachaganak Petroleum Operating BV and a logistics arm of Deutsche Post AG, which handles freight shipments for the group, received an anonymous email alleging improper payments for moving goods through the Aksai customs office.

In an unusual exchange, the tipster has continued to email details of payments, citing amounts, invoice numbers and manifest information in response to requests from the companies involved. Those emails allege that since 2004, Deutsche Post's DHL unit and KPO authorized regular cash payments to customs officials in Aksai, for paperwork errors as minor as including an extra box of steel nails in one shipment and two extra gaskets in another, according to the email.

Several of the companies launched separate investigations after receiving the first email in March from the tipster, spokeswomen said. That email, which has been reviewed by The Wall Street Journal, alleges that the KPO joint venture authorized DHL to bribe Kazakh customs officials to ignore paperwork irregularities that could have delayed the shipments. DHL employees characterized payments to customs officials, often the equivalent of $400, as "extra verification" payments, one of the emails said.

Legal experts say paperwork challenges and shipment delays are the type of troubles that companies operating in developing markets routinely face.

"KPO has begun a full investigation," said spokeswoman Gulnara Sharibayeva. The venture has hired outside lawyers and auditors to handle the internal probe. It "does not tolerate corruption in any form," she said.

DHL has hired an outside audit firm to assist in its internal investigation, said DHL spokeswoman Silje Skogstad. "You can assume that should the allegations prove true we will take any necessary action to sanction and stop the practice," she said.

Kazakhstan's Customs Control Committee, a branch of the country's finance ministry, is conducting an on-site audit of the customs post in Aksai, said committee chairman Mazhit Esenbayev. He declined to comment further.

A U.S.-based attorney said he has been hired to represent the person who sent the emails to KPO. It isn't clear if the Securities and Exchange Commission and the Justice Department, which jointly oversee allegations of bribery abroad, are investigating. The agencies declined to comment.

If the SEC gets involved and finds wrongdoing after a whistleblower complaint, a tipster stands to gain as much as 30% of any monetary sanction the agency recovers. Since 2009, Justice has entered into more than 40 settlements and plea deals under the Foreign Corrupt Practices Act with companies for a total of more than $2 billion in criminal penalties. In that same time, the SEC has brought more than 40 civil enforcement actions.

Details provided by the anonymous emails cast in sharp relief the difficult choices companies face operating in developing countries. According to a person familiar with the matter, KPO logistics officials ordered DHL representatives in Aksai in March 2011 to stop payments to customs officials. For the next three days, customs inspectors found problems with virtually every KPO shipment. Nothing was cleared to pass, according to this person, until DHL resumed the payments on the fourth day.

Customs officials in Kazakhstan can make a contraband finding for discrepancies between the description of goods in shipping documents and the actual contents of a shipment, triggering an administrative process that takes anywhere from days to months to resolve, legal experts said.

The former Soviet state is perceived to be among the most corrupt in the world, scoring 120 out of 183 countries on Transparency International's Corruption Perceptions Index.

Italy's Eni and U.K. natural gas company BG Group PLC are the venture's operators and Chevronand Lukoil are minority partners. The Karachaganak field is one of the region's richest in oil; it produced some 133.7 million barrels of oil and gas equivalent in 2010.

Representatives of Eni and BG Group said they had ensured that KPO began a full investigation. A spokeswoman for Chevron said the company was confident the probe would be thorough and that appropriate steps would be taken if wrongdoing was found. A Lukoil spokesman declined to comment.

Companies whose shipments are seized for irregularities by Kazakh customs inspectors may appeal to an administrative court. But the proceedings can take months to resolve and result in penalties, including confiscation, legal experts said.

The appeals process "can hold up a shipment from weeks to months, and sometimes companies can't afford that," said Andrew Mac, a Washington-based partner of Egorov Puginsky Afanasiev & Partners who specializes in corporate compliance and anticorruption issues in Eastern European states.

But "economic extortion is not a defense to the FCPA," said Martin Weinstein, a partner at Willkie Farr & Gallagher LLP who represents companies in FCPA matters.

The law contains an exception for "facilitation payments"—a nominal fee paid to officials to perform routine duties. A company that has to pay a foreign official extra just to do his job—whether it be hooking up a phone line or releasing a shipment—could argue that it is acting within the exception, Mr. Weinstein said.

But the legal line between a bribe and a facilitation payment is ill-defined, said John Kelly, a former federal prosecutor and now managing partner at Bass, Berry & Sims PLC's Washington, D.C., office.

"I don't think there's a magic number," Mr. Kelly said. "It's factually driven—the frequency of the payments, the value of the payments, the purpose of the payments. The government would look at all of that."

Nonna Fomenko contributed to this article.

Write to Christopher M. Matthews at christopher.matthews@dowjones.com and Joe Palazzolo at joe.palazzolo@wsj.com