ENI and ex-CEO indicted for Saipem FCPA

Saipem, a 30%-owned subsidiary of ENI, is under investigation in the US, in Italy and in Algeria for alleged bribes of $275mn supposedly paid out to various Algerian public figures and other intermediaries to secure some $10Bn of pipeline construction contracts in that country. The main corruption trial starts in Italy on February 6th and another parallel trial is set to start in Algeria shortly ("l'affaire Sonatrach 2").

As stated on Tuesday, ENI itself is under investigation by Nigerian, Italian and US authorities for a major Nigerian bribery case.  The Algerian investigation was started formally in 2011, whilst ENI and Snamprogetti (a subsidiary of Saipem) were still covered by a two year deferred prosecution agreement after paying $365 million in fines for an earlier bribery case in Nigeria. Back in 2011 ENI owned 43% of, and "exercised control over" Saipem: it still does, despite having reduced its stake to 30.5%. The initial indications and internal alerts are said to go back to 2009.

In 2012 the Italian inquiry picked up steam and heads started to roll. In December that year Saipem's CEO resigned and two senior executives were suspended. That same week the CFO of its parent company, ENI, stepped down (he had previously been the CFO of Saipem). Initially the investigation focused on pipeline contracts valued at $580mn with notional bribes of between $180-200mn which sounded somewhat excessive: in time the information has grown to suggest contracts to the tune of $10bn and payments of $275mn.

The role of Farid Bedjaoui

In August 2013 an Algerian blog started to set out details of who paid what amounts and via what corporate structure (another example of why one should monitor the periphery). The name of Farid Bedjaoui had first surfaced in February of that year, but the Algerie-focus article on the Sonatrach-Saipem 'scandal' if true, suggested that his role was far more that a mere intermediary between Saipem and Sonatrach.  It is alleged that Mr Bedjaoui was contracted by Saipem to help the company gain contracts from Sonatrach in return for a commission of 3%.  It is also alleged that of this 3% certain amounts found their way back to senior officers of Saipem.  Mr Bedjaoui is thought to currently reside in Dubai, keeping away from the law: he has an Interpol red notice on him.

The article suggested that Bedjaoui, nephew of a past Algerian Minister of Justice and Ambassador to France and to the UN for Algeria (Mohamed Bedjaoui) in fact had been helping one Chakib Khelil whilst the latter was still CEO of Sonatrach and prior to his elevation to Minster of Energy & Mines.  During this earlier period Sonatrach decided to liquidate key holdings that the State oil company had in Duke Energy and Anadarko and to invest the proceeds with Russell Investments.  The latter had an agreement with a Dubai-based "asset manager" which acted as its agent throughout the Middle-East called Rayan Asset Management.  The co-founder of Rayan Asset Management was a certain Farid Bedjaoui, who can be seen clearly in the attached photograph - bottom right.

Saipem COO turns State's witness

In February 2014 matters took a serious turn for both Saipem and ENI with Saipem's ex-COO, Pietro Varone telling prosecutors that Paolo Scaroni, CEO of ENI not only knew of the scheme but that "he knew everything".  Mr Scaroni states that he had no involvement in any 'agreements' between Saipem and the Algerian Minister or his middleman: yet one email date July 10th 2008 seized by the Italian prosecutors refers specifically to "meeting between Scaroni and F".  Pietro Varone claims he set up the meeting and that "F" was Farid Bedjaoui.

Subsequently the Italian authorities not only increased their focus on the role of ENI's then-CEO Paolo Scaroni, but also investigated the transactions of his family trust. Mr Scaroni subsequently resigned from ENI. In October 2015 both Mr Scaroni and ENI were cleared of any wrongdoing in the Saipem bribery case, whist six Saipem managers and ex-managers were sent for trial.

However in February 2016 a higher court overturned the acquittal and in July of last year Mr Scaroni was once again indicted, this time on the back of a large batch of embarrassing documentation.

Panama Papers happens...

On July 25th 2016 the ICIJ published a major article about the use of hidden offshore companies to pay bribes and "commissions" to key players in major resource contracts across Africa: the cause celebre that the ICIJ used for the cover story was that of Saipem and Sonatrach.  In his work as the apparent middleman, Mr Bedjaoui had used Mossack Fonseca to create twelve of the seventeen offshore companies being investigated by the Italian authorities regarding the Saipem investigation.

"Italian investigators described one of those companies, Minkle Consultants S.A., as a “crossroads of illicit financial flows” that channelled millions of dollars from subcontractors to an array of recipients whose identities are still being untangled."

The Saipem trial is set to begin on February 6th. It will doubtless be closely watched by both the DoJ and the SEC. If Saipem is found to have knowingly broken the law at a time when one of its own subsidiaries was being tried and then sentenced in the US for FCPA offenses, and were the court to find that Mr Scaroni had direct or indirect knowledge of the affair(as per the statement by Saipem's ex-COO), both Saipem and its parent ENI may find that US leniency can run dry.