[UPDATE 04-24-19 Samsung successfully petitioned to move the case to federal court – Southern District of Texas]
Petrobras Americas has filed a lawsuit in Harris County against Samsung Heavy Industries over a $20 million bribery scheme involving Pride International. Pride had its head office in Houston before being acquired by Ensco in 2011. Petrobras is alleging the bribe was used to obtain a drilling contract unusually favorable to Pride.
Plea deal – Independent Consultant
The lawsuit arises from a plea deal in 2015 involving Hamylton Padilha. He was an independent consultant that Pride hired to assist in winning the Drilling Services Contract with Petrobras. Back in November I wrote about Padilha’s role in a different bribery case involving another Houston driller, Vantage Drilling International.
As part of his plea deal, Mr Padilha stated that he negotiated bribes to Petrobras officials with the help of Hyun-Ju (“Harry”) Park, the Vice President and chief representative for Samsung’s office in west Houston. In 2007 Pride and Samsung signed a contract to build a drillship with an option to build a second one for $580 million.
The $20 million bribe
Shortly before Pride exercised that option a few months later, Samsung increased the price by approximately $30 million. This included $20 million for “unexpected labor and material costs”. Padilha would later use the $20 million to bribe Petrobras officials into signing the drilling contract with Pride. The bribes were paid by Samsung through two shell companies between February 2008 and November 2011.
Lucrative Drilling Contract
Petrobras is alleging that some of the contractual terms were unusually favorable to Pride. Over the life of the contract, Petrobras believed it paid excessive expenses due to corruption or when the drillship was non-operational in the amount of $160 million. Petrobras also states that it paid excessive expenses when the rig was placed on permanent standby, in the amount of $98 million.
Ensco – no action from SEC or DOJ
The drillship contract was canceled by Petrobras in January 2016 after they learned of the bribes. Ensco initiated arbitration proceedings against Petrobras over the cancellation in April 2016. However the two companies settled without any money changing hands in August 2018.
In its recent annual report, Ensco disclosed that, in August 2018, the SEC and US Dept of Justice closed their inquiries into the matter without taking any action. Ensco is still under investigation by the Brazilian authorities.
The lawsuit has just been filed and Samsung has not yet formally responded. It’s got a long way to go before resolution and I would imagine there will be arguments about whether Harris County is the proper jurisdiction.