In October, the Wall Street Journal reported that the (US Department of Justice) DOJ was investigating allegations of possible bribery in Yemen by Schlumberger Ltd., in connect with Schlumberger’s 2002 agreement with the Yemen government to create a national exploration data-bank for the country’s oil industry. The allegations involve a foreign business representative, Zonic Invest Ltd., which became involved in the 2002 Data Bank Development Project between Schlumberger and Yemen’s national oil company, the Petroleum Exploration and Production Authority.
Zonic’s General Director is the nephew of the then and current President of Yemen, Ali Abdullah Saleh. From the WSJ article, it was not clear the precise business relationship between Schlumberger and Zonic, for instance: whether Zonic was an agent of Schlumberger, a joint venture partner or simply a contractor.
In the WSJ article there were several reported allegations which stand out as classic Red Flags in Foreign Corrupt Practices Act (FCPA) compliance policies. Initially, Petroleum Exploration and Production Authority had urged Schlumberger to hire Zonic as a go-between at or near the time the contractual negotiations were nearing conclusion.
Second the data-bank project went forward after Schlumberger “agreed to hire and pay Zonic a $500,000 signing bonus” then the contract between Schlumberger and the Petroleum Exploration and Production Authority was concluded. Indeed the General Director of Zonic was quoted as saying, “If it wasn’t for Zonic, there would have been no data-bank project.” Lastly, the WSJ article does not reference that any written contract was executed between Schlumberger and Zonic for this $500,000 payment.
As many Red Flags that may have been raised in the WSJ report of the actions and statements that transpired before the contract for the data-bank project was concluded between Schlumberger and the Petroleum Exploration and Production Authority, there were several raised thereafter. After the contract for was concluded, WSJ reported that internal Schlumberger documents revealed that “Zonic wanted a roughly 20% cut of Schlumberger’s profits from the project.”
While Schlumberger did not agree to pay such percentage of profits outright, it was noted that Schlumberger documents stated that the Yemen country manager had “suggested that those amounts could be compensated [to Zonic] through services.” These services were said to include providing personnel to the project, networking, furniture and computer hardware. Payments for such services were made, even though there was no contract between Schlumberger and Zonic, from 2002 to 2004.
A contractual relationship between the parties was established in 2004 and lasted until at least 2007. The total amount paid by Schlumberger to Zonic was reported to be $1.38 from 2003 to 2007. However, with regards to the services and products supplied by Zonic to Schlumberger, the WSJ noted that some were “above market rate” and others were unnecessary; specifically noting that over $200,000 was paid for certain computer hardware, “although Schlumberger itself was among the leading providers of such hardware.” The Daily Finance Blog reported, in an October 8, 2010 posting, that Zonic did not provide some of the services for which it was paid.