LAUREN ALVAREZ—On March 3, 2018, a litigation trust for Venezuela’s state-owned oil company, Petróleos de Venezuela, S.A. (“PDVSA”), sued international oil companies Lukoil, Glencore, Trafigura AG, and Vitol, among others, in the United States District Court for the Southern District of Florida for allegedly participating in a conspiracy to bribe Venezuelan officials and corrupt oil company employees in exchange for advance information about crude oil prices.
According to the complaint, this action arises from a decade-long conspiracy—referred to as the Helsinge Enterprise—among international oil companies and traders, their banks, and co-conspirators, including corrupt agents and officials of the state-owned energy company, to fix prices, rig bids, and eliminate competition in the purchase and sale of crude oil and hydrocarbon products resulting in billions of dollars of losses to PDVSA.
The Helsinge Conspiracy—What the Complaint Says
In 2001, Francisco Morillo and Leonardo Baquero, two Venezuelan nationals, created a consulting firm to market intelligence to energy traders doing business with PDVSA. Then, according to the complaint, in 2004 Morillo and Baquero formed an energy advisory and trading firm called Helsinge, Inc., to market intelligence to traders doing business with PDVSA. Helsinge originally operated in Venezuela, then relocated their principal place of business to Miami, Florida.
According to PDVSA, Morillo and Baquero formed seven shell corporations operated by Helsinge to disseminate inside information on PDVSA’s tenders for the sales of its hydrocarbon products and purchase of light crude oil products and distribute ill-gotten gains between corrupt PDVSA employees and international oil companies.
PDVSA’s policy is to buy and sell products only from traders that are pre-approved to do business with PDVSA. According to the suit, Morillo and Baquero leveraged their pre-existing contacts within PDVSA’s Commercial and Supply Department and thereby entered into illicit agreements with management.Through these agreements, Morillo and Baquero would pay PDVSA employees bribes in exchange for advance, confidential information concerning the state-owned oil company’s future tenders for its purchases and sales of hydrocarbon products and bids made by competing oil traders.
According to allegations, employees would typically learn of PDVSA’s supply available for sale approximately forty-five to sixty days before a tender would be issued to the marketplace for bids. Upon information, corrupt employees would communicate that information to Morillo and Baquero who would relay it to conspiring oil companies. If any of the conspirators were interested, Morillo and Baquero would tell PDVSA employees, who would change the terms of the tender to ensure that one of the participating co-conspirators had the winning bid
On the other end,the oil companies purportedly retained the shell companies to conduct market research or business intelligence, for a non-refundable, monthly fee between $15,000 and $150,000, plus added compensation of $.05 to $.22 per barrel of oil product bought from or sold to PDVSA by the oil companies, to fund the bribes.
Assuming the allegations have merit, while the defendants were already existing traders approved to do business with PDVSA in 2004, the advance receipt of confidential information provided the defendants an acute advantage over their marketplace competitors, many of whom were other oil trading companies in the United States, in violation of federal law. For instance, bribery provisions in the Foreign Corrupt Practices Act prohibit the willful use of any means or instrumentalities of interstate commerce to provide money or anything of value to any person knowing that all or a portion of the value directly or indirectly is given to influence a foreign official in his or her official capacity, or to secure any improper advantage in order to assist in obtaining or retaining business for or with any person. Assuming the truth of the allegations, the defendants would be liable for knowingly transferring funds to shell corporations for the purposes of obtaining or retaining business at the expense of law abiding competitors.
The Current Status of the Litigation
The PDVSA US Litigation Trust claims that the court has federal question jurisdiction because the action arises out of violations of the federal laws such as the Foreign Corrupt Practices Act and U.S. money laundering statutes. The litigation trust claims venue is proper in the Southern District of Florida because it is where a substantial portion of the affected interstate trade and commerce took place and several of the Defendants reside and have offices.
On the other hand, the defendants claim the litigation trust lacks standing because the National Assembly, Venezuela’s legislature, never approved its contract to pursue the claims, as is required to validate international contracts of or on behalf of Venezuelan public companies. Moreover, the defendants have urged the court to dismiss the suit on the grounds that Venezuelan government officials have acted in bad faith by preventing two witnesses from being deposed.
At a hearing, the defense informed the court that President Nicolas Maduro and PDVSA President Manuel Quevedo had barred PDVSA’s general counsel Hilda Cabeza from leaving the country for a deposition regarding the creation of the litigation trust. Significantly, the Trust Agreement Preamble provides that it was entered into by PDVSA “acting in this matter through the Minister of the People’s Petroleum Power as a representative duly authorized to take action on behalf of PDVSA.” The trust was entered into and executed on behalf of PDVSA by Nelson Martínez, the then Minister of the People’s Petroleum Power. Since then, Martínez has been arrested on corruption-related charges. Although not a designated party, Reinaldo Muñoz Pedroza, who was at the time and remainsVenezuela’s Procurador General de la República (or attorney general), is also a signatory of the trust agreement. Pedroza was also barred from leaving the country for a deposition related to the origins of the trust agreement.
This case reflects some of the constitutional and procedural difficulties involving foreign nationals in U.S. litigation. The Haugue Convention on the Taking of Evidence Abroad provides alternative means to discover material information in spite of Maduro’s bad faith. If all else fails, parties may request proceedings to obtain the deposition testimony in Venezuela.