Sunday, January 20, 2013

ARINC, Synagro & Cobalt Energy: Carlyle PEU

The Carlyle Group's ARINC received a 33 month ban from the World Bank for "procurement violations," likely bribery.  Affiliate Synagro Technologies bribed the wife of Representative John Conyers (D-MI), who recently was released from jail.  The Carlyle Group settled a New York pension fund bribery (pay to play) investigation for $20 million, $70 million if one counts Carlyle's energy partner, Riverstone Holdings. 

Cobalt International may be the next Carlyle affiliate tainted by bribery for dealings in Angola.

Cobalt's 2012 10-K stated:

We may be exposed to liabilities under the U.S. Foreign Corrupt Practices Act, and any determination that we violated the U.S. Foreign Corrupt Practices Act could have a material adverse effect on our business.

We are subject to the U.S. Foreign Corrupt Practices Act ("FCPA") and other laws that prohibit improper payments or offers of payments to foreign governments and their officials and political parties for the purpose of obtaining or retaining business. We do business and may do additional business in the future in countries and regions in which we may face, directly or indirectly, corrupt demands by officials, tribal or insurgent organizations, or private entities. Thus, we face the risk of unauthorized payments or offers of payments by one of our employees or consultants, given that these parties may not always be subject to our control. Our existing safeguards and any future improvements may prove to be less than effective, and our employees and consultants may engage in conduct for which we might be held responsible

In connection with entering into our RSAs for Blocks 9 and 21 offshore Angola, two Angolan-based E&P companies were assigned as part of the contractor group by the Angolan government. We had not worked with either of these companies in the past, and, therefore, our familiarity with these companies was limited. In the fall of 2010, we were made aware of allegations of a connection between senior Angolan government officials and one of these companies, Nazaki Oil and Gáz, S.A. ("Nazaki"), which is a full paying member of the contractor group. Nazaki has repeatedly denied the allegations in writing. In March 2011, the SEC commenced an informal inquiry into these allegations. To avoid non-overlapping information requests, we voluntarily contacted the U.S. Department of Justice ("DOJ") with respect to the SEC's informal request and offered to respond to any requests the DOJ may have. Since such time, we have been complying with all requests from the SEC and DOJ with respect to their inquiry. In November 2011, a formal order of investigation was issued by the SEC related to our operations in Angola. We are fully cooperating with the SEC and DOJ investigations, have conducted an extensive investigation into these allegations and believe that our activities in Angola have complied with all laws, including the FCPA. We cannot provide any assurance regarding the duration, scope, developments in, results of or consequences of these investigations. 

In the future, we may be partnered with other companies with whom we are unfamiliar. Violations of the FCPA may result in severe criminal or civil sanctions, and we may be subject to other liabilities, which could negatively affect our business, operating results and financial condition. In addition, the government may seek to hold us liable for successor liability FCPA violations committed by companies in which we invest or that we acquire. 

"Contractor group" understates the relationship.  These firms are full blown equity partners.  Carlyle effectively partnered with the government official who approved Cobalt's lease, without any public bidding.  AllAfrica reported:

Mr. Manuel Vicente, then head of Sonangol, was also co-owner of Nazaki Oil and Gas, a company that set up a consortium with the U.S. oil company Cobalt. In 2010, Sonangol awarded two pre-salt oil blocs, 9 and 21, to the consortium (Cobalt 40 percent, Nazaki 30 percent, Alper Oil 10 percent and Sonangol Pesquisa & Produção, the remaining 20 percent) without public tender as required by law.
Furthermore, as head of Sonangol, Manuel Vicente selected the local equity partners, Nazaki and Alper, in clear violation of the Angolan anti-corruption laws. He selected his own company to be the main local partner of Cobalt, with which it still shares the same business address in Luanda.

In PEU fashion Vicente is now the Vice President for the Angolan government.  The deal reeked from the get go, when Carlyle's Cobalt paid the front money for Alper Oil and refused to reveal any information as to who was behind this mysterious company.  Cobalt is yet to reveal their 10% partner in any SEC documents.

PEU Report covered Cobalt's investor group in 2010.  The pattern of private capitalists suckling off government through huge contracts and exclusive franchises was already well entrenched.

Greed drives poor behavior, domestic and international.  Private capitalists and government leaders are set for their global reshaping session in Davos, Switzerland.  The World Economic Forum has a distinct odor, PEU.  My pet nickname for this greedy bunch?  It's private equity underwriters, abbreviated as PEU.

Update 3-3-13:  Detroit sewage sludge bribery has its counterpart with Chicago red light cameras.  Oddly, Carlyle almost owned Redflex, the red light camera vendor accused of corruption.  It would've been a fitting addition to any PEU family.

Update 2-16-14:  An Angolan General became a billionaire thanks to deals like Carlyle's   The headline read, "General Dino:  The new Angolan billionaire."  The third largest private oil and metals trader in the world, based in Switzerland, helped himself to "shell companies " to make the Angolan General richer by $750 million. The front man for Iron Angolan president is currently holder of a fortune above a billion dollars."  The last paragraph of the article states:  "General Dino owns an Angolan company - Nazaki Oil & Gas - north American partner of Cobalt International Energy business , whose main shareholders Goldman Sachs and a background set of power controlled by the Carlyle Group and Riverstone Holdings."

Update 8-15-14:  Africa is going PEU in a big way.  President Obama's Power Africa stands to enrich U.S. and African billionaires, like General Dino.   

Update 12-2-14:  Two pension funds are suing Cobalt and its PEU sponsors for losses due to corporate graft 

Update 3-29-15:  A U.S. newspaper columnist reported "Tom Burgis of The Financial Times has a powerful new book, “The Looting Machine,” asserting that firms, including Goldman Sachs and Carlyle Group, backed an oil company called Cobalt in investing in oil operations in which Angolan officials secretly held stakes worth staggering sums."  It's not an assertion.

Update 11-6-16:  Workers must bring their own toilet paper to work at Sonagol, now headed by the billionaire daughter of Angola's President.

Update 2-9-17:  The Justice Department could not find anything wrong with Carlyle's crony capitalism in Angola.

Update 6-17-17:  A piece on the $1 billion Guernsey lawsuit against Carlyle stated, "In testimony that provided flashes of Carlyle Group’s rarefied perch in the investment world, Mr. Conway said the Angolan government, CCC’s biggest investor, considered putting $500 million in the fund. The West African country ended up taking a $150 million stake."  That was in 2006 and 2007.  Carlyle knew the Angolan government quite well.

Update 10-2-19:  Bloomberg reported on Carlyle's latest venture in African oil, Boru Energy.  Carlyle will partner with former Tullow Energy executives.  Tullow was accused of paying $100 million in bribes to Uganda officials in 2011.  As noted earlier Carlyle has its own bribery history.  Together I expect them to shake up African oil.

Update 4-2-21:  Carlyle's Boru Energy is in talks to acquire Occidental Petroleum's oil and gas fields in Ghana.