On 26 September 2008, Petróleos Mexicanos ("Pemex"), Mexican state-owned energy company, awarded Key Energy Services de Mexico S. de R.L. de C.V. ("Key Mexico"), Mexican subsidiary of Key Energy Services Inc. ("Key Energy"), a 24-month term contract for field production solutions and well workover services in Mexico's North Region worth USD 65 million.
In or around August 2010, Key Mexico's country manager allegedly hired a consulting firm to provide expert advice on contracts with Pemex. Although the country manager allegedly knew that payments to consulting firm will funnel to a Pemex employee in the department that negotiated and approved Key Mexico's Pemex contracts, the country manager arranged and approved the hiring allegedly without disclosing the nature of the relationship to Key Energy. Key Mexico allegedly neither entered into a written agreement or contract with the consulting firm nor conducted due diligence, despite requirements in Key Energy's policies.
Between 16 August 2010 and 7 May 2014, Key Mexico allegedly paid the consulting firm 58 payments totaling approximately USD 561,000 consisting of monthly consulting fee of approximately USD 4,500 which eventually increased to USD 8,000 when Key Mexico obtained an additional Pemex contract. Of the payments, at least USD 229,000 were paid before April 2013 for consulting services described on Key Mexico's accounting system as expert advice on Pemex contracts. In addition, Key Mexico's country manager allegedly made four wire payments totaling approximately USD 6,400 from the country manager's personal bank account to the personal bank accounts of the Pemex employee.
In exchange, the Pemex employee allegedly provided assistance to Key Mexico in bidding for and obtaining amendments to Pemex contracts. For example, the Pemex employee allegedly provided Key Mexico with non-public information about upcoming Pemex tenders and lobbied internally at Pemex for lucrative amendments to Key Mexico's Pemex contracts.
Key Mexico allegedly recorded the payments to the consulting firm as legitimate business expenses in its books and records, which were later consolidated into Key Energy's books and records.
Key Energy allegedly became aware of Key Mexico's relationship with the consulting firm as early as 2011 but allowed the arrangement to continue until 2013. Key Energy also allegedly failed to conduct its own due diligence on the consulting firm. As a result, Key Energy allegedly did not discover the consulting firm's ties to the Pemex employee until 2014 when Key Energy began an internal investigation into other allegations concerning the country manager.
The country manager resigned from Key Mexico in February 2014.
In January 2014, the SEC advised Key Energy that it is investigating possible violations of the U.S. Foreign Corrupt Practices Act ("FCPA") involving business activities of Key Energy's operations in Russia.
Since it became aware of the allegations in April 2014, Key Energy undertook a broad internal investigation and risk assessment of Key Energy’s international operations, including Mexico and Russia.
Key Energy's Board of Directors formed a special committee of independent directors to oversee the the investigation into both Mexico and Russia operations and retained external independent legal counsel to continue the investigation.
To the extent the internal investigation identified additional issues of concern, Key Energy provided updates to the U.S. Securities and Exchange Commission ("SEC").
On 30 May 2014, Key Energy voluntarily disclosed the allegation of the FCPA violation involving Key Energy's Mexico operations and information from their international investigation to the SEC and the U.S. Department of Justice ("DOJ").
On 28 April 2016, the company disclosed that the DOJ had closed its investigation and would not be prosecuting the company.
In January 2014, the SEC advised Key Energy that it is investigating possible violations of the FCPA involving business activities of Key Energy's operations in Russia.
On 30 May 2014, Key Energy voluntarily disclosed the allegation of the FCPA violation involving Key Energy's Mexico operations and information from their international investigation to the SEC and the DOJ.
On 11 August 2016, Key Energy entered a cease-and-desist order with the SEC to settle the charges that it violated the internal controls and books-and-records provisions of the FCPA. As part of the settlement, Key Energy agreed to pay a disgorgement of USD 5,000,000. The SEC noted that it considered Key energy's current financial condition and its ability to maintain necessary cash reserves to fund its operations and meet its liabilities in determining the disgorgement amount.
The SEC further noted its consideration of Key Energy's cooperation and remedial acts undertaken by the company in its decision not to impose a civil penalty.
Allegations regarding Key Energy's Russian operations were not mentioned in the SEC's order.
Key Energy voluntarily disclosed the allegations involving its Mexico operations to the US authorities on 30 May 2014.