Worley denies corruption in Ecuador dealings

Sydney-headquartered global contractor Worley (ASX: WOR) has denied any corruption, illegality or bad faith in Ecuador after an international tribunal quashed its attempts to recover receivables unpaid by state oil company Petroecuador. 

Worley secured two major contracts in Ecuador in 2011 but payments were discontinued in 2016 after the Panama Papers revealed its subcontractor Tecnazul had bribed officials.

In 2019 the company sought to recoup these payments under the Bilateral Investment Treaty between the USA and Ecuador, but on 22 December last year the tribunal comprising three lawyers dismissed Worley's aspirations and ordered it to pay more than US$6 million in legal costs to the South American country's government.

Worley's announcement today follows reporting from The Australian noting the company did not mention references to corruption in the tribunal's findings in December in its disclosures to the ASX, reporting to shareholders that its arbitration was dismissed on jurisdictional grounds.

The tribunal noted that an 'absence of corruption' was central to Worley's case, but alleged 'the claimant participated in serious corrupt activities during the operation of its investment'.

"It is not in dispute that during the operation of the claimant's investment, Tecnazul paid more than US$1.2 million in bribes to the same officials of Petroecuador who supervised the operation of various contracts of the claimant," the tribunal said.

"It is unlikely that the subsequent awarding of six supplementary contracts for the Esmeraldas refinery, between 2012 and 2015, in non-competitive procedures, could have occurred without Worley having become aware of Tecnazul's illegal bribery scheme."

The tribunal also claimed that it took Worley five months to cut ties with Tecnazul after the Panama Papers came to light. 

The company entered a trading halt following yesterday's coverage, which was lifted today with Worley claiming inaccuracies in coverage from unspecified outlets. Worley shares have since dropped by 2.3 per cent.

"Worley disagrees with the decision and is considering the options for further legal proceedings," the company stated in a release to the ASX today.

"The decision was confidential under applicable rules at the time it was issued but since then, Ecuador has made the decision public.

"The tribunal’s decision to dismiss the arbitration is based on jurisdictional and admissibility grounds relating to corruption, illegality and bad faith by Worley and a subcontractor, including wilful blindness by Worley to the subcontractor’s corruption."

Worley claims that because the tribunal dismissed claims on these grounds, it did not address the merits of Worley’s claim for payment of the Worley receivables.

"Worley denies any corruption, illegality or bad faith on Worley’s part. In particular, Worley did not breach anti-bribery and corruption laws. Worley takes its responsibilities under such laws extremely seriously," the company stated.

"Principals of a Worley subcontractor were prosecuted and found to be corrupt by an Ecuadorian court. Following investigations, Worley terminated its connection with that subcontractor in 2016 as soon as it became evident to Worley that the subcontractor had engaged in wrongdoing.

"Worley had followed proper processes, including conducting due diligence, and denies that it was wilfully blind in respect of the subcontractor’s corruption. Since 2017, Worley has further strengthened its processes for engagement of business partners and subcontractors."

The Australian referred to the decision as a $700 million arbitration loss for Worley, but the contractor claims the net amount owed was just $58 million - an amount marked as non-current in Worley’s periodic reporting since FY19.

This contrasts with the figure published by the Attorney General's office of Ecuador, which claims Worley had sought US$198 million ($296 million). In its submissions to the tribunal, Worley asserted its request for costs was reasonable given the amount in dispute was approximately US$470 million ($700 million), in addition to the amount and scope of factual evidence and expert reports that were required, the "conduct" of the parties during proceedings and the extensive travel requirements across multiple jurisdictions.

"The media also reported an alleged tax liability in Ecuador. Worley believes that it has complied with its tax obligations and that the tax positions in the financial statements have been appropriately taken," the company also noted in its statement.