NEW YORK/MEXICO CITY, March 7 The company at the center of an alleged fraud that forced Citigroup Inc to cut its 2013 profit won billions of dollars in contracts from Mexico's state oil monopoly over the past decade, even after Mexican officials and private lawsuits raised red flags about the contractor's activities.
From 2003 to last year, Oceanografia SA, a provider of engineering and maintenance services on offshore oil platforms and pipelines, signed more than 100 contracts worth nearly $3 billion with state-owned Pemex, according to a Reuters review of Mexican government contracts.
As those deals were being made, Mexico's Federal Audit Office, known as the ASF, was raising questions about Pemex's contracting relationship with Oceanografia. It audited the state-run oil firm in 2006 over alleged irregularities in several multi-million-dollar contracts with Oceanografia.
The ASF said in a report it found cases in which Oceanografia appeared to have received favorable treatment from Pemex. It urged Pemex's internal control office to examine whether Pemex officials improperly changed contracting terms at Oceanografia's request and favored the firm over competitors.
The ASF's power is limited: It can only investigate government entities and does not have the authority to sanction them.
A spokesman for Pemex did not reply to Reuters' requests for comment on how it responded to the ASF report. Oceanografia said in a statement last month that it had always acted within the law in its dealings with Pemex.
After the ASF's report appeared in 2006, Oceanografia went on to win $2 billion in contracts. The firm says it receives about 97 percent of its revenue from government contracts, almost all of it from Pemex.
Oceanografia found itself in the spotlight again in 2008 when opposition lawmakers began calling for a federal investigation into its Pemex contracts.
Former Congressman Jesus Gonzalez Schmal said he and fellow legislators raised allegations that Oceanografia falsified Pemex receipts to secure loans in 2005 from state-backed Banco Nacional de Comercio Exterior, known as Bancomext. The allegations were based on information from someone inside the bank, he told Reuters.
When the lawmakers asked Bancomext for more information, they were told Oceanografia had already paid back the loans, he said. Nothing came of their request for the government to investigate the allegations of falsified receipts.
A Bancomext spokeswoman referred all questions to the attorney general's office, which did not respond immediately to requests for comment.
Oceanografia did not reply to a list of questions sent by Reuters to its investor relations officer.
SHIPS, PLANES AND LAWSUITS
A Reuters review of court documents found that Oceanografia, based in the Gulf state of Campeche, has been sued at least 19 times in U.S. federal courts since 1994.
While the number of lawsuits may not be unusual in the corporate world, most of them have a common theme - alleged non-payment of lease agreements for ships and planes. Some of the cases were settled, some were dismissed, some resulted in judgments against Oceanografia, and others are still pending.
McDermott, a Houston, Texas, engineering company, sued Oceanografia in 2009 in U.S. district court in Alabama for allegedly failing to pay more than $5 million on a leased vessel, according to court documents.
The Texas company succeeded in repossessing its ship but was never able to collect on the back payments, said Matthew McDonald, a lawyer for Jones Walker who represented McDermott. Oceanografia filed a countersuit against McDermott to recover equipment that was on the ship but it was dismissed.
In a separate case, Louisiana-based oilfield construction firm Diamond Services Corp sued Oceanografia in 2010, claiming the Mexican company fell delinquent on nearly $1.4 million in rental fees for a charter vessel.
Oceanografia has opposed Diamond's request for a default judgment in the case, which is still pending in federal district court in Louisiana.
Alfred Rufty, a New Orleans-based attorney who has represented Oceanografia in the McDermott, Diamond and other cases, declined to comment on the cases on Friday.
In its 2006 report, the ASF said Oceanografia requested that Pemex modify the terms of a 2005 contract worth more than 385 million pesos (around $29 million today). The report alleged that Pemex changed the specifications of a vessel - reducing the required speed capacity - and pushed forward the start date of the work to accommodate Oceanografia.
The ASF said changing the terms of the contract unjustifiably would be against the law, so it asked Pemex to investigate whether the contract - which was awarded as an international public tender - was changed improperly.
The audit watchdog said Pemex "must verify that the modifications to the tenders were authorized only with just cause and not as a result of negotiations with the contractors."
The ASF also singled out a 969 million peso contract ($73 million today) for oil platform maintenance granted by Pemex to Oceanografia in 2005. It found that Oceanografia failed to turn in records to verify the job was completed, as required by law. Pemex "did not ensure compliance of all obligations by the supplier (Oceanografia)," the report said.
The ASF urged Pemex's internal control office to also investigate whether company officials favored Oceanografia over other companies in awarding a service contract worth $15 million in 2003.
Mexican authorities began looking into Oceanografia's business practices after local media reports about the firm's alleged connections with the administration of President Vicente Fox, in power from 2000 to 2006.
A son of Fox's wife told a Mexican magazine in a 2004 interview that he (the son) and some relatives had helped Oceanografia win Pemex contracts.
Oceanografia has not responded to the allegations and Reuters was unable to reach the son.
Fox told reporters this week that his family had "nothing to hide" when asked about its possible ties to Oceanografia.
In mid-February, the national Comptroller's Office announced it had suspended Oceanografia from bidding for government contracts for 21 months and 12 days. The office did not give reasons for the move.
Banamex, Citigroup's Mexican subsidiary, said last week it learned after the suspension that most of its $585 million in short-term loans to Oceanografia were based on what appeared to be falsified invoices from Pemex used as collateral.
The same day, the attorney general's office said it was launching a criminal investigation into Oceanografia and that it had seized the company's assets and appointed an administrator to steer the business.
Citigroup said that as a result of the alleged fraud it had discovered at its subsidiary, it had to write down about $400 million of loans backed by bogus invoices, resulting in a $235 million downward revision to its 2013 profit, to $13.67 billion.
Oceanografia has not commented on the attorney general's actions or its loans with Banamex. Banamex said it could not comment on a case under investigation.