United States: Weatherford International Reaches $253M Settlement With The DOJ, SEC, OFAC, And BIS

I. Introduction

On November 26, 2013, Weatherford International ("Weatherford" or "the Company"), an oil-field services company that trades on the New York Stock Exchange, agreed to pay $253 million in criminal and civil penalties as part of a global settlement with the U.S. government to resolve claims that the Company and its subsidiaries violated the Foreign Corrupt Practices Act ("FCPA") and various export control and sanctions laws. This case is important for several reasons. First, it involves a combination of FCPA, sanctions and export controls violations, illustrating a continuing trend of cooperation among the SEC's and the DOJ's FCPA Units with the Treasury's Office of Foreign Asset Control ("OFAC") and Commerce's Bureau of Industry and Security ("BIS"). Second, the settlement represents the largest ever BIS fine, at $50 million, and is the eighth largest FCPA resolution. Finally, the case is the first time that the SEC has alleged books and records charges based on a public company mischaracterizing transactions to hide the fact that it violated export control and sanctions laws. The SEC has for several years been aggressive in using its explicit authority in this area to level charges for accounting entries that mischaracterized bribes in public companies' books, but now appears to be expanding its use of the non-scienter based charge to capture export control and sanctions law violations.

II. Global Settlement Details

The relevant allegations and details related to each settlement agreement are described in greater detail below. 

A. DOJ

1. FCPA—Internal Controls and Anti-Bribery 

The DOJ charged Weatherford with violating the internal controls provision of the FCPA for knowingly failing to establish an effective system of internal accounting controls to detect and prevent FCPA violations. According to the DOJ, the lack of sufficient internal controls created a corporate environment at Weatherford where illegal bribery was deemed to be acceptable. The DOJ asserted that Weatherford and its subsidiaries:

  • Made hundreds of thousands of dollars of improper payments to government officials through a joint venture in order to secure sensitive information about its competitors pricing and obtain valuable contracts;
  • Paid bribes to a foreign government official through a freight forwarder in order to ensure that the government would renew a contract;
  • Awarded $15 million in funds to a distributor through improper volume discounts that were used to create a slush fund to bribe decision-makers at a national oil company;
  • Paid $1.5 million in kickbacks to the Iraqi government in order to obtain contracts related to the United Nations' Oil for Food Program.

According to the government's allegations, Weatherford obtained approximately $54 million in profits as a result of these improper payments. 

To resolve this charge, Weatherford entered into a deferred prosecution agreement, pursuant to which it agreed to pay $87.2 million in criminal penalties. Weatherford is also obligated to institute a corporate compliance program, conduct a review of its internal accounting procedures, disclose any information relating to corrupt payments, and hire an independent monitor under the terms of the agreement. 

A Weatherford subsidiary whose employees were involved with paying bribes to foreign government officials was also charged with one count of violating the FCPA's anti-bribery provision. The subsidiary pled guilty to this charge and agreed to pay a criminal penalty of $420,000 to resolve the matter. 

2. Export Control Violations

Weatherford and two of its subsidiaries were also charged with violating the International Emergency Economic Powers Act ("IEEPA") and the Trading with the Enemy Act ("TWEA") for doing business with countries subject to comprehensive economic sanctions without obtaining licenses from the appropriate government agencies. In total, Weatherford and its subsidiaries generated approximately $110 million in revenue from its business in Cuba, Iran, Sudan and Syria. Weatherford employees located in the United States also played a role in a portion of the violative shipments by supporting, approving, or otherwise facilitating the transactions.

To resolve the IEEPA and TWEA-related charges, the Company entered into a deferred prosecution agreement with the United States Attorney's Office for the Southern District of Texas. In accordance with the terms of the agreement, Weatherford agreed to pay a total of $98 million to the government. That amount included a criminal penalty of $48 million to be paid to the United States Attorney's Office for the Southern District of Texas. 

In addition, one Weatherford subsidiary pled guilty to violating the IEEPA and another Weatherford subsidiary pled guilty to violating the TWEA. Each subsidiary agreed to pay $1 million in criminal penalties in connection with their plea agreements. 

B. BIS

BIS charged Weatherford and its subsidiaries with exporting oil and gas equipment from the United States to Cuba, Iran, and Syria between 2004 and 2007 in contravention of the Export Administration Regulations and the Iran Transactions and Sanctions Regulations. BIS also charged Weatherford with exporting products that were controlled for reasons of nuclear non-proliferation to Venezuela and Mexico between 2002 and 2007 without the requisite licenses. 

Weatherford agreed to pay an administrative civil penalty of $50 million to resolve these charges. The $50 million settlement is the largest civil administrative penalty that BIS has ever levied. In addition to civil penalty, Weatherford also agreed to engage an independent third party that will audit the Company's records to assess its compliance with U.S. export control and sanctions laws for the 2012, 2013 and 2014 calendar years.

C. OFAC

OFAC alleged that Weatherford and its subsidiaries' dealings with embargoed countries also violated the Cuban Assets Control Regulations, the Iranian Transactions and Sanctions Regulations, and the Sudanese Sanctions Regulations. Weatherford came to terms with OFAC on a $91 million civil liability settlement to resolve these matters. The Company, however, will be deemed to have satisfied its obligations to Treasury by paying the criminal penalties to the United States Attorney's Office for the Southern District of Texas and the administrative civil penalty to BIS. 

D. SEC

1. Alleged Misconduct 

The SEC filed a complaint against Weatherford claiming that the Company had violated the anti-bribery, books and records, and internal controls provisions of the Securities Exchange Act of 1934 ("Exchange Act").

(a) Exchange Act—Anti-Bribery Provision

Between 2002 and 2011, the SEC alleged that Weatherford and its subsidiaries authorized improper bribes and other benefits to foreign government officials in a number of countries throughout the world to obtain or retain business. Based on the SEC's complaint, Weatherford and its subsidiaries:

  • Paid bribes through an agent to a government official in Angola to induce him to approve the renewal of an oil services contract;
  • Made improper payments to government officials through a joint venture in order to secure sensitive information about its competitors pricing and obtain valuable contracts;
  • Paid $500,000 in bribes through an agent to government officials in order to obtain business in the Congo;
  • Awarded millions of dollars in improper volume discounts to a distributor that was used to create a slush fund to bribe decision-makers at a national oil company;
  • Provided improper travel and entertainment benefits to officials of an Algerian state-owned company that were not justified by a business purpose;
  • Made improper cash payments and gifts to Albanian tax auditors in exchange for favorable treatment; and
  • Paid kickbacks to the Iraq government in order to obtain contracts related to the United Nations' Oil for Food Program.

(b) Exchange Act—Books and Records & Internal Controls Provisions

The SEC also claimed that Weatherford violated the books and records and internal controls provisions of the Exchange Act. The SEC's complaint alleged that Weatherford and its subsidiaries did not properly characterize the bribes and improper payments described above, which constituted a violation of the books and records provision. In addition, the SEC asserted that Weatherford ran afoul of the books and records provision by falsifying its books and inventory records to hide transactions related to embargoed countries.

The SEC claimed that Weatherford's internal controls were insufficient because the Company did not train employees on the FCPA or export control laws or review responses that employees filled out in a yearly ethics questionnaire. The SEC also asserted that Weatherford had engaged in illegal activities—and upper-level management was aware of this problematic conduct—for many years. Finally, the SEC alleged that Weatherford had violated the internal controls provision because the Company did not have sufficient internal controls for transactions involving embargoed countries and various records were altered or falsified to conceal Weatherford's dealing with these countries. 

2. SEC Settlement

Weatherford reached an agreement with the SEC to resolve these claims. Pursuant to the agreement, Weatherford will pay approximately $65 million in civil penalties, which includes a $1.875 million penalty that was imposed in part because the Company failed to cooperate with the SEC during the initial stages of the agency's investigation. Weatherford also agreed to retain an independent compliance monitor for 18 months and self-report any additional violations during that time period. 

III. Conclusion

The Weatherford settlement highlights a number of important points relevant to individuals and companies engaged in international business. First, and foremost, FCPA enforcement remains a priority for the DOJ and SEC. Over the last few years, both the DOJ and SEC have extracted large penalties and other concessions from international companies for alleged violations of the FCPA. This trend is likely to continue in the future.

Another notable aspect of the Weatherford settlement is the importance that the government attached to the Company's purported violations of economic sanctions and export control laws. As a general matter, there has been a significant increase in the U.S. government's enforcement of these laws over the last five years. But the majority of those cases have been administrative actions involving civil penalties brought by OFAC or BIS. While the DOJ has brought a fair number of criminal cases for violations of IEEPA and TWEA, the SEC has generally not concerned itself with improper conduct involving embargoed countries. But the SEC's complaint here suggests that the agency takes the position that inaccurate accounting of transactions with embargoed countries can result in violations of the books and records and internal controls provisions of the Exchange Act. If the SEC continues to hold this position in the future, then it is likely that violations of economic sanctions and export control laws will be enforced by yet another government agency.

The settlement is also important because it shows the complicated web that a company can find itself in as the often related matters involving the FCPA, sanctions and export controls arise. Weatherford was investigated starting in 2007 by the DOJ in Washington, D.C., the SEC, the United States Attorney's Office for the Southern District of Texas, OFAC and BIS, and likely some civil DOJ unit. It has been reported that the company incurred $125 million for legal and professional fees through the end of 2012, and an additional $44 million from 2007 through 2009 in costs for ceasing operations in certain sanctioned countries. In addition to the government investigation and sanctions, there are ongoing class action and derivative lawsuits.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Similar Articles
Relevancy Powered by MondaqAI
 
In association with
Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions