Three Subsidiaries of Weatherford International Limited Agree to Plead Guilty to FCPA and Export Control Violations
|Nov. 26, 2013|
Weatherford International and Subsidiaries Agree to Pay $252 Million in Penalties and Fines
HOUSTON – Three subsidiaries of Weatherford International Limited (Weatherford International), a Swiss oil services company that trades on the New York Stock Exchange, have agreed to plead guilty to export controls violations under the International Emergency Economic Powers Act (IEEPA) and the Trading with the Enemy Act (TWEA) and anti-bribery provisions of the Foreign Corrupt Practices Act (FCPA). Weatherford International and its subsidiaries have also agreed to pay more than $252 million in penalties and fines.
U.S. Attorney Kenneth Magidson of the Southern District of Texas, Acting Assistant Attorney General Mythili Raman of the Justice Department’s Criminal Division and Assistant Director in Charge Valerie Parlave of the FBI’s Washington Field Office made the announcement.
Weatherford International and four of its subsidiaries today agreed to pay a combined $100 million to resolve a criminal and administrative export controls investigation conducted by the U.S. Attorney’s Office for the Southern District of Texas, the Department of Commerce’s Bureau of Industry and Security and the Department of the Treasury’s Office of Foreign Assets Control. As part of the resolution of that investigation, Weatherford International has agreed to enter into a deferred prosecution agreement for a term of two years and two of its subsidiaries have agreed to plead guilty to export controls charges.
“The resolution today of these criminal charges represents the seriousness that our office and the Department of Justice puts on enforcing the export control and sanctions laws,” said U.S. Attorney Magidson.
In a separate matter, Weatherford Services Limited (Weatherford Services), a subsidiary of Weatherford International, today agreed to plead guilty to violating the anti-bribery provisions of the FCPA. As part of a coordinated FCPA resolution, the department today also filed a criminal information in U.S. District Court for the Southern District of Texas charging Weatherford International with one count of violating the internal controls provisions of the FCPA. To resolve the charge, Weatherford International has agreed to pay an $87.2 million criminal penalty as part of a deferred prosecution agreement with the department.
“Effective internal accounting controls are not only good policy, they are required by law for publicly traded companies – and for good reason,” said Acting Assistant Attorney General Raman. “This case demonstrates how loose controls and an anemic compliance environment can foster foreign bribery and fraud by a company’s subsidiaries around the globe. Although Weatherford’s extensive remediation and its efforts to improve its compliance functions are positive signs, the corrupt conduct of Weatherford International’s subsidiaries allowed it to earn millions of dollars in illicit profits, for which it is now paying a significant price.”
“When business executives engage in bribery and pay-offs in order to obtain contracts, an uneven marketplace is created and honest competitor companies are put at a disadvantage,” said Assistant Director in Charge Parlave. “The FBI is committed to investigating corrupt backroom deals that influence contract procurement and threaten our global commerce.”
In a related FCPA matter, the U.S. Securities and Exchange Commission (SEC) filed a settlement today in which Weatherford International consented to the entry of a permanent injunction against FCPA violations and agreed to pay $65,612,360 in disgorgement, prejudgment interest and civil penalties. Weatherford International also agreed with the SEC to comply with certain undertakings regarding its FCPA compliance program, including the retention of an independent corporate compliance monitor.
The combined investigations resulted in the conviction of three Weatherford subsidiaries, the entry by Weatherford International into two deferred prosecution agreements and a civil settlement and the payment of a total of $252,690,606 in penalties and fines.
Export Control Violations
According to court documents filed today in a separate matter, between 1998 and 2007, Weatherford International and some its subsidiaries engaged in conduct that violated various U.S. export control and sanctions laws by exporting or re-exporting oil and gas drilling equipment to, and conducting Weatherford business operations in, sanctioned countries without the required U.S. government authorization. In addition to the involvement of employees of several Weatherford International subsidiaries, some Weatherford International executives, managers or employees on multiple occasions participated in, directed, approved and facilitated the transactions and the conduct of its various subsidiaries.
This conduct involved persons within the U.S.-based management structure of Weatherford International participating in conduct by Weatherford International foreign subsidiaries and the unlicensed export or re-export of U.S.-origin goods to Cuba, Iran, Sudan and Syria. Weatherford subsidiaries Precision Energy Services Colombia Ltd. (PESC) and Precision Energy Services Ltd. (PESL), both headquartered in Canada, conducted business in the country of Cuba. Weatherford’s subsidiary Weatherford Oil Tools Middle East (WOTME), headquartered in the United Arab Emirates (UAE), conducted business in the countries of Iran, Sudan and Syria. Weatherford’s subsidiary Weatherford Production Optimisation f/k/a eProduction Solutions U.K. Ltd. (eProd-U.K.), headquartered in the United Kingdom, conducted business in the country of Iran. Weatherford generated approximately $110 million in revenue from its illegal transactions in Cuba, Iran, Syria and Sudan.
To resolve these charges, Weatherford and its subsidiaries will pay a total penalty of $100 million, with a $48 million monetary penalty paid pursuant to a deferred prosecution agreement, $2 million paid in criminal fines pursuant to the two guilty pleas and a $50 million civil penalty paid pursuant to a Department of Commerce settlement agreement to resolve 174 violations charged by Commerce’s Bureau of Industry and Security. Weatherford International and certain of its affiliates are also signing a $91 million settlement agreement with the Department of the Treasury to resolve their civil liability arising out of the same underlying course of conduct, which will be deemed satisfied by the payments above.
According to court documents filed by the department, prior to 2008, Weatherford International knowingly failed to establish an effective system of internal accounting controls designed to detect and prevent corruption, including FCPA violations. The company failed to implement these internal controls despite operating in an industry with a substantial corruption risk profile and despite growing its global footprint in large part by purchasing existing companies, often themselves in countries with high corruption risks. As a result, a permissive and uncontrolled environment existed within which employees of certain of Weatherford International’s wholly owned subsidiaries in Africa and the Middle East were able to engage in corrupt conduct over the course of many years, including both bribery of foreign officials and fraudulent misuse of the United Nations’ Oil for Food Program.
Court documents state that Weatherford Services employees established and operated a joint venture in Africa with two local entities controlled by foreign officials and their relatives from 2004 through at least 2008. The foreign officials selected the entities with which Weatherford Services would partner, and Weatherford Services and Weatherford International employees knew that the members of the local entities included foreign officials’ relatives and associates. Notwithstanding the fact that the local entities did not contribute capital, expertise or labor to the joint venture, neither Weatherford Services nor Weatherford International investigated why the local entities were involved in the joint venture. The sole purpose of those local entities, in fact, was to serve as conduits through which Weatherford Services funneled hundreds of thousands of dollars in payments to the foreign officials controlling them. In exchange for the payments they received from Weatherford Services through the joint venture, the foreign officials awarded the joint venture lucrative contracts, gave Weatherford Services inside information about competitors’ pricing and took contracts away from Weatherford Services’ competitors and awarded them to the joint venture.
Additionally, Weatherford Services employees in Africa bribed a foreign official so that he would approve the renewal of an oil services contract, according to court documents. Weatherford Services funneled bribery payments to the foreign official through a freight forwarding agent it retained via a consultancy agreement in July 2006. Weatherford Services generated sham purchase orders for consulting services the freight forwarding agent never performed, and the freight forwarding agent, in turn, generated sham invoices for those same nonexistent services. When paid for those invoices, the freight forwarding agent passed at least some of those monies on to the foreign official with the authority to approve Weatherford Services’ contract renewal. In exchange for these payments, the foreign official awarded the renewal contract to Weatherford Services in 2006.
Further, according to court documents, in a third scheme in the Middle East, from 2005 through 2011, employees of Weatherford Oil Tools Middle East Limited (WOTME), another Weatherford International subsidiary, awarded improper “volume discounts” to a distributor who supplied Weatherford International products to a government-owned national oil company, believing that those discounts were being used to create a slush fund with which to make bribe payments to decision-makers at the national oil company. Between 2005 and 2011, WOTME paid approximately $15 million in volume discounts to the distributor.
Weatherford International’s failure to implement effective internal accounting controls also permitted corrupt conduct relating to the United Nations’ Oil for Food Program to occur, according to court documents. Between in or about February 2002 and in or about July 2002, WOTME paid approximately $1,470,128 in kickbacks to the government of Iraq on nine contracts with Iraq’s Ministry of Oil, as well as other ministries, to provide oil drilling and refining equipment. WOTME falsely recorded these kickbacks as other, seemingly legitimate, types of costs and fees. Further, WOTME concealed the kickbacks from the U.N. by inflating contract prices by 10 percent.
According to court documents, these corrupt transactions in Africa and the Middle East earned Weatherford International profits of $54,486,410, which were included in the consolidated financial statements that Weatherford International filed with the SEC.
In addition to the guilty plea by Weatherford Services, the deferred prosecution agreement entered into by Weatherford International and the Department requires the company to cooperate with law enforcement, retain an independent corporate compliance monitor for at least 18 months and continue to implement an enhanced compliance program and internal controls designed to prevent and detect future FCPA violations. The agreement acknowledges Weatherford International’s cooperation in this matter, including conducting a thorough internal investigation into bribery and related misconduct, and its extensive remediation and compliance improvement efforts.
The export case was investigated by the Department of Commerce’s Bureau of Industry and Security, Office of Export Enforcement and the Department of the Treasury’s Office of Foreign Assets Control. The case is being prosecuted by Assistant U.S. Attorney S. Mark McIntyre and was previously investigated by Assistant U.S. Attorney Jeff Vaden.
The FCPA case was investigated by the FBI’s Washington Field Office and its team of special agents dedicated to the investigation of foreign bribery cases. The case is being prosecuted by Trial Attorney Jason Linder of the Criminal Division’s Fraud Section, with the assistance of Assistant U.S. Attorney Mark McIntyre of the Southern District of Texas. The case was previously investigated by Fraud Section Trial Attorneys Kathleen Hamann and Allan Medina, with assistance from the Criminal Division’s Asset Forfeiture and Money Laundering Section. The Justice Department also acknowledges and expresses its appreciation for the significant assistance provided by the SEC’s FCPA Unit.
Additional information about the Justice Department’s FCPA enforcement efforts can be found at www.justice.gov/criminal/fraud/fcpa.