By: John Black
It’s a record. $100 million dollars. Last week when Assistant Secretary Mills and his team told exporters at the Export Compliance Training Institute’s Advanced Seminar that BIS fines would be increasing, little did we know a $100 million penalty was close at hand for Weatherford International Limited, a Swiss oil services company. And $100 million is not an increase; it is a huge jump. With this penalty, EAR and OFAC trade control violations clearly moved into the league of ITAR penalties and OFAC penalties against financial institutions.
Here is where the $100 million penalty comes from:
- $50 million settlement for violation of the EAR and the Iranian Transactions and Sanctions Regulations (ITSR)
- $48 million monetary penalty imposed by the Justice Department pursuant to a deferred prosecution agreement.
- $2 million criminal fines imposed by the Justice Department.
So what the heck did Weatherford do to put itself on the top of the list for export control violations?
According to BIS, its 174 charges against subsidiaries of Weatherford included these violations:
Weatherford International Ltd.
1) Between 2004 and 2007, Weatherford knowingly moved $12 million worth of oil and gas drilling equipment from the United States to Iran via Weatherford’s Dubai subsidiary.
2) Between 2005 and 2007, Weatherford knowingly transferred $20 million worth of oil and gas equipment from the United States to Cuba via Canada.
3) Between 2002 and 2007, Weatherford violated the EAR by exporting pulse neutron decay tools to Venezuela and Mexico without a license.
Weatherford Oil Tool Middle East Ltd.
Between 2002 and 2008, Weatherford worked with its parent company to evade the EAR in connection with the export of oil and gas equipment from the US to Iran and Syria while concealing the fact that those countries were the actual destination.
Weatherford Production Optimisation (UK) Ltd.
Between 2003 and 2006, the company evaded the EAR by exporting oil well production optimization items and concealing the fact that the final destination of the items was Iran.
Precision Energy Services ULC
Between 2005 and 2006, this Canadian subsidiary transferred oil and gas equipment despite the knowledge that it would (illegally) go to Cuba.
Precision Energy Services Columbia Ltd.
Between 2006 and 2007, the company evaded the EAR in exports and reexports of oil and gas equipment, while concealing that the ultimate destination was Cuba.
According to the FBI, Weatherford committed violations between 1998 and 2007, which is a slightly different time frame than BIS reported. According to the FBI, Weatherford generated $110 million in revenue from its illegal transactions involving Cuba, Iran, Syria and Sudan. People in the U.S.-based management structure were involved in the decisions involving transactions with these countries.
While Weatherford was already digging deep to pay the export control penalties, the company also agreed to pay an additional $152 million for violations of the Foreign Corrupt Practices Act for bribing government officials and misusing the United Nations Oil for Food Program (I guess that the Oil for Food Program is not a Food for Oil Money Program, because it does not include using money to buy a nice steak dinner for Iraqi Ministry of Oil officials, so you can make more money.)
Penalties for violations of EAR and OFAC export controls have reached the $100 million threshold—previously hit only in the biggest ITAR cases and in the OFAC violations by foreign banks.
The second lesson is that when a company is lax about compliance and engages in repeated violations with embargoed countries, the U.S. Government will not hesitate to impose huge penalties.
Does this mean that the next time you fail to file your Electronic Export Information in AES you will end up paying millions of dollars? No. That is not the lesson here. According to U.S. Government officials, this was not a case of a few mistakes here and there. Instead, officials described this as a situation where compliance was not important and there was no management interest in developing effective compliance procedures.
But, you don’t need to be a Weatherford to know which way the export control penalties wind is blowing. The U.S. Government clearly is willing to impose multi-million dollar penalties for non-ITAR export control violations. This is both new and significantly different from the past. Again, this does not mean every EAR violation will result in multi-million dollar fines, but it certainly changes the way we will estimate the possible penalties when considering what the government might do in response to our violations in the future.
On the plus side, for export compliance personnel, few things grab management’s attention better than $100 million penalties. Smart management immediately recognizes that penalties of this magnitude usually come with a corresponding amount in legal fees and remedial measures costs. If this case doesn’t convince your top management that compliance is critically important now, I doubt anything will.
But, don’t worry, your occasional failure to file EEI or your mistaken EAR99 classifications won’t earn you a Weatherford-like penalty, and you won’t end up with the “Subterranean Homesick Blues.”