Lack of Cooperation Increases FCPA Penalties for Weatherford
Swiss based Weatherford International Ltd, whose shares were traded on the NYSE, became the newest member of FCPA top ten, paying about $152 million to resolve corruption charges with the Department of Justice and the Securities and Exchange Commission. Overall the company paid $252 million to resolve charges which included export control violations. The FCPA portion of the settlement put the firm at number nine on the top ten list maintained by the FCPA blog.
The FCPA charges stem from what DOJ terms a failure to implement internal controls despite having a global footprint with over 500 legal entities, many of which operate in high risk parts of the world. Specifically, the bribery charges are based on three schemes. The first involved a joint venture established by Weatherford subsidiary Weatherford Services Ltd. in Angola with two local entities in 2005. The previous year officials in Sonangol told the company that 100% of the Angolan well screens market could be obtained if a joint venture with designated companies was set up. One company selected had among its principals the wife of one of the Sonangol officials and relatives of another. A second included among its principals the relative of an Angolan Minister, the relative’s spouse, and another Angolan official.
The joint venture existed solely as a conduit for millions of dollars of payments by the Weatherford subsidiary to the foreign officials controlling them, according to the court papers. In exchange for the payments Weatherford Services obtained, through the joint venture, lucrative contracts and information about the pricing of competitors. In one instance a contract was taken away from a competitor and given to Weatherford Services. Although the local entities did not make any contribution to the venture, neither Weatherford nor its subsidiary conducted any due diligence.
The second scheme involved the bribery in Africa of a foreign official by employees of Weatherford Services. The purpose of the payments was to secure the renewal of an oil services contract. The payments were made through a freight forwarding agent, according to the court papers. That agent used initially rejected a proposed contract with contained an FCPA clause. The company legal department in Huston, Texas then approved the insertion of a clause which stipulated that all applicable laws would be followed. Prior to the retention of the agent a local official demanded a bribe from a company manager which was rejected and reported in an ethics questionnaire. There was no follow up on the report. The payment made was concealed by the creation of sham purchase orders and similar records crafted by the forwarding agent. The contract was renewed in 2006.
The third scheme involved payments in the Middle East from 2005 through 2011 by employees of Weatherford Oil Tools Middle East Limited or WOTME. In this scheme what were claimed to be volume discounts to a distributor who supplied company products to a government owned national oil company were actually used to create a slush fund. That fund was used to make payments to the national oil company. During the period WOTME paid about $15 million to the distributor.
In 2002 WOTME also paid about $1.4 million in kickbacks to the government of Iraq on nine contracts with the Ministry of Oil and others. The payments were to provide oil drilling and refining equipment. They were incorrectly booked as legitimate fees and costs and were concealed by inflating the price of the contracts.
Finally, in a separate mater, from 1998 through 2007, the company and certain subsidiaries violated various U.S. export control and sanctions laws. During the period they exported or re-exported oil and gas drilling equipment to sanctioned countries without the required U.S. Government authorizations. Business operations were also conducted. The countries involved were Cuba, Iran, Sudan and Syria. About $110 million in revenue was generated by the illegal conduct. The company took steps to conceal this conduct, according to the SEC’s complaint.
During the investigation the company took steps which “compromised the investigation,” according to the Commission. This resulted from failing to provide the staff with complete and accurate information resulting in significant delay, failing to secure important computers and documents and allowing potentially complicit employees to collect subpoenaed documents. Later cooperation improved.
To resolve the FCPA charges with the DOJ, the company entered into a deferred prosecution agreement. It requires the payment of an $87.2 million criminal penalty and the retention of a monitor for 18 months. The underlying criminal information contains one count of violating the internal controls provisions of the FCPA. In addition, Weatherford Services agreed to plead guilty to violating the anti-bribery provisions.
The SEC’s complaint alleged violations of Exchange Act Sections 30A, 13(b)(2)(A) and 13(b)(2)(B). SEC v. Weatherford International, Ltd., Civil Action No. 4:13-CV-03500 (S.D. Tex. Filed Nov. 26, 2013). To resolve the charges the company agreed to pay $90,984,844 in disgorgement, prejudgment interest and a $1.875 million civil penalty assessed in part for a lack of cooperation during the investigation. $31,646,907 of the payment will be satisfied by the agreement of the company to pay an equal amount to the USAO. See Lit. Rel. No. 22880 (Nov. 26, 2013).
The export control charges were resolved with the payment of a total of $100 million composed of the following: A $48 million monetary penalty paid pursuant to a deferred prosecution agreement; $2 million in criminal fines under two guilty pleas; and a $50 million civil penalty paid to the Department of Commerce related to 174 violations charged by Commerce’s Bureau of Industry and Security.