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U.S. Government Imposes $252 Million Penalty on Oil/Natural Gas Supplier for Export, FCPA Violations; Civil Penalty for Export Violations is Largest in History

Monday, December 02, 2013
Sandler, Travis & Rosenberg Trade Report

The Justice Department announced Nov. 26 that three subsidiaries of a major Swiss supplier of oil and natural gas products and services have agreed to pay a combined $252.7 million in penalties and fines for violations of the anti-bribery provisions of the Foreign Corrupt Practices Act and export controls violations under various U.S. statutes.

Export Violations. According to a Nov. 26 press release by the Bureau of Industry and Security, a Houston-based company of this corporation and four of its subsidiaries have agreed to pay a $50 million civil penalty to settle allegations that they exported oil and gas equipment to Iran, Syria and Cuba in violation of the Export Administration Regulations and the Iranian Transactions and Sanctions Regulations. BIS also alleges that the company exported items controlled for nuclear non-proliferation reasons to Venezuela and Mexico. According to BIS, this fine is the largest civil penalty ever levied by the agency.

In addition, the DOJ has imposed a $48 million monetary penalty on this company pursuant to a deferred prosecution agreement. Justice is also imposing $2 million in criminal fines pursuant to guilty pleas by two company subsidiaries, for a combined total penalty of $100 million from the U.S. government for export control violations.

BIS accused the company of transferring between 2004 and 2007 oil and gas equipment valued at as must as $12 million to Iran via a subsidiary based in the United Arab Emirates with knowledge that a violation would occur. BIS also charged the company with transferring between 2005 and 2007 oil and gas equipment valued at as much as $20 million from the United States to Cuba via Canada with knowledge that a violation would occur. These items included essential oil and gas equipment such as mud motors, measuring-while-drilling orientation modules, drill collars and stabilizers. The company was also accused of exporting between 2002 and 2007 controlled pulse neutron decay tools to Venezuela and Mexico without the required DOC licenses.

FCPA Violations. A subsidiary of the company has agreed to pay an $87.2 million criminal penalty to the DOJ and an additional $65.6 million in disgorgement, prejudgment interest and civil penalties to the Securities and Exchange Commission to resolve charges that it violated the FCPA. The company was charged with knowingly failing to establish an effective system of internal accounting controls to detect and prevent corruption, including FCPA violations. The DOJ alleges that the company failed to implement these 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, Justice believes that a permissive and uncontrolled environment existed within which employees of certain company 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.

Among other things, the company was charged with establishing and operating a joint venture in Africa with two local entities controlled by foreign officials and their relatives from 2004 through at least 2008 that was used to funnel thousands of dollars in payments to the foreign officials in exchange for lucrative contracts. Company employees in Africa also bribed a foreign official so that he would approve the renewal of an oil services contract. In a third scheme, company employees in the Middle East paid approximately $15 million between 2005 and 2011 in “volume discounts” to a distributor who supplied company products to a government-owned national oil company with the belief 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. In addition, the company subsidiary in the Middle East paid about $1.47 million in kickbacks to the government of Iraq during February-July 2002 on nine contracts to provide oil drilling and refining equipment.

Under a deferred prosecution agreement with the DOJ, the company has agreed to retain an independent corporate compliance monitor for at least 18 months and to continue to implement an enhanced compliance program and internal controls designed to prevent and detect FCPA violations. The company also agreed with the SEC to comply with certain undertakings regarding its FCPA compliance program, including the retention of an independent corporate compliance monitor.

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