Two days ago the United States Securities and Exchange Commission charged oil field services company Weatherford International with violating the Foreign Corrupt Practices Act (FCPA) by authorising bribes and improper travel and entertainment for foreign officials in the Middle East and Africa to win business including kickbacks in Iraq to obtain United Nations oil-for-food contracts. The SEC press release is here.

The SEC’s allegations include that Weatherford and its subsidiaries falsified its books and records to conceal not only these illicit payments, but also commercial transactions with Cuba, Iran, Syria and Sudan that violated US sanctions and export control laws.  The SEC further alleged that Weatherford failed to establish an effective system of internal accounts controls to monitor risks of improper payments and to prevent or detect misconduct.  Weatherford reaped more than $59.3 million in profits from business obtained through improper payments and more than $30 million in profits from its improper sales to sanctioned countries.

The SEC goes on to report that Weatherford, which is headquartered in Switzerland, but has substantial operations in Houston, Texas, has agreed to pay more than $250 million in order to settle the SEC’s charges and parallel actions by the Department of Justice’s fraud section, US Attorney’s Office for the Southern District of Texas, the Department of Commerce’s Bureau of Industry and Security and Department of Treasury’s Office of Foreign Assets Control.

The fines paid by Weatherford are amongst the highest ever paid by any organisation for FCPA violations.

Andrew Ceresney, the co-director of the SEC’s enforcement division said that Weatherford had:

  • Used code names like “Dubai across the water” to conceal references to Iran in internal correspondence;
  • Placed key transaction documents in mislabelled binders;
  • Created whatever bogus accounting and inventory records were necessary in order to hide illegal transactions.

According to the SEC’s complaint, the misconduct occurred from a period from at least 2002 to 2011.  It is further reported that Weatherford had taken no steps to determine whether the agent was paying bribes to foreign officials, and the agent used sham work orders and invoices to pay bribes that ensured the renewal of a lucrative oil services contract for Weatherford in Angola.

Other examples of misconduct included:

  • Improper travel and entertainment to officials of a state owned company in Algeria with no legitimate business purpose;
  • Weatherford’s Middle East subsidiary paid more than $1.4 million in improper payments to obtain nine contracts under the oil-for-food program in 2002;
  • Weatherford’s subsidiary paid “inland transportation fees” which were improper payments.  Weatherford obtained more than $7 million in profits from the misconduct;
  • Managers at Weatherford’s Italian subsidiary flouted the lack of internal controls and misappropriated more than $200,000 in company funds some of which was improperly paid to Albanian tax auditors;
  • The Italian managers misreported cash advances, diverted payments on previously paid invoices, misappropriated government rebate cheques and received reimbursement for such purchases as golf equipment and perfume that did not relate to business activities;
  • Weatherford employees created false accounting and inventory records in order to hide the illegal commercial sales to Cuba, Syria, Sudan and Iran.

The agreed settlement sums include payments of:

  • $65,612,360.34 to the SEC including a $1.875 million penalty which was directly referable to a lack of cooperation early on in the investigation;
  • $87 million in criminal fines paid to the Department of Justice for the FCPA violations;
  • $100 million to the other three United States government agencies for the violations of sanctions laws;
  • In addition Weatherford must also comply with certain undertakings including the retention of an independent compliance monitor for 18 months and self-reporting to the SEC staff for an additional 18 months.

It may seem astonishing to those of you reading the BriberyLibrary blog that after 15 years of vigorous FCPA enforcement, companies operating in the United States are still brazenly taking huge risks in violating the anti-corruption provisions and books and records provisions of the FCPA, as well as breaches of sanctions laws.  As reported by the SEC, in Weatherford’s case this was not the question of one or two “bad apples” within the organisation, in fact that this was institutional and large scale criminal activity.

In the Financial Times it is reported that Mythili Raman, the United States Acting Assistant Attorney General said

“this case demonstrates how loose controls and an anaemic compliance environment can foster foreign bribery and fraud by a company’s subsidiaries around the globe”.

The same Financial Times article reports that in an investor presentation in September 2013 Weatherford stated that “life stopped” from March 2011 to March 2013, presumably while they were sorting out the mess that they had created for themselves and all of the investigations and litigations with various United States’ prosecutors.

This is a salutary tale for any companies, wherever they are situated in the world, which still think that their illegal activities will never be discovered.  Usually it is only a question of time, and the penalties can be huge, as well as the impact on the business in sorting it all out.