Weatherford International was back in the news recently, due to its latest
incarnation as a corporate citizen of Ireland, only six years after its personhood
moved its legal residence from Bermuda to Switzerland; insofar as reality is
concerned, however, the company retains its operational headquarters in Houston,
Texas, where the oil/gas drilling services giant was founded in 1941. Would that its
lawyers paid as much attention to its compliance with US law as it apparently does
to avoidance of US taxes.
I say this because the last time Weatherford made the non-financial headlines was
nine months ago, when it agreed to pay a total of $253 million in penalties and fines
to settle various enforcement actions. To this day, Weatherford’s legal saga remains
Prosecution Exhibit A on how not to design and implement an internal compliance
program, especially for a company with foreign subsidiaries.
Between roughly 2000 and 2008, Weatherford and its far-flung subsidiaries
managed to violate:
• America’s Foreign Corrupt Practices Act (FCPA) via bribes paid to
government officials to avoid taxes in Albania, to secure business in Algeria,
Angola, and Congo, and to defraud the United Nations’ Oil For Food program
• the Commerce Department’s Export Administration Regulations (EAR) via
unlicensed transfers of:
o oil/gas drilling equipment to Iran and Syria via its Dubai- and UK-
based subsidiaries, and to Cuba via its Canadian affiliate and Columbian
o pulse neutron decay tools (controlled to prevent proliferation of nuclear
• prohibitions on transactions involving Cuba, Sudan, Iran and Burma that are
administered by the Treasury Department’s Office Of Foreign Assets Control
• the books and records/internal controls provisions of the Securities
Exchange Act of 1934, administered by the Securities and Exchange
Commission (SEC), via fraudulent accounting entries designed to disguise
bribery payments and to hide illegal transactions with embargoed countries.
weapons) to Venezuela and Mexico;
According to published accounts, it appears that Weatherford paid as much as $82.2
million to settle the FCPA charges, $50 million to settle with BIS, $91 million to
settle with OFAC, and $65 million to settle with the SEC. (These numbers add up
to $288.2 million. That is considerably more than the $253-million total that was
announced by the government, suggesting that there is some double-counting in
published reports; but the amounts paid on account of each set of violations are
In return for these payments, Weatherford avoided active criminal prosecution via
a couple of deferred prosecution agreements. Such agreements ordinarily provide
that defendants (Weatherford, in this case) admit the charges filed against them
and the government agrees not to prosecute the charges if the defendants keep
their noses clean for a period of time, usually five years. This concession by the
government is significant, because Weatherford appears to have admitted that the
alleged violations were well known by highly-placed executives in Houston and
elsewhere, who could otherwise have received lengthy jail terms.
This post is Part I of a series on the Lessons Of Weatherford. Part II will focus on
compliance problems caused by far-flung foreign subsidiaries.
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