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.

 

Background

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

in Iraq;

• 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

(OFAC); and

• 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.

subsidiary; and

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

clearly sizable.)

 

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.