This post is the fifth in a series that draw lessons from the compliance failures of
Weatherford International Ltd. (now known as Weatherford International plc). An
overview of the violations for which Weatherford has been penalized – to the tune of
$253 million – appears in Part I of this series, together with definitions of capitalized
terms that are not defined below.
Lesson 4 From Weatherford: Don’t hire in-house counsel who lie, thereby exposing
your company to many millions in defense costs and business losses, over and above
the penalties such counsel are paid to avoid.
Given the cowboy mentality that apparently prevailed at Weatherford, it’s probably
not surprising – though astounding in any other circumstance – that Weatherford’s
senior corporate counsel in Houston is alleged to have consulted with outside
counsel as to whether partnering with certain Angolan front companies raised
issues under the FCPA, but decided not to follow the advice he got, and then falsely
told another outside counsel that the deal had been vetted and approved by the
other outside counsel.
(It also appears that, early on at least, other Weatherford attorneys stonewalled
the government’s investigation or, at best, failed to prevent stonewalling by
Weatherford employees – e.g., when investigators were initially told that a manager
who signed documents agreeing to pay bribes in Iraq was missing or dead when, in
fact, the manager was still employed by Weatherford.)
The available record does not disclose whether Weatherford’s senior corporate
counsel has been disbarred, as he should have been; but it has been reported that
Weatherford’s honest lawyers billed it some $125 million to achieve the $253-
million settlement. That may not sound like a terrific result, but Weatherford’s
defense lawyers managed to limit the charges against it to a couple of criminal
corporate counts, subject to deferred prosecution agreements, and to no individual
criminal counts whatever. Considering that Weatherford effectively admitted to
conspiracies that reached into its executive suites, its lawyers’ success in keeping its
executives out of jail is downright heroic – bordering on the obscene.
The failure of Weatherford’s pre-investigation lawyers to keep the company out of
transactions that violated US embargoes is also reported to have cost Weatherford
some $44 million in losses attendant to its pulling out of those deals in 2008 to avoid
Taken together, then, Weatherford’s $125 million in defense costs and its $44
million in write-offs amount to almost $170 million in collateral costs, more than
two-thirds the amount of the aggregate penalties paid by Weatherford, bringing its
total compliance-failure costs to more than $422 million! All of that is, of course,
in addition to the millions that Weatherford has since paid to implement the kind
of compliance program it should have implemented as it went along. Without this
post-violation investment in compliance, the government would surely have insisted
on even stiffer penalties.
This reminds me of a much smaller case in which, through thorough internal
investigation and creative lawyering, I managed to convince the Commerce
Department to reduce its initial settlement demand from $4.4 million to $40,000;
but my bill to the client for this result was in excess of $400,000. And that $400,000
– indeed, the $40,000 amount, too – was far, far less than I would have billed to
devise a compliance program that would avoided all those costs and headaches.
Part VI of this series on the Lessons Of Weatherford will describe some of the
transactions that led Weatherford into violations of the FCPA.