Lessons Of Weatherford ~ Part VI

This post is the sixth in a series that draws 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.

Violations of America’s FCPA do not ordinarily involve US company employees heading into foreign markets with bags of cash, intent on bribing foreign government officials to extract business advantages. Rather, violations tend to arise from pay-for-play circumstances that US companies encounter in certain foreign markets. Choosing to pay in order to play remains illegal, of course; but this does appear to be the way most FCPA violations develop.

As a consequence, violations usually take the form of more or less elaborate schemes to disguise the diversion of monies from superficially legitimate commercial arrangements to government officials in positions of discretion to dispense commercial favors of great value. Indeed, as illustrated by two Weatherford arrangements in Angola, the forms that violations do take can be complex.

Angola I

Like all vendors of oil field equipment that wanted to sell in Angola, Weatherford had to deal with Sonangol, a state-owned company that was the sole concessionaire for exploration of oil and gas in the country. Seeking to increase its share of the market for well screens in Angola, Weatherford’s largest operational subsidiary, Weatherford Services Ltd. (WSL), learned that Sonangol was encouraging companies to establish screen-manufacturing facilities in Angola, in partnership with local entities. But WSL didn’t just shop around Angola for suitable partners; rather, a senior executive at Weatherford itself sent a letter to a high-level official at Sonangol who was known to have influence in the letting of contracts, and asked that Sonangol participate “in the process” of selecting partners.

Not surprisingly, the high official suggested that WSL partner with an entity controlled by himself and two other Sonangol officials, and with another entity controlled by his daughter and son-in-law. So far, so good, however: Even though Weatherford/WSL surely knew from the outset that they were dealing with “agents” of a foreign country, merely contracting with such agents was not in itself illegal. So long as WSL gave the Angolans nothing of value to induce them to act corruptly in providing business advantages to WSL, WSL could have conducted a legitimate manufacturing business in partnership with these Angolans.

But the activities of the joint venture were not on the up and up. The Angolan partners contributed nothing legitimate to the joint venture – no capital investment, no personnel, no proprietary technology. Rather, their contributions were solely illegitimate – causing Sonangal to take well screen business away from WSL competitors and award it to WSL, even where competitors were selling to non-governmental companies, and awarding contracts to WSL even where, by WSL’s own admission, its bids were not price-competitive.

And of course, WSL did give value for those services, knowingly allowing the Angolans to pay themselves hundreds of thousands of dollars in dividends from joint venture revenues. These were clear, though effectively disguised, violations of the FCPA.

Part VII in this series will show how Weatherford disguised payments to another Angolan official, and how it left other bribes nakedly un-disguised on its books.