Three subsidiaries of Switzerland-based oilfield services giant Weatherford International pleaded guilty today to violations of the Foreign Corrupt Practices Act and fraudulent misuse of the United Nations' Oil for Food Program. As a result, both Weatherford International and its subsidiaries will pay $252.6 million in penalties and fines.

As part of a coordinated FCPA resolution, the Department of Justice also criminally charged Weatherford International with one count of violating the internal controls provisions of the FCPA. On Nov. 26, Weatherford International agreed to pay $87.2 million to resolve those criminal charges, and also entered into a deferred prosecution agreement.

“This case demonstrates how loose controls and an anemic compliance environment can foster foreign bribery and fraud by a company's subsidiaries around the globe,” said Acting Assistant Attorney General Mythili Raman.

According to court documents, Weatherford International knowingly failed to establish an effective system of internal accounting controls designed to detect and prevent corruption, including FCPA violations.  “The company failed to implement these internal controls despite operating in an industry with a substantial corruption risk profile, and despite growing its global footprint in large part by purchasing existing companies, often themselves in countries with high corruption risks,” the Justice Department stated.   

As a result, certain employees of Weatherford International's wholly owned subsidiaries in Africa and the Middle East were able to bribe foreign officials and fraudulently misuse the United Nations' Oil for Food Program over a period of several years.

Africa Schemes

In one scheme, employees of Weatherford Services, a subsidiary of Weatherford International, established and operated a joint venture in Africa with two local entities controlled by foreign officials and their relatives from 2004 through at least 2008.   The sole purpose these local entities was to serve as conduits through which Weatherford Services funneled hundreds of thousands of dollars in payments to the foreign officials controlling them.

In exchange for the payments, the foreign officials awarded the joint venture lucrative contracts, gave Weatherford Services inside information about competitors' pricing, and took contracts away from Weatherford Services' competitors and awarded them to the joint venture, the Justice Department stated.

In another scheme, Weatherford Services employees in Africa funneled bribery payments to a foreign official through a freight forwarding agent it retained in July 2006. Weatherford Services and the freight forwarding agent generated sham purchase orders for consulting services that were never performed. The freight forwarding agent then used some of the payments from those invoices to bribe a foreign official in exchange for approving Weatherford Services' contract renewal.

Middle East Scheme

In a third bribery scheme, employees of Weatherford Oil Tools Middle East Limited (WOTME), another Weatherford International subsidiary, paid approximately $15 million in “volume discounts” from 2005 through 2011 to a distributor, who supplied Weatherford International products to a government-owned national oil company.

Weatherford International's failure to implement effective internal accounting controls also permitted corrupt conduct relating to the United Nations' Oil for Food Program to occur, according to court documents. Between February 2002 and July 2002, WOTME paid $1.4 million in kickbacks to the Iraq government on nine contracts with Iraq's Ministry of Oil, as well as other ministries, to provide oil drilling and refining equipment. WOTME falsely recorded these kickbacks as other, seemingly legitimate, types of costs and fees, according to court documents.

According to court documents, the corrupt transactions in Africa and the Middle East earned Weatherford International profits of $54.4 million.

In addition to Weatherford Services pleading guilty to violations of the FCPA, Weatherford International entered into a DPA which requires the company to:

Cooperate with law enforcement;

Retain an independent corporate compliance monitor for at least 18 months; and

Continue to implement an enhanced compliance program and internal controls designed to prevent and detect future FCPA violations.  

The agreement acknowledges Weatherford International's cooperation in this matter, including conducting a thorough internal investigation into bribery and related misconduct, and its extensive remediation and compliance improvement efforts.

In a related FCPA matter, Weatherford International also reached a settlement on the same day with the Securities and Exchange Commission, in which the company consented to the entry of a permanent injunction against FCPA violations and agreed to pay $65.6 million in disgorgement, prejudgment interest, and civil penalties. Weatherford International also agreed to comply with certain undertakings regarding its FCPA compliance program, including the retention of an independent corporate compliance monitor.

Export Control Violations

In a separate matter reached Nov. 26, Weatherford International and four of its subsidiaries agreed to pay a combined $100 million for violating various U.S. export control and sanctions laws by exporting or re-exporting oil and gas drilling equipment to, and conducting Weatherford business operations in, sanctioned countries without the required U.S. Government authorization between 1998 and 2007. 

In addition to the involvement of employees of several Weatherford International subsidiaries, some Weatherford International executives, managers, or employees on multiple occasions participated in, directed, approved, and facilitated the transactions and the conduct of its various subsidiaries. Weatherford generated approximately $110 million in revenue from its illegal transactions in Cuba, Iran, Syria and Sudan.

The charges stem from a multi-agency investigation conducted by the U.S. Attorney's Office for the Southern District of Texas, the Department of Commerce's Bureau of Industry and Security, and the Department of the Treasury's Office of Foreign Assets Control.  

As part of the resolution of that investigation, Weatherford International has agreed to enter into a deferred prosecution agreement for a two-year term, and two of its subsidiaries have agreed to plead guilty to export controls charges.

The combined FCPA and export control investigations resulted in the conviction of three Weatherford subsidiaries, the entry by Weatherford International into two deferred prosecution agreements and a civil settlement, and the payment of a total of $252.6 million in penalties and fines.