By Nicole Hong
Schlumberger Ltd., the world's largest oil-field services
company, has agreed to pay $232.7 million for violating U.S.
sanctions in Iran and Sudan, part of the government's extended
crackdown on companies doing business with countries the U.S. has
declared off limits.
As part of a plea agreement with the Justice Department,
Schlumberger will pay a $155.1 million criminal fine--the biggest
criminal fine ever imposed for a U.S. sanctions violation--and
forfeit $77.6 million in illegally obtained profits.
Schlumberger Oilfield Holdings Ltd., a Schlumberger subsidiary,
will plead guilty to conspiring to violate the International
Emergency Economic Powers Act, or IEEPA, which allows the
government to block transactions with countries under
sanctions.
The agreement, which still needs court approval, caps a six-year
investigation by the Justice Department and the Commerce
Department. Details of the deal between government lawyers and
Schlumberger were finalized on Wednesday, according to a person
familiar with the situation.
A spokesman for Schlumberger said the company has "made
appropriate enhancements to address the issues discovered through
the investigation" and noted that it ceased operations in Iran and
Sudan. Schlumberger is "satisfied that this matter is finally
resolved," the spokesman said.
The penalty comes at a tough time for Schlumberger. Its share
price has dropped nearly 20% in the past six months as a global oil
glut has pushed crude prices to multiyear lows and reduced demand
for Schlumberger's services, which include drilling and fracking
oil and gas wells. In January, Schlumberger announced 9,000 job
cuts after the firm's profit fell 82% in the last three months of
2014 from the year-earlier period.
Schlumberger has one of its headquarters in Houston and does
business in more than 85 countries.
U.S. officials say a Schlumberger unit in Texas illegally
facilitated the export of drilling equipment to Iran and Sudan from
2004 to 2010 by using special shipping methods to sidestep U.S.
sanctions. Schlumberger's personnel in Iran and Sudan were
instructed to disguise their payments in the company's computer
system, according to court documents filed in federal court in the
District of Columbia on Wednesday.
Schlumberger's failure to properly supervise these employees led
to "willful conduct in violation of U.S. sanctions," the Justice
Department said.
Multinational companies and banks have become an increasingly
frequent target for U.S. authorities, who have ramped up financial
penalties for sanctions violations. Two weeks ago, Commerzbank AG
agreed to pay a total of $1.45 billion in penalties to New York and
federal authorities to settle allegations it moved dollars through
the U.S. on behalf of clients in countries such as Iran and Sudan.
In recent years, other banks that have paid sanctions-related fines
include HSBC Holdings PLC, Barclays PLC and Standard Chartered
PLC.
The criminal fine against Schlumberger is the biggest so far
under the IEEPA, according to the Justice Department. Other
companies have paid much costlier settlements, but their size
reflected large forfeitures of illegal profits or transactions. BNP
Paribas SA forfeited a record $8.8 billion last June. The French
bank's criminal fine, however, was $140 million.
Although U.S. sanctions against Iran and Sudan have been in
place for two decades, Schlumberger could legally operate in the
two countries under certain circumstances because the company is
registered in the Caribbean, not in the U.S. Schlumberger was
allowed to export equipment to sanctioned countries if the goods
weren't manufactured in the U.S. and didn't involve U.S.-based
employees or employees who were U.S. citizens, according to the
Justice Department.
But federal investigators found that some of Schlumberger's
shipments to Iran and Sudan did involve U.S.-based employees in the
company's drilling-and-measurements unit in Sugar Land, Texas.
Employees for Schlumberger's Iran and Sudan operations would also
contact the company's U.S.-based employees for tech support, the
Justice Department said.
Through complex shipping arrangements, Schlumberger's employees
in the U.S. were involved in making sure Iran and Sudan had the
equipment they needed and "actively facilitated" business
operations in both countries, according to court documents. To hide
the criminal activity, Schlumberger employees used code words like
"Northern Gulf" for Iran and "Southern Egypt" for Sudan in internal
communications, the court documents said.
The penalty is a victory for the federal investigators who spent
years pursuing Schlumberger for sanctions violations. The
investigation began in 2009 and led officials to review over one
million documents, many of which were challenging to obtain because
they were located overseas, according to people familiar with the
matter. Actual negotiations between the government and Schlumberger
took about a year, the people said.
During the investigation, officials uncovered messages from
Schlumberger employees in Iran and Sudan asking how to enter
expenditure requests into the company system. They were instructed
not to type in country codes for Iran and Sudan, but to instead use
"BGM," the code for a warehouse in the United Arab Emirates.
"US/European people cannot approve [Iran] orders," one of the
messages read, according to court documents.
Officials say pursuing companies for sanctions violations is a
top priority. The Justice Department has reorganized some of its
divisions in recent months to increase the emphasis on sanctions
enforcement, according to John Carlin, the assistant attorney
general for national security.
Energy companies may be particularly at risk because many
sanctioned countries are large oil producers. Last year, a Belgian
subsidiary of oil and gas equipment manufacturer Robbins &
Myers Inc. paid a $1 million criminal fine for violating sanctions
on Syria. In 2013, two subsidiaries of Weatherford International
Ltd., a Swiss oil services company, each agreed to pay a $1 million
criminal fine for sanctions violations.
"There's an incentive sometimes for energy companies to do
business with regimes that are sanctioned, but we want to make it
clear that creative circumvention of sanctions is still unlawful,"
Mr. Carlin said in an interview.
As part of the company's penalty, Schlumberger will enter a
three-year probation period during which it must notify the
government of any other potential sanctions violations.
Schlumberger must also hire an independent consultant to review its
sanctions policies.
Write to Nicole Hong at nicole.hong@wsj.com
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