Energy and International Trade Update
The Texas-based oil and natural gas equipment company National Oilwell Varco, Inc., and its subsidiaries Dreco Energy Services, Ltd. (Dreco), and NOV Elmar (Elmar) (collectively NOV) recently settled potential civil penalties with the U.S. Department of the Treasury Office of Foreign Assets Control (OFAC) and the U.S. Department of Commerce Bureau of Industry and Security (BIS) and executed a nonprosecution agreement (NPA) with the U.S. Department of Justice (U.S. Attorney’s Office for the Southern District of Texas). NOV, which did not voluntarily disclose the alleged violations to the government, will pay a total of US$25 million to resolve the charges.
OFAC announced a US$5,976,028 settlement relating to alleged violations of the Cuban Asset Control Regulations (CACR), the Iranian Transactions and Sanctions Regulations (ITSR) and the Sudanese Sanctions Regulations. However, NOV’s settlement with OFAC will be deemed satisfied by NOV’s US$25 million payment as outlined in the NPA, which arose out of the same pattern of conduct. The statutory maximum for these OFAC violations would have been US$37.8 million.
Separately, BIS announced a US$2.5 million settlement relating to alleged violations of the export administration regulations (EAR) by both National Oilwell Varco and Dreco, which is included in the NOV’s US$25 million payment as outlined in the NPA.
OFAC Allegations and Settlement
OFAC alleged that from about 2002 to 2008, NOV violated the ITSR in several instances, including
- at least four Dreco commission payments totaling US$2,630,091 to a UK-based entity related to sale and export of goods from Dreco to Iran; these alleged violations were deemed egregious, with senior executives approving the commissions and NOV allegedly willfully blinding itself to the consequences of those approvals
- two Dreco transactions totaling US$13,596,980 related to the sale and export of goods to Iran
- at least seven orders totaling US$526,480 in which Dreco knowingly indirectly exported goods to Iranian customers from the United States
OFAC alleged that from about 2007 to 2009, NOV violated the CACR as a result of
- 45 Dreco transactions totaling US$1,707,964 involving the sale of goods or services to Cuba
- two Elmar transactions totaling US$103,119 involving the sale of goods or services to Cuba
Further, there was one NOV transaction from 2005 to 2006 valued at US$20,928 involving the export of goods to Sudan from the United States.
In determining the settlement amount, OFAC considered the following aggravating factors:
- NOV’s conduct demonstrated at least reckless disregard, and NOV senior managers knew or should have known that the transactions giving rise to the alleged violations involved Iran.
- NOV’s conduct harmed the sanctions program by benefiting the petroleum industries in Cuba, Iran and Sudan.
- NOV is a large and sophisticated company, but its compliance program at the time was wholly inadequate.
Mitigating factors included these:
- NOV had not received a penalty notice or finding of violation in the five years preceding the alleged violations (making it eligible for up to a 25 percent “first violation” mitigation).
- NOV cooperated with OFAC by agreeing to toll the statute of limitations.
- NOV has improved its compliance program and has agreed to compliance enhancements.
BIS Allegations and Settlement
BIS alleged 22 violations by NOV, stating that NOV violated the EAR when (1) from 2006 to 2007 Dreco caused, aided and/or abetted the export of oil and gas equipment worth US$2,315,254.52 from the United States to Iran 21 times without required U.S. government authorization and (2) in 2012 National Oilwell Varco sold and/or transferred filament winder mandrels valued at US$69.615, controlled for reasons of nuclear proliferation, to Oman without a license. NOV was assessed a civil penalty of US$2.5 million. Granting, restoring or continuing validity of any NOV export licenses or authorizations is conditioned on the full and timely payment of the settlements and compliance with the NPA.
The NPA has not been made public. However, the US$25 million settlement established in the NPA is described as also resolving a related probe by U.S. Immigration and Customs Enforcement.