The U.S. Government announced two major sanctions enforcement actions this week that reinforce the compliance challenges faced by both U.S. companies with international activities and non-U.S. companies subject to U.S. jurisdiction.
Schlumberger to Pay Largest Criminal Fine for Sanctions Violations
On March 25, 2015, Schlumberger Oilfield Holdings Ltd. (SOHL), a wholly-owned BVI-based subsidiary of Schlumberger Ltd. (Schlumberger), a French oilfield services company, agreed to enter a guilty plea and pay a $232 million penalty for willfully facilitating illegal transactions and otherwise engaging in unauthorized trade with Iran and (North) Sudan in violation of U.S. sanctions laws. According to court documents, from approximately 2004 to 2010, Schlumberger’s U.S.-business segment, Drilling & Measurements (D&M), provided and facilitated unauthorized oilfield services to Schlumberger customers in Iran and Sudan through non-U.S. subsidiaries of SOHL.
The settlement brings an end to a six-year investigation by the U.S. Department of Commerce and Department of Justice (DOJ). The DOJ released a statement announcing that D&M violated U.S. economic sanctions in three primary ways:
- Approving and disguising capital expenditure requests regarding Iran and Sudan for the manufacture of new oilfield drilling tools and for certain company purchases;
- Making and implementing business decisions specifically concerning Iran and Sudan; and
- Providing certain technical services and expertise in order to troubleshoot mechanical failures and to sustain expensive drilling tools and related equipment in Iran and Sudan.
SOHL’s plea agreement, which still requires federal court approval, includes a $155 million criminal fine and a $77.5 million criminal forfeiture. The criminal fine represents the largest criminal fine in connection with a prosecution under International Emergency Economic Powers Act (IEEPA), the authority under which most U.S. sanctions are implemented. While other companies have reached larger aggregate settlements with the U.S. Government for sanctions violations, these settlements included significant forfeitures of illegal profits, with comparatively smaller criminal fines. For example, in connection with BNP Paribas’ sanctions-related settlement with multiple U.S. federal and state authorities in 2013, the French bank agreed to forfeit $8.8 billion in profits and to pay a criminal fine of “only” $140 million.
SOHL and Schulmberger both agreed to remedial actions in the plea agreement. SOHL agreed to submit to a three-year period of corporate probation and to continue to cooperate with the government.
During the three-year probation period, Schlumberger also agreed to:
- cease all operations in Iran and (North) Sudan,
- report on its compliance with sanctions,
- respond to the U.S. Government’s requests to disclose information and materials related to the parent company’s compliance with U.S. sanctions, and
- hire an independent consultant to review the parent company’s sanctions compliance program and internal audits.
PayPal Reaches Civil Settlement with U.S. Government
Also on March 25, 2015, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) announced a $7.6 million civil settlement with PayPal Inc. (PayPal) regarding violations of U.S. sanctions against Cuba, Iran and Sudan, among other measures. The settlement amount is notable given that the transactions at issue were valued at only about $44,000 in total and were voluntarily disclosed by the company to OFAC.
The settlement agreement alleges that from 2009 to 2013, PayPal “did not implement effective compliance procedures and processes to identify, interdict, and prevent transactions in apparent violation of the sanctions programs administered by OFAC.” Specifically, the U.S. Government stated that PayPal failed to employ adequate screening technology and procedures to identify the potential involvement of U.S. sanctions targets in transactions that PayPal processed, and as a result, did not screen in-process transactions in order to reject or block transactions pursuant to U.S. sanctions requirements.
This action demonstrates the importance placed by OFAC on implementing adequate procedures to identify the involvement of sanctioned persons in transactions and acting appropriately when such persons are identified. The vast majority of the penalty resulted from PayPal’s processing of 136 transactions on behalf of a single individual who had been identified on OFAC’s List of Specially Designated Nationals and Blocked Persons (SDN List). While the individual was designated for his involvement in proliferation of weapons of mass destruction, the transactions at issue were valued at only approximately $7,000 in total. OFAC stated that PayPal did not have adequate screening software to identify this individual as a potential SDN List match, and that even when warning signs were raised, PayPal ignored such signs and processed transactions for the benefit of the sanctioned individual.
Both of these actions demonstrate the expectation of the U.S. Government that any company that may be subject to U.S. sanctions laws – whether directly, or indirectly through the acts of a U.S. subsidiary or non-U.S. employees located in the United States – must develop adequate compliance procedures to identify and prevent violations of U.S. laws. Companies that fail to do so, or that ignore warning signs raised by existing compliance programs, risk becoming the target of enforcement actions resulting in expensive settlements.