Schlumberger hit with sanctions violations

Two subsidiaries of Schlumberger Limited – one current and one former – were hit with sanctions violations in dual press releases this week.  The combined fines totaled more than $1.5 million.

According to the Treasury Department’s Office of Foreign Assets Control (OFAC), Cameron International Corporation provided oil and gas services to the Russian energy firm Gazprom-Neft Shelf.  These services were related to an Arctic offshore drilling project.  Cameron is based in Houston, Texas, and is a subsidiary of Schlumberger.  Cameron appears to have approved contracts (through a subsidiary in Romania) to provide services to the Russian project.  As with most cases that involve complicated sanctions regulations, Gazprom-Neft Shelf is a wholly-owned subsidiary of OJSC Gazprom Neft, which is subject to Directive 4 of OFAC’s Ukraine-Related Sanctions Regulations.   Some interesting aspects of this case include:

• Cameron Romania emailed U.S.-person senior managers to obtain approval for the services contracts. According to OFAC’s press release, these Cameron U.S. senior managers had reason to know the projects were intended to provide services to Gazprom-Neft Shelf.
• During the time of these activities, Cameron had policies and procedures in place to evaluate potential transactions against sanctions regulations. However, those procedures were not sufficient enough to indicate that U.S.-person involvement in the activities of Cameron’s foreign subsidiary would be prohibited.
• Schlumberger acquired Cameron in 2016. At that time, Cameron had already approved two of the contracts for Gazprom-Neft Shelf.  Schlumberger uncovered the apparent violations during its “post-acquisition compliance review.”  This underscores the importance of doing a thorough and complete compliance review during the pre-acquisition / merger / buyout stage.  Had Schlumberger uncovered the activities prior to purchasing Cameron, it’s possible they may have made different decisions about the acquisition and/or the price paid for acquiring the company.
• OFAC calculated the maximum civil penalty in this case to be more than $22 million. However, Cameron settled the matter for $1.4 million – about six percent of the maximum.  This was due to a variety of aggravating and mitigating circumstances.

The second case announced by OFAC this week involves Schlumberger Rod Lift, Inc. – a former subsidiary of Schlumberger that is now doing business as Lufkin Rod Lift, Inc.  In this case, the Frisco, Texas-based company was apparently involved in a transaction that facilitated the movement of goods from a Schlumberger facility in Canada, to a Schlumberger joint venture in China, for ultimate delivery to Sudan.  As with the case above, there were several missteps along the way.  These include:

• The U.S. employees were made aware that the goods were destined for Sudan and confirmed their knowledge of this in subsequent email communication.
• The employees were also made aware, through “multiple communications and Schlumberger’s internal policy” that U.S. sanctions prohibited goods and services from going to Sudan.
• To make matters worse, the employees also received a 6-hour training on Schlumberger’s trade compliance and sanctions compliance programs.
• OFAC calculated the maximum civil penalty in this case to be $307,922, although the final penalty amount was $160,000. One of the most aggravating factors here appears to be the U.S. employees’ knowledge that the transaction was a violation of sanctions regulations and proceeding forward anyway.

In summary, OFAC perhaps said it best with the following from its press release:

“Companies with integrated operations, particularly those involving or requiring participation by their U.S.-based headquarters, locations, or personnel, should ensure that global activities they engage in are compliant with OFAC’s regulations.”

If you need help shoring up your company’s sanctions compliance efforts, contact one of our experts for a no-charge consultation today.

 

Image by C Morrison from Pixabay.