Still Serious About Sanctions: OFAC Settles Violations Involving Cuba and Iran

Bass, Berry & Sims PLC

Bass, Berry & Sims PLC

  • U.S. oilfield services company pays $25 million for violations involving senior managers.
  • Aggressive enforcement continues even though restrictions have been eased.
  • It can take a long time to settle violations of U.S. sanctions and export issues.

Lest U.S. companies think that Cuba and Iran are entirely open for business, a U.S. government settlement announced earlier this month with National Oilwell Varco, Inc. (NOV), a U.S. oilfield services company, will serve as a stark reminder both of existing restrictions and – especially – the U.S. government’s intent to enforce those restrictions aggressively.  (Even if doing so takes a long, long time.)

The settlement actually involved several U.S. government actors, as NOV resolved matters concurrently with the Treasury Department, Office of Foreign Assets Control (OFAC), and the Commerce Department, Bureau of Industry and Security, while entering into a Non-Prosecution Agreement and $25 million settlement with the U.S. Attorney’s Office for the Southern District of Texas.

According to settlement documents, NOV and two of its subsidiaries violated U.S. sanctions against Cuba, Iran and Sudan by providing goods and services to those countries without U.S. government authorization. As we reported in September, OFAC is adamant about enforcing penalties for sanctions violations, especially against commercially sophisticated businesses such as NOV.

OFAC was apparently particularly outraged with NOV’s actions given the involvement of senior managers. According to OFAC, the company made commission payments to a UK entity in connection with the sale and export of goods to Iran.  The agency, in accordance with its Enforcement Guidelines, deemed these payments egregious because they involved senior financial executives who “willfully blinded” themselves for three years to warning signs that the commission payments involved Iran.

OFAC emphasized that the conduct demonstrated “at least reckless disregard” for sanctions requirements and was generally harmful to the objectives of the U.S. sanctions program. OFAC also underscored that NOV’s violations were aggravated by its lack of an adequate compliance system, a significant shortcoming for a large, sophisticated business.

Notwithstanding this apparently egregious conduct, OFAC was seemingly not in any huge rush to take enforcement action. The alleged violations occurred between 2002 and 2009.  In fact, NOV could have paid a larger penalty but for its cooperation in OFAC’s investigation, including tolling the statute of limitations for more than 2,600 days.  (We have often noted the length of OFAC investigations, and the fact companies regularly are asked to and do extend the limitations period – but 2,600 days is simply incredible.)

OFAC also mitigated the penalty based on other factors. For one, NOV had no history of sanctions violations in the five years preceding the date of the first transaction.  In addition, NOV made efforts to remediate its compliance program and agreed to additional compliance enhancements.

The NOV settlement again highlights the value of cooperation and the importance of a strong compliance program. While the $25 million settlement fell below the maximum statutory penalty, OFAC may have asked for even less had NOV self-disclosed the violations.

The settlement is also a reminder of how different elements of the U.S. government – including Commerce, Justice and Treasury – often collaborate on violations of U.S. export and sanctions laws. This could be at least part of the explanation for the length of time needed to finalize the settlement but, in any event, points to the complexity of settling a single matter with multiple agencies that have multiple agendas.

Finally, the NOV settlement demonstrates once again that companies should not view recent amendments to U.S. sanctions against Cuba and Iran as a free pass to operate in those markets. (And to be clear, the violations at issue here occurred well before such amendments.)  Simply because current restrictions have been eased does not mean that the U.S. government is easing up on current enforcement efforts.

We would like to thank Lidiya Kurin, a Bass, Berry & Sims law clerk based in our Washington, D.C. office, for her assistance in drafting this alert.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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