As announced yesterday by the Justice Department, Schlumberger Oilfield Holdings Ltd. (SOHL), a wholly-owned subsidiary of Schlumberger Ltd., has agreed to enter a guilty plea and to pay a $232,708,356 penalty to the United States for conspiring to violate the International Emergency Economic Powers Act (IEEPA) by willfully facilitating illegal transactions and engaging in trade with Iran and Sudan. The plea, subject to court approval, was the result of a joint investigation led by the DOJ’s National Security Division, the U.S. Attorney’s Office for the District of Columbia, and the U.S. Department of Commerce’s Bureau of Industry and Security (BIS) Dallas Field Office.

Schlumberger’s violations stem from its facilitation of business transactions that occurred in Iran and Sudan,  countries long sanctioned by the U.S. According to the criminal information, SOHL maintains a U.S. business division called Drilling & Measurements (D&M), located in Sugar Land, Texas, that provides oil drilling and measurement technology services to oilfield locations throughout the world. In other words, the oversight and direction by the Texas office, which represents a U.S. division of a foreign subsidiary of a foreign parent company, imputed criminal sanctions liability to the entire company.

In recent years, large-scale sanctions enforcement actions have seemingly focused on foreign financial institutions such Barclays Bank, HSBC, Standard Chartered Bank, BNP Paribas, and most recently, Commerzbank AG. Obviously Schlumberger isn’t the first non-financial institution to come under fire in the history of IEEPA prosecutions; however it is the largest criminal fine in connection with an IEEPA prosecution and surpasses the $140 million dollar fine imposed against BNP Paribas last June.

The criminal penalties associated with sanctions prosecutions are staggering, in part because the corporate defendants are entering plea agreements and deferred prosecution agreements (DPAs) to settle the matter. The agreements are circumventing the criminal penalty maximum for substantive violations, which is set forth in 50 U.S.C. § 1705(c) and intended to limit a fine to not more than $1,000,000. However, an agreement based on conspiracy to violate IEEPA carries with it a penalty amount of $500,000 or a fine of twice the gross gain or gross loss, whichever is greater, pursuant to the alternative fine provision found in 18 U.S.C. § 3571(d). The Schlumberger case is the most recent example of the use of the alternative fine provision to impose significant criminal penalties on corporations found to have engaged in U.S. sanctions violations.

From a business perspective, the Schlumberger takeaways are two-fold: 1) foreign corporations with a U.S. nexus and operating in areas targeted by U.S. sanctions should implement robust compliance practices to avoid and/or mitigate substantial penalties and criminal prosecution; and 2) large-scale enforcement actions are expanding beyond just financial institutions into other global sectors. The failure to implement adequate sanctions policies and procedures has the potential to result in not just civil enforcement by U.S. federal agencies like OFAC and BIS, but more importantly, carries with it the real possibility of criminal consequences, the resolution of which is an agreement to pay a higher penalty amount.  Further, the recent plea and settlement with Schlumberger demonstrates that sanctions actions are expanding beyond the scope of just financial institutions, and all foreign entities with U.S. subsidiaries that are operating in U.S. sanctioned territories should be put on notice that their practices must comply with U.S. sanctions regulations to the extent necessary.

The author of this blog is Margaret S. Ververis, a Senior Associate at Ferrari & Associates, P.C. specializing in federal criminal defense matters and U.S. economic sanctions representation. For questions regarding this post, please contact Ms. Ververis at (202) 440-2581 or ververis@ferrariassociatespc.com.