Normally, OFAC just says they have released enforcement information. Not this time – the email I received:
Release of OFAC Civil Penalties Information
National Oilwell Varco, Inc., a Delaware corporation, and its subsidiaries Dreco Energy Services, Ltd. (“Dreco”) and NOV Elmar (“Elmar”) have agreed to settle their potential civil liability for apparent violations of the Cuban Assets Control Regulations, 31 C.F.R. part 515 (CACR), the Iranian Transactions and Sanctions Regulations, 31 C.F.R. part 560 (ITSR), and the Sudanese Sanctions Regulations, 31 C.F.R. part 538 (SSR), for $5,976,028. For more information on this action, please visit the following web notice.
New information on OFAC Civil Penalties and Informal Settlements is now available.
So, what is this enforcement action about?
OFAC determined that from on or about 2002 to on or about 2009, NOV engaged in certain conduct in apparent violation of the ITSR. Specifically: (1) between October 2002 and April 2005, National Oilwell Varco, Inc. approved at least four Dreco commission payments to a U.K.- based entity that related to the sale and exportation of goods, directly or indirectly, from Dreco to Iran, in apparent violation of §§ 560.206 and 560.208 of the ITSR (these four commission payments have a combined value of $2,630,091); (2) between September 2006 and January 2008, National Oilwell Varco, Inc. engaged in two transactions totaling $13,596,980 involving the direct or indirect sale and exportation of goods to Iran, and/or facilitated those transactions, in apparent violation of §§ 560.206 and 560.208 of the ITSR; (3) between at least 2003 and 2007, Dreco knowingly indirectly exported goods from the United States for the specific purpose of filling at least seven orders from Iranian customers, in apparent violation of § 560.204 of the ITSR (these seven transactions have a total value of $526,480); (4) between 2007 and 2009, Dreco engaged in 45 transactions totaling $1,707,964 involving the sale of goods to Cuba, in apparent violation of § 515.201 of the CACR; (5) between 2007 and 2008, Elmar engaged in two transactions totaling $103,119 involving the sale of goods or services to Cuba, in apparent violation of § 515.201 of the CACR; and (6) between 2005 and 2006, NOV engaged in one $20,928 transaction involving the direct or indirect exportation of goods from the United States to Sudan, in apparent violation of § 538.205 of the SSR (collectively referred to hereafter as the “Apparent Violations”).
Of the non voluntarily self-reported violations, all but 4 were considered non-egregious. Here’s why the 4 were categorized differently (which pushes them into the quadrant of the grid with the largest civil monetary penalties):
OFAC also determined that the four apparent violations involving the Dreco commission payments were egregious because senior-level finance executives within NOV approved the four commission payments; NOV appears to have willfully blinded itself to the consequences of its approval by acquiescing to Dreco’s deliberate non-identification of Iran in its communications with NOV; NOV had reason to know that the commission payments involved Iran; and NOV ignored several warning signs over the course of three years that approving the commission payments was prohibited conduct.
The statutory maximum for all the violations was $37,766,212 and, even when including the egregious transactions, the base penalty was $8,537,183. Here is why OFAC ended up where it did, which is only about a 30% discount from the base anount (which is less than usual):
OFAC considered the following to be aggravating factors:
(1) NOV’s conduct that gave rise to the Apparent Violations demonstrated at least reckless disregard for U.S. sanctions requirements;
(2) senior managers at National Oilwell Varco, Inc. and Dreco knew or had reason to know that their respective business transactions giving rise to the ITSR-related apparent violations involved Iran;
(3) NOV’s conduct caused harm to sanctions program objectives by providing a significant and sustained economic benefit to the petroleum industries in Cuba, Iran, and Sudan;
(4) NOV is a large and sophisticated company that is engaged in the business of providing oilfield services around the world, including regions with high sanctions risk; and
(5) NOV’s compliance program at the time of the Apparent Violations was wholly inadequate.
OFAC considered the following to be mitigating factors:
(1) NOV had not received a Penalty Notice or Finding of Violation in the five years preceding the date of the earliest transaction giving rise to the Apparent Violations;
(2) NOV cooperated with OFAC’s investigation, including by agreeing to toll the statute of limitations for more than 2,600 days; and
(3) NOV has made efforts to remediate its compliance program and agreed to further compliance enhancements.
2600 days is over 7 years – that is a long window to extend the statute of limitations by.
One more thing: OFAC’s civil monetary penalty (CMP) is only part of a much larger whole. National Oilwell Varco agreed to a non-prosecution agreement (NPA) with the US Attoreney’s Office for the Southern District of Texas, which included a $25,000,000 settlement amount (which OFAC’s amount is part of).