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OFAC’s Enforcement Doubleheader, Part 2: Schlumberger Rod Lift

Schlumberger Rod Lift, Inc. (“SRL”) (now d/b/a Lufkin Rod Lift, Inc.1) — a Frisco, Texas-based company that was formerly a subsidiary of Schlumberger Lift Solutions LLC (“SLS”), itself a U.S. subsidiary of Schlumberger Limited (“Schlumberger”) of Curaçao, Netherlands — has agreed to pay $160,000 to settle its potential civil liability for an apparent violation involving its facilitation of one shipment of goods from a Schlumberger subsidiary in Canada, to a Schlumberger joint venture in China, for ultimate delivery to Sudan. The settlement amount reflects OFAC’s determinations that SRL’s conduct was non-egregious and was not voluntarily self-disclosed, and further reflects OFAC’s consideration of aggravating and mitigating factors.

What SRL and SLS did

In August 2014, SLS acquired the assets of another Texas-based company and hired a number of employees of the acquired company as part of the acquisition. Between December 2015 and April 2016, three of these employees, who were U.S. persons, facilitated the sale and shipment of oilfield equipment from a Canadian subsidiary of Schlumberger to a Chinese joint venture, in which Schlumberger held a 50% interest, for onward delivery to Sudan. Each of the U.S. employees were made aware that the goods were destined for Sudan prior to arranging the shipment of the goods and confirmed this knowledge in later email communication. The employees were further made aware, through multiple communications and Schlumberger’s internal policy, that U.S. sanctions at that time prohibited the sale of Schlumberger goods and provision of services to Sudan. Two of the employees were members of SRL management, specifically a Vice President and an Operations Manager.

The conduct giving rise to the apparent violation began in December 2015, when the U.S. employees received an email from the Schlumberger joint venture in China requesting a price quote for oilfield equipment from Schlumberger’s Canadian subsidiary, which would then be delivered to a customer in Sudan. In arranging the sale and shipment, the SRL employees assisted in the management of customer requirements and helped arrange for the shipment of the goods to China.

Shortly after the initial email request, the U.S. employees received internal communications clearly stating that Sudan was a sanctioned country and providing a link to Schlumberger’s internal Trade and Customs Compliance documents. Over approximately five months thereafter, employees of SRL, the joint venture, and the Canadian subsidiary exchanged numerous emails to arrange the sale and shipment of the goods.

In addition to the written guidance, each employee had attended a 6-hour training on Schlumberger’s Trade and Customs Compliance program that included a section explaining U.S. person restrictions with respect to activities in connection with all sanctioned countries, including the prohibition of facilitation. This training also included a case study of a past violation regarding Sudan and facilitation by a U.S. person. In March 2015, the U.S.-person Vice President received a notification sent by Schlumberger to senior management describing the company’s entry into a plea agreement, on March 15, 2015, with the U.S. Department of Justice (DOJ) for Schlumberger’s apparent violations of Sudan and Iran sanctions. This notification detailed the plea agreement, stressed the need for ongoing and future compliance with sanctions regulations, and highlighted that Schlumberger had wound down its operations in Sudan as part of Schlumberger’s remedial efforts. Despite receiving this information, on or around April 8, 2016, the Canadian subsidiary, at the request of SRL, transferred the goods for export to the Chinese joint venture, for ultimate delivery to Sudan.

The facilitation by SRL’s employees of the export of oilfield equipment to Sudan was, at the time of the transaction, a violation of 31 C.F.R. § 538.206 of the Sudanese Sanctions Regulations (SSR), 31 C.F.R. part 538, which prohibited U.S. persons from facilitating the exportation or reexportation of goods, technology, or services, to Sudan from any location unless authorized or exempt (the “Apparent Violation”).2 Moreover, the activities by SRL’s employees to further trade with Sudan did not qualify for the general license at 31 C.F.R. § 538.507 for reexports by non-U.S. persons to Sudan.

OFAC’s Math

The base penalty was $200,000.

The settlement amount of $160,000 reflects OFAC’s consideration of the General Factors under the Enforcement Guidelines. Specifically, OFAC determined the following to be aggravating factors:

(1) The SRL employees that engaged in the violative transaction were explicitly informed that Sudan was under comprehensive U.S. sanctions and that they were no longer to engage in business with Sudan. They also received emails and attended a training that communicated prohibitions on activities related to Sudan.

(2) The SRL employees that engaged in the violative conduct knew or had reason to know that the goods for which they were facilitating shipment would be exported to Sudan.

(3) The conduct occurred not long after Schlumberger received, in August 2015, a Finding of Violation from OFAC3 regarding the facilitation of trade with and the exportation of goods to Iran and Sudan. The Apparent Violation also occurred when Schlumberger was subject to the Plea Agreement with DOJ related (in part) to prior sanctions violations involving Sudan.

OFAC determined the following to be mitigating factors:

(1) Schlumberger cooperated fully with OFAC’s investigation, including by submitting thorough documentation, providing timely responses to OFAC’s requests, and entering into a tolling agreement; and

(2) Schlumberger engaged in remedial efforts that included the removal of personnel involved in the Apparent Violation, and SRL (now Lufkin Rod Lift, Inc.) is in the process of implementing enhancements to the company’s compliance program.

OFAC’s Lesson

This enforcement action highlights the importance of implementing effective compliance programs for multinational corporations operating across multiple global subsidiaries and employing diverse workforces. 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. Businesses should anticipate and account for this challenge also in the context of conducting acquisitions, including when integrating acquired companies that themselves share similar characteristics. When the relevant industry is one that may pose elevated sanctions risk, the need for an effective compliance program becomes increasingly important.

In implementing compliance controls in such contexts, companies are encouraged to take steps to ensure that all relevant personnel receive — and understand — existing sanctions prohibitions and the company’s compliance program. Effective training might include communicating the sanctions compliance responsibilities for each employee, and ongoing training may be prudent to ensure procedures are followed properly. Companies are encouraged to further ensure their compliance program procedures are followed and concerns are escalated appropriately, including through risk- based audits and testing.

Link:

Enforcement Information

Categories: Civil Monetary Penalties Enforcement Actions Facilitation OFAC Updates Sudan Sanctions

eric9to5

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