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By Yin Wilczek
July 20 — Professional services providers such as law firms should proceed with care in the area of sanctions regulations after a recent DOJ criminal action against Schlumberger Oilfield Holdings Ltd., attorneys said July 20.
Although no law firms have been criminally charged to date with sanctions violations or been subject to enforcement action by the Office of Foreign Assets Control (OFAC), “it's something we should all be mindful of,” especially with respect to the facilitation prong of the sanctions regulations, said Michael Casey, a Washington-based associate at Ropes & Gray LLP.
“We have to be very careful in advising clients not to violate this facilitation provision,” he said.
Casey spoke with New York-based Ropes & Gray partner Zachary Brez at a Bloomberg BNA webinar.
The penalties for sanctions violations have skyrocketed in recent years, especially after passage of the 2009 International Emergency Economic Powers Act (IEEPA). According to webinar materials, OFAC collected $1.2 billion in civil penalties in 2014.
Earlier this year, Schlumberger pleaded guilty to violations of the IEEPA. As part of its settlement with the Justice Department, the company agreed to pay almost $233 million, which is the largest criminal fine to date imposed for IEEPA violations.
Under the country-based sanctions prong of OFAC regulations, U.S. based companies, U.S. citizens and persons on U.S. soil may not engage in certain activities, or facilitate transactions, with embargoed countries.
Among other notable factors, the Schlumberger action was a facilitation case compared to previous OFAC enforcements, which focused on direct violations, Brez said. The attorney added that when announcing the settlement, U.S. Attorney Ronald Machen Jr. of the District of Columbia warned that it is a violation of U.S. laws to facilitate trade with embargoed countries. “That is a clear signal” from the DOJ that “what we’re talking about here is a much more aggressive pursuit of facilitation cases as opposed to direct-violation cases,” Brez said.
In other takeaways, the Ropes & Gray attorneys said the Schlumberger action could signal a new focus on the oil and gas industry with respect to sanctions.
The case, taken together with the November 2013 enforcement action against Weatherford International for Foreign Corrupt Practices Act and sanctions and export violations, could show that U.S. prosecutors are moving to multinational companies in the oil and gas sector, Brez said. “It could very well be that what we're seeing here is the start of a trend.”
Moreover, Casey suggested that the DOJ may be initiating sweeps in the sanctions arena, similar to those conducted under the FCPA context. If the DOJ conducts such a sweep, a likely focus could be private equity firms, given the nature of their business, he added.
PE firms “have a lot of opportunities to run afoul of the sanctions regulations, either by accepting investments from persons who are targeted by sanctions or by purchasing portfolio companies who either previously did business with sanctioned countries or continue to do business in the sanctioned countries,” Casey continued. “Along the same lines, investment advisers also could face scrutiny in future for accepting investments from individuals and countries that are subject to comprehensive sanctions.”
• a rise in multi-agency enforcement actions;
• more state enforcement of sanctions-related violations; and
• Securities and Exchange Commission actions stemming from sanctions violations.
In addition, U.S. regulators will start enforcing newly imposed embargoes against Russia and Ukraine, Casey warned. He added that although U.S. relations with Cuba and Iran are improving, the DOJ and OFAC will continue to enforce violations of sanctions regulations for those countries.
“It's clear that sanctions enforcement remains a priority for” many U.S. regulators, including the DOJ, the Internal Revenue Service, the SEC and New York state financial regulators, Brez said.
“In today's world, this is an area that really matters,” Brez added. It has become “increasingly hot,” and likely will remain so for the next few years.
To contact the reporter on this story: Yin Wilczek in Washington at email@example.com
To contact the editor responsible for this story: Ryan Tuck at firstname.lastname@example.org
The DOJ's announcement is available at http://www.justice.gov/opa/pr/schlumberger-oilfield-holdings-ltd-agrees-plead-guilty-and-pay-over-2327-million-violating-us.
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