Cameron Settles OFAC Case for $1.4 Million for Violation of Ukraine-Russia Sanctions (Part I of II)
In a pair of enforcement actions, here and here, OFAC settled two separate actions involving Schlumberger Limited subsidiaries – the first involving Cameron International Corporation, and the second, Schlumberger Rod Lift, Inc., a former subsidiary, that was acquired by Lufkin Rod Lift, Inc.
Cameron agreed to pay $1.423 million to settle OFAC charges for providing services to the Gazprom-Neft Shelf for an Arctic offshore oil project. Cameron provided prohibited “services” when U.S. senior managers approved five contracts for its foreign subsidiary, Cameron Romania S.R.L. (Cameron Romania) to supply goods to Gazprom-Neft Shelf’s Prirazlomnaya offshore oil production and exploration platform in the Russian Arctic. Cameron did not voluntarily disclose the conduct.
Between July 2015 and November 2016, Cameron violated Directive 4 of the Ukraine-Russia Sanctions Regulations. Directive 4, issued September 12, 2014, prohibited a U.S. person from engaging in the provision, exportation, or re-exportation, directly or indirectly, of goods, services (except for financial services), or technology in support of exploration or production for deep-water, Arctic offshore, or shale projects that have the potential to produce oil in the Russian Federation, or in maritime area claimed by the Russian Federation and extending from its territory, and that involve any person determined to be subject to the Directive, its property, or its interests in property.
The five contracts at issue, which were approved by senior Cameron managers (U.S. persons), involved the delivery of prohibited products to a wholly-owned subsidiary of OJSC Gazprom Neft, which is subject to Directive 4. Starting in July 2015, Cameron Romania personnel emailed U.S. senior managers requesting approvals of Cameron Romania contracts with Gazprom-Neft Shelf. Cameron’s contract approval process required review and approval by certain U.S. managers for contracts above certain monetary thresholds, as well as contracts that departed from Cameron’s terms and conditions.
In response to the requests, U.S. senior managers reviewed and approved the contracts and pre-purchase forms, which directly resulted in Cameron Romania providing services to Gazzprom-Neft on the arctic shelf. At the time of the approvals, Cameron senior managers had reason to know the services being provided were to support Arctic offshore oil-producing projects by Gazprom-Neft shelf. The documentation specifically reference the provision of oil production or exploration goods to Gazprom-Neft Shelf’s Prirazlomnaya platform and stated that the Russian Arctic was the destination of the oil-related goods.
Cameron had established compliance policies and procedures to ensure compliance with OFAC’s Directive 4. However, Cameron’s compliance procedures did not address U.S. person involvement in the activities of Cmeron’s foreign subsidiaries’ provision of prohibited goods or services. In total, four Cameron U.S.-person senior managers, i.e. a Division President, two Vice Presidents of Finance, and one Senior Manager, apprpoved the contracts and pre-purchase forms. In total, Cameron made 111 shipments of oil production or exploration goods to Gazprom-Neft Shelf for use at its Arctic offshore platform.
Schlumberger acquired Cameron in April 2016, prior to which two of the offending contracts had been approved. As part of the post-acquisition compliance review and integration of Cameron, and after the three remaining contracts were approved, Schlumberger discovered the violations of Directive 4.
In June 2017, Cameron notified OFAC of the violations, and submitted an additional report in December 2017. OFAC determined, however, that Cameron’s submissions did not constitute a voluntary self-disclosure.
OFAC listed as aggravating factors the involvement of U.S.-person senior managers at Cameron who knew or should have known that the contracts to supply goods violated Directive 4. As a mitigating factor, OFAC noted the following corrective actions: (i) identifying all employees who should recuse themselves from Russia-related activities and incorporating those employees into a recusal acknowledgement system to help ensure that U.S. persons do not participate in Russia-related contracts; (ii) assigning a senior compliance manager to manage the integration of Cameron’s operations into Schlumberger’s compliance program; (iii) implementing an automatic block on all orders with a Russia “bill to,” “ship to,” or end-user reference — such transactions are then required to undergo an additional layer of review by Schlumberger before they are approved; and (iv) implementing a software enhancement that requires end-users to be identified for all transactions, adding a layer of scrutiny to help review Russia-related transactions.
OFAC cited Cameron’s cooperation during the investigation by submitting detailed documentation, being responsive to OFAC’s requests, and entering into tolling agreements.
OFAC explained that this enforcement action underscored the importance of large U.S. companies with global operations assessing sanctions compliance risks. Further, OFAC noted that “a U.S. person’s provision of services in approving a contract for the export or reexport of goods in support of specified oil exploration or production projects with an entity added to OFAC’s SSI List is a prohibited service covered by Directive 4.” Further, “entities with international operations involving activities by U.S. persons may face sanctions risks even if the goods or services to a sanctioned entity are provided by non-U.S. person entities or if the U.S. person is not physically present in the United States. The approval of a contract, agreement, sale, or transaction by a U.S.-person manager between a foreign subsidiary and sanctioned entity may also give rise to a violation, thus underscoring why all aspects of a business engagement should be evaluated.”