Earlier today, the Office of Foreign Assets Control (OFAC) announced that it had imposed a $5.976 million penalty against National Oilwell Varco Inc. (NOV) and two of its Canadian subsidiaries, Dreco Energy Services (Dreco) and NOV Elmar (Elmar). The OFAC penalty arose out of a number of transactions between NOV and its subsidiaries with Iran, Cuba, and Sudan -- transactions that OFAC believed NOV either knew or should have known violated the applicable provisions of the Iranian Transactions and Sanctions Regulations, the Cuban Assets Control Regulations, and/or the Sudanese Sanctions Regulations. 

OFAC noted that the transactions leading to the penalty included four large commission payments to a U.K. entity that resulted from sales to Iran. According to OFAC, "NOV ignored several warning signs over the course of three years that approving the payments was prohibited conduct." OFAC determined that these specific violations were egregious. In reaching this conclusion, OFAC emphasized that NOV's senior finance executives authorized the commissions, that NOV was willfully blind to the consequences of these payments, and that NOV ignored "Dreco's deliberate non-identification of Iran in its communications. . . ." OFAC found the rest of the transactions that led to the violations were non-egregious.

In explaining how the penalty was calculated under the Economic Sanctions Enforcement Guidelines, OFAC included amongst its aggravating factors NOV's "reckless disregard for U.S. sanctions requirements," harm to sanctions program objectives, the size and sophistication of NOV, and NOV's "wholly inadequate" compliance program. Mitigating factors included the absence of a Penalty Notice or Finding of Violation against NOV in the five years preceding the earliest alleged violation, and NOV's commitment to improve its compliance program. No voluntary self-disclosure was made in this instance. 

Although the OFAC penalty was lower than the $8.5 million base penalty for the apparent violations, it only represented about a quarter of the total penalty announced today against NOV. According to OFAC's enforcement release, its settlement was "concurrent with both a settlement agreement between NOV and the Department of Commerce's Bureau of Industry and Security (BIS), and a Non-Prosecution Agreement (NPA) executed by NOV with the U.S. Attorney's Office for the Southern District of Texas." The release goes on to suggest that the amount of the joint settlement was $25 million, as it explains that OFAC's portion of the settlement will be deemed satisfied by payment of the full $25 million penalty. 

This announcement is another example of the dangers of what OFAC described as a "wholly inadequate" economic sanctions compliance program. It also illustrates that the enforcement agencies in this area -- OFAC, BIS, and the Department of Justice -- are increasingly working together, meaning that companies must take care to ensure their compliance programs address the entire range of export controls and economic sanctions laws that apply in this context. 

For more information, please contact:

Timothy P. O'Toole, totoole@milchev.com, 202-626-5552

Abigail E. Cotterill*

Patrick M. Stewart*

*Former Miller & Chevalier attorney

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