The federal government's probe into Weatherford International Ltd's dealings in foreign countries has burgeoned far beyond a simple bribe inquiry by the Securities and Exchange Commission. It has become a multi-agency civil and criminal investigation into allegations that Weatherford did business with terrorist-friendly countries that are under U.S. trade sanctions, according to a company filing last month with the SEC.
Weatherford is one of the world's largest oilfield service companies, operating in over 100 countries. Weatherford first revealed the trade sanction probe in late 2007.
In an unusual twist to the tale last year, Weatherford general counsel Burt Martin left his job in mid-probe, and the company decided to move its headquarters from Houston to Geneva, Switzerland. It still has U.S. operations in Houston.
The company conceded in its 10-Q financial report to the SEC on May 3 that the federal inquiry that began in 2006 has now grown to include the Department of Justice, the Department of Commerce's Bureau of Industry & Security, and the U.S. Treasury's Office of Foreign Assets Control. The latter two agencies handle matters of national security.
The report said the feds are looking at allegations on three fronts. They include Weatherford's participation in the scandal-plagued Oil-for-Food program, the possible misuse of $175,000 at a European subsidiary for alleged bribes in violation of the Foreign Corrupt Practices Act, and the sales of services and products "in certain sanctioned countries."
It specifically cited Cuba, Iran, Sudan and Syria -- four countries under U.S. sanctions due to their support of terrorism and/or violations of human rights.
The company said it is cooperating with the multi-faceted probe. The report said it has incurred $53 million in costs related to its exit from sanctioned countries and incurred $108 million for legal and professional fees in connection with the ongoing investigations.
"This amount excludes the costs we have incurred to augment and improve our compliance function," it said.
Weatherford is represented by Richard Smith, a partner at Fulbright & Jaworski, and by Joseph Warin, a partner at Gibson, Dunn & Crutcher, both in Washington, D.C. They did not immediately return calls for comment.
Martin, the ex-general counsel, hired Robert Bennett, the high-profile Washington, D.C., white-collar defense lawyer. Bennett, now with Hogan Lovells (previously Hogan & Hartson), declined comment for this story.
The company noted Martin's leaving in an 8-K filing with the SEC last year, saying, "Effective June 3, 2009, Mr. Burt M. Martin, Senior Vice President and General Counsel, is leaving the company. Mr. Martin had employment agreements with the company, which terminated on his departure."
It offered no reason for his exit, but the filing said he left with a $16 million payout. Sources said he departed amid the pressure of the investigations, the restructuring of his legal department, the demands of compliance reform, and the chaos of Weatherford's move to Switzerland.
Reached last week at his home near Houston, Martin said he has not taken a new position yet, but is relaxing and "rejuvenating myself" after all the stress.
People with knowledge of the government's probe said the roles of Martin and other executives are being examined. Investigators are asking questions about code words that some Weatherford executives used for the sanctioned countries, and only a handful of people at Weatherford were privy to the codes, according to sources.
Martin joined Weatherford in June 1998 as associate general counsel and became GC in April of 2002. Prior to 1998 he was an associate attorney with the law firm of Fulbright & Jaworski, one of many Fulbright alums at Weatherford.
Two co-general counsel have replaced Martin. One is Joseph Henry, another Fulbright alumni who was previously Weatherford's associate general counsel. The other is William (Billy) Jacobson, who serves as chief compliance officer.
Jacobson previously served until August 2008 as the assistant chief for FCPA enforcement in the Justice Department, which was investigating Weatherford. From there he joined Fulbright & Jaworski for about eight months, where he did compliance work as outside counsel to Weatherford. Then Weatherford asked him to come in-house and reform its compliance program.
Several sources, including a Forbes magazine article on May 24, questioned the ethics of Jacobson's switch from federal prosecutor of Weatherford to general counsel for the company.
The questions irk Jacobson, who won't discuss Weatherford's investigations but will defend his ethics. He told Corporate Counsel last week that when Weatherford asked him if he were interested in its compliance job, he first consulted a lawyer/ethics expert in Washington, D.C.
Jacobson said, "The expert wrote a lengthy opinion outlining the circumstances under which taking the job would be permissible." He declined Corporate Counsel's request to see the opinion.
But Jacobson said, "It boils down to that it's permissible if I am walled off from participating in the investigation and negotiations with the government." He said he then took the opinion to the Department of Justice to make sure his former bosses were comfortable with it, "and they signed off on it."
He stressed that his job now "is solely forward-looking to improve Weatherford's compliance program" and he has nothing to do with the investigation.
While Jacobson looks ahead, Weatherford must still come to terms with its past and present. Since March, analysts have said that the company is close to reaching a global agreement with the government.
But one source said last week that there still are "significant differences" between the company and one or more federal agencies.
The company's SEC report warned shareholders that penalties in such cases have ranged from tens of millions to hundreds of millions of dollars. In fact, the largest settlement so far was $800 million with Siemens AG, the German engineering conglomerate, in December 2008 for "systematic" worldwide bribery for business.
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