Nick Lotito & Seth Kirschenbaum

Former Federal Prosecutors

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If you are committing fraud, don't brag about it

$140 million is a lot of money, even for a business that plays in the big leagues.

That was the fine levied against an oil services company, Weatherford International, by the Security and Exchange Commission (SEC) to settle charges that it inflated its earnings by using deceptive income tax accounting. From 2007 to 2012 the company overstated its profits by $900 million. In each of those years, the company lowered its year-end provision for income taxes by $100 million to $154 million to "better align its earnings results with its earlier-announced projections and analysts' expectations," according to an SEC order.

These strategies enabled the company, which employs 32,000 worldwide, to reduce its effective tax rate from 36.3 percent to 25.9 percent in just five years. The firm subsequently bragged about its tax avoidance strategy and favorable tax rate to analysts and investors, claiming that this gave them a competitive edge over the competition. This may have attracted more attention than intended.

Two senior account executives that were behind the scheme were also hit with substantial fines for making the fraudulent taxation adjustments. The vice president of tax and a tax manager were fined $334, 067 and $30,000 respectively. Along with this, the vice president is banned from serving as an officer or director of a public company for five years.

The company agreed to settle without either admitting or denying the charges.

Not the first time

In 2013, the same firm paid out more than $250 million in penalties. A $100 million fine was levied for violating U.S. trade sanctions; the company made at least $30 million from improper sales to Cuba, Iran, Sudan, and Syria. In that same year, it paid a $152.6 million fine to the Department of Justice (DOJ) and the SEC for Foreign Corrupt Practices Act offenses in the Middle East and Africa. These violations included authorizing bribes and other kickbacks to foreign officials in order to gain business advantages overseas.

Increased scrutiny of big businesses to fight fraud

According to FBI reports, about 14.1 million arrests for white collar crimes like fraud, tax evasion and money laundering happen in a given year. White collar crime in the U.S. alone costs more than $300 billion annually.

As companies continue expanding globally in efforts to reduce tax liabilities and to find new markets, government agencies like the FBI, the IRS, the SEC and the DOJ have increased their scrutiny of major businesses and corporations. Top executives who look to expand outward should understand the vigilant stance of multiple government agencies as well as the hefty fines or penalties levied against those who are caught.

Defending against fraud charges

The above mentioned government agencies often like to throw the book at alleged perpetrators of white collar crime. There is little public sympathy for those accused. Managers, executives, and CEOs who are facing legal issues of this nature would do well to consult an experienced attorney to help them through the complex issues and multiple layers of the legal system that must be negotiated in conjunction with offenses of this sort.

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Nick Lotito & Seth Kirschenbaum

Former Federal Prosecutors

918 Ponce de Leon Avenue, N.E. Atlanta, GA 30306 Phone: 404-692-5168 Fax: 404-872-1622 Atlanta Law Office Map