Triggering Parent Company Liability Under United States Sanctions Regimes: The Troubling Implications of Prohibiting Approval and Facilitation

• Date: 01 June 2004
• Author: Terence J. Lau
• Published date: 01 June 2004
• DOI: http://doi.org/10.1111/j.1744-1714.2004.04104001.x

Triggering Parent Company Liability

Under United States Sanctions

Regimes: The Troubling Implications

of Prohibiting Approval and

Facilitation

Terence J. Lau

n

[General Electric] conducts business in more than 100 countries around

the world. .. . An important challenge for all of us is to understand how

[laws of different countries] apply to our operations. GE, the parent com-

pany, is a corporation organized in the United States. The laws of the

United States frequently extend to the operations of GE and its affiliates

throughout the world as well as to the business activities of GE employees

wherever they live and work. Other countries may also apply their own

laws outside of their borders to their own citizens and to corporations that

are organized under their laws, such as GE subsidiaries or other control-

led affiliates. . . . In some instances, there may be a conflict between the

applicable laws of two or more countries. When you encounter such a

conflict, it is especially important to consult company legal counsel to un-

derstand how to resolve that conflict properly.

1

413

American Business Law Journal

Volume 41, Issue 4, 413–457, Summer 2004

n

Assistant Professor,School of Business Administration, University of Dayton; Member, Mich-

igan Bar; J.D., 1998, Syracuse University College of Law; B.A., 1995, Wright State University.

Formerly in-house counsel to Ford Motor Company and former Director for ASEAN Gov-

ernmental Affairs for Ford Operations Thailand. This article representsscholarship based on

research and should not be construed as legal advice. Thanks to James Walker, Wesley King,

John Rapp, Nim Razook, and Larry DiMatteo for their helpful comments. An earlier version

of this article was presented at the Pacific Northwest Academy of Legal Studies in Business

Annual Meeting in Seattle, Washington on April 23, 2004, and at the Academy of Legal

Studies in Business Annual Meeting in Ottawa, Canada, on August 20, 2004. This article was

awarded the 2004 Holmes-Cardozo Award for Outstanding Conference Paper at the Ottawa

conference.

1

General Electric, IntegrityFThe Spirit & The Letter of Our Commitment 5 (Oct. 2000) (on file with

author).

I. INTRODUCTION

Halliburton Company (Halliburton), headquartered in Houston, Texas,

was founded in 1919, and today, ‘‘is one of the world’s largest providers of

products and services to the oil and gas industries.’’

2

The company ‘‘em-

ploys more than 100,000 people in over 120 countries,’’

3

and in 2003,

earned over $16 billion in revenues.

4

Halliburton generally earns at least

two-thirds of its revenues from operations outside the United States, and in

the first nine months of 2003, earned more than 70% of its revenues from

countries outside the United States.

5

From 1995 to 2000, U.S. VicePres-

ident Dick Cheney served as Halliburton’s CEO,

6

and in that role, ‘‘lobbied

the Clinton administration to ease sanctions on Libya and Iran.’’

7

2

Halliburton Company,About Halliburton,at http://www.halliburton.com/about/index.jsp. The

company’s operations are generally divided into five operating groups: Drilling and Forma-

tion Evaluation; Fluids; Production Optimization; Landmark and Other Energy Services; and

Kellogg Brown & Root, known internally as the Engineering and Construction Group. Id.

The Production Optimization’s product lines include completion products, production

enhancement, and tools and testing equipment. Dave Lesar, Halliburton Howard Weill Energy

Conference New Orleans, LA March 30, 2004,at http://ir.thomsonfn.com/IRUploads/5282/File

Upload/HWConf033004_Rev.pdf(last visited Nov. 13, 2004). The Fluid Group’s product lines

include cementing and drilling fluids. Id. The Drilling and Formation Evaluation Group’s

products include directional drilling, drill bits, and wireline logging. Id. The Landmark

Group’s products and services include software technology, real-time reservoir solutions, and

reservoir performance consulting. Id. The Kellogg Brown & Root unit engages in govern-

ment services, including contingency support for U.S. military operations in Hungary,

Croatia, Kosovo, Kuwait, Haiti, Afghanistan, and Iraq. Id. For a general discussion on Hall-

iburton Company’s most recent financial performance, see generally id.

3

Halliburton Company, supra note 2.

4

HALLIBURTON CO., 2003 ANNUAL REPORT 34 (2004) (on file with author).

5

Halliburton Company, Form 8-K (Feb. 6, 2004), at 10 (available at http://edgar.sec.gov/

Archives/edgar/data/45012/000095012904000580/h12515e8vk.htm[last visited Nov.13, 2004]).

In 2000, the company earned 66% of its revenues from outside the United States. Id. In 2001,

that figure was 62% and in 2002 it was 67%. Id.

6

See Terry Macalister, Officials Woo Halliburton to Bid for NHS Contracts,THE GUARDIAN (LON-

DON), April 5, 2004, at 23. See also Halliburton Lands in the Dock Again,ENERGY COMPASS, Feb. 12,

2004 (noting Nigeria’s request to ‘‘an economic crimes commission to investigate allegations

that [Halliburton’s KBR division] paid a $180 million kickback to influence the award of a

Nigerian project in the 1990s, when Cheney was in charge’’).

7

See Guy Dinmore, Economic Pressure: Traders with ‘Rogue’ States May Face Sanctions,FINANCIAL

TIMES (LONDON), Jul. 26, 2003, at 7. Mr. Cheney’s advocacy role in easing those sanctions

continued into his tenure as U.S. Vice President, when he led the National Energy Review

in concluding in 2001 that the United States should ‘‘level the playing field for US [sic]

414 Vol. 41 / American Business L aw Journal

Among major oil producers, Iran remains a heavyweight in oil pro-

duction.

8

While the United States maintains an economic embargo against

Iran,

9

generally speaking, companies incorporated outside the United

States face no such restriction. Perhaps it is no surprise, then, that Hall-

iburton’s foreign subsidiaries engage in a fair level of commerce with Iran.

Specifically, Halliburton has a subsidiary incorporated in the Cayman Is-

lands and headquartered in Dubai, United Arab Emirates, called Hall-

iburton Products & Services Limited (HPSL).

10

All of HPSL’s revenues

(in 2003, those revenues neared $40 million) are generated through

business in Iran, and the company is profitable.

11

The total revenues

companies overseas’’ and recommended a review of the sanctions regimes with consideration

for the American energy industry. See id. See also Blumenthal, infra note 14 (noting that

Cheney admitted during the 2000 Presidential campaign that Halliburton conducted business

with Libya and Iran through foreign subsidiaries, and that Halliburton was fined $3.8 million

in 1995, for exporting six pulse-neutron generators to Libya, which could be used as nuclear

triggers).

8

Indeed, ‘‘65% of the world’s proven oil reserves are concentrated in five countries (Saudi

Arabia, Iraq, United Arab Emirates, Kuwait and Iran).’’ See Leonardo Maugeri, Time to Debunk

Mythical Link Between Oil and Politics, 101 OIL &GAS J. 18 (Dec. 15, 2003). See also Enid Tsui,

Sinopec in Talks With Iran Over LNG Oil and Gas,F

IN.TIMES, Apr. 13, 2004, at 24 (explaining

new commercial transaction between China Petroleum and Chemical Corp (Sinopec) and

Iran, which is the second largest provider of oil to China after Saudi Arabia).

9

The economic trade embargo is a reflection of U.S. policy which condemns the government

of Iran for multiple and serious human rights abuses. See U.S. Department of State, 2004

Country Reports on Human Rights AbusesFIran, Feb. 25, 2004, available at http://www.state.gov/

g/drl/rls/hrrpt/2003/27927.htm (last visited Nov. 13, 2004). The government also claims Iran

supports international terrorism, is engaged in efforts to undermine the Middle East peace

process, and has acquired weapons of mass destruction. See generally U.S. Policy and Iran:

Hearing before the Senate Foreign Relations Committee, 108th Cong. (Oct. 28, 2003) (testimony of

Richard Armitage, Deputy Secretary of State), available at http://foreign.senate.gov/testimony/

2003/ArmitageTestimony031028.pdf (last visited Nov.13, 2004).

10

Press Release, Halliburton Company, To: The Managers of the New York City Police Pen-

sion Fund and the New YorkCity Fire Pension Fund ( Jan. 25, 2004) [hereinafter Halliburton

Report] (on file with author).

11

Id. According to Halliburton, HPSL’s activities are parallel to and competitive with the ac-

tivities of foreign affiliates of its competitors, U.S.-incorporated and otherwise. Id. There are

other companies in the Halliburton enterprise that do business in Iran. For example, Hall-

iburton Manufacturing & Services Limited, incorporated in the United Kingdom, derives

about 1% of its revenues from sales to its sister company HPSL. See id. M.W. Kellogg Limited,

another British company, is a joint venture between Halliburton’s KBR division and JGC

Corporation, with KBR holding majority control. See id. M.W. Kellogg Limitedderives about

3% of its income from operations in Iran, including providing engineering services and

intellectual property licenses for two ammonia plants in Iran. See id.

2004 / Triggering Parent Company Liability 415