This article was written for and first featured in Gas Matters Today
The bribery act introduced in April 2010 by the UK government means UK-based oil and gas companies are faced with significant pressure to come into line with the terms of the new legislation, according to Donna Goldsworthy, a partner at the law firm Fox Williams. “The reality is that companies will have to change the way they do business abroad”, she told Gas Matters Today in an interview.
The new act, which is intended to prevent any bribery through “facilitation payments” by UK headquartered companies doing business overseas, has been described as much stricter than the existing, complex anti-corruption laws dating back to the 1880s.
In particular, the act introduces the “adequate procedures defence”, the only defence to a “strict liability” offence, if companies fail to prevent any bribery act, not only by a subsidiary but also any joint venture operating overseas. In other words, companies failing to prevent a bribe could be prosecuted whether a corrupt act is proven or not. The “adequate procedures defence” will come into force in April 2011.
In addition, the act has a broad extra-territorial application as it covers offences in the UK as well as overseas. Companies face unlimited penalties if they fail to prevent corrupt acts by any employees around the world.
Oil and gas industry prone to bribery
Because of its global scale, the oil and gas industry has notoriously been prone to bribery and corruption scandals, and is now expected to be one of the prime targets in future investigations under the act. Guinea, Russia, Democratic Republic of Congo, Nigeria and Kazakhstan have been listed by Transparency International, the non-governmental anti-corruption organisation, as some of the countries with the highest risk level for bribery acts and facilitation payments.
Among the most publicised examples, two UK citizens were charged in 2009 in the US with bribing Nigerian government officials and violating the US Foreign Corrupt Practices Act (FCPA), on behalf of a consortium of companies including Kellogg Brown & Root, Inc. Bribes were alleged to have been paid to secure $6 billion worth of engineering and construction contracts to build an LNG plant in Nigeria.
The defendants included a former sales vice president and consultant for M.W. Kellogg, a UK subsidiary company, and an agent instructed by the consortium to acquire business in Nigeria. They face a possible prison sentence of up to 55 years and a fine of $130 million. The case warranted multi-national investigations in France, Nigeria and the US involving governments and national authorities including the US Securities and Exchange Commission.
In other cases, multinationals such as Shell have had to pay hefty fines. Under the FCPA, Shell had to pay $48.1 million in 2010 in bribery fines. Halliburton and KBR were fined up to $579 million in 2009.
According to Goldsworthy, potential prosecutions under the act would apply to all sorts of payments and negotiations; including contracts signed along all the supply chain of the oil and gas industry. “Many companies are being investigated for paying customers when, for example, importing equipment or securing visas. Business activities that require securing visa’s and permits will have to be carefully controlled”, she said.
UK-based companies will be forced to adopt a stricter approach to their relationship with counterparties abroad, despite a prevailing mindset in the industry that facilitation payments are “part of the business”.
“Whilst it might be the norm for a multinational mining, oil or gas company to pay for the flight of a government official where it has an interest to do so, this could be caught by the Act from April 2011 onwards when prosecutions under it will commence. You can see how companies are probably going to get themselves into quite a nervous flurry about what they have done or what they are doing”, Deepak Arora, an associate at Fox Williams who also took part in the interview, commented.
High costs involved
And with the adequate procedures defence coming into force in the second quarter of 2011, companies have little time to make sure they are prepared for the new rules. Following a consultation launched in September by the ministry of justice with UK companies, the government will publish in January a set of guidelines intended to help companies establish adequate procedures. But they will only have three months to put them in place in order to avoid any facilitation payment to or from officials when doing business abroad.
In the first place, a company will have to undertake due diligence to foresee what could happen, in the jurisdiction where it is operating or contracted, to mitigate the risk of bribes. Other procedures cover record keeping; anti-corruption programs and codes of conduct; senior management to ensure company compliance; employment contracts and corporate hospitality.
In fact, the act is expected to highlight the potential flaws that many businesses may unknowingly have. “The Act requires a lot of preparation, among the mining gas and oil industries. Even the most sophisticated international oil companies with strict codes of conducts will need to have checked that these procedures are adequate”, Goldsworthy said.
And it won’t be without a cost. “Multinationals already have compliance officers, but they may have to spend more money on accountants, experts and lawyers”, she said. “In addition to legal fees, companies might have to instruct forensic personnel to look at companies’ computer systems, and accountants to examine where they place the facilitation”, she explained.
Such costs could reach at least the £100,000 mark. “There are huge costs involved, both in light of the tight timeline for prosecution to commence and the financial climate. Some corporations will have to think about those costs. Some may think of jurisdictionally relocating their headquarters”, Goldsworthy said.