Bribery and corruption risk is becoming an increasing concern for organisations operating in the oil and gas sector, with the focus now squarely on that sector. How that affects those in Australia remains to be seen but more importantly, the weapons at the regulator’s disposal in the coming year will be critical to understand.

Introduction

Last week an investigative report published by The Huffington Post and Fairfax Media placed Unaoil, a Monaco-based industrial solutions provider to the oil and gas sector, at the centre of a global bribery scandal that involves dozens of corporate giants from around the world. The article calls it the “world’s biggest bribe scandal.”  The report alleges that “Unaoil and its subcontractors bribed foreign officials to help major multinational corporations win contracts” in a variety of countries in Africa, the Middle East, and the former Soviet Union. It is alleged that files reveal that some people in the firms implicated believed they were hiring a genuine lobbyist, and others who knew or suspected they were funding bribery simply turned a blind eye.

The issues are not new. Much has been written in recent years about the scope and costs of regulatory investigations and the powers of regulators. Bribery and corruption risk is becoming an increasing concern for businesses, and company executives and firms operating in the oil and gas sector are among those that have incurred the most significant penalties. With the focus now squarely on the oil and gas sector, how that affects those in Australia remains to be seen. More importantly for those in that sector, the weapons at the regulator’s disposal in the coming year will be critical to understand.

A new ‘weapon in the prosecutor’s armoury?

In March 2016, the Australian Government released for public consultation its paper for improving enforcement options for serious corporate crime: Consideration of a Deferred Prosecution Agreements scheme in Australia. The paper outlines the government’s consideration of options to facilitate a more effective and efficient response to corporate crime through encouraging greater self-reporting by companies; the key plank of those options being a deferred prosecution agreement (“DPA”) scheme. Utilised to great effect in the UK and US, the paper argues that an Australian DPA scheme for serious corporate crime may improve agencies’ ability to detect and pursue crimes committed by companies and help to compensate victims of corporate crime. This paper is timely, coinciding with inquiries underway by the Senate Economics Committee into foreign bribery and white collar crime, both of which are scheduled to report in July 2016.

If adopted in Australia, DPAs would be a revolutionary tool for prosecutors addressing fraud and corruption issues. It had been thought that deferred prosecution agreements would not be appropriate within the Australian constitutional setting but a series of legislative amendments adopted in the UK could be mirrored in Australia negating that concern. However, risks will still remain for corporations once negotiations with prosecutors commence.

DPAs in the US and UK

Deferred prosecution agreements were viewed as an attractive alternative to criminal prosecution in the US from around 1999. This grew largely from the need to find a mechanism to bring corporates to account for criminal violations without inflicting harm on innocent victims. These victims included workers left unemployed as a result of a company being found guilty of an economic crime, as well as affected investors and markets.

They also appeal to corporations, as they provide a complete resolution to allegations of wrongdoing relatively quickly, without causing the company to suffer the potentially devastating consequences of criminal liability, such as loss of licensing or debarment. Adverse publicity is also usually avoided, which is often an overriding consideration for many. However, the US model has also been widely criticised, particularly as most of the process is extra-judicial. DPAs in the US largely bypass the formal legal system, raising a number of constitutional and public policy considerations. Notwithstanding the criticism, since 2000, it is estimated that monetary recovery in the US as a result of deferred prosecution agreements as well as non-prosecution agreements has totalled more than US$37 billion in publicly disclosed agreements alone.

The introduction of deferred prosecution agreements in the UK in 2104 was hailed as a significant step forward in the fight against serious economic crime. The UK model sought to incorporate a far greater level of transparency, consistency and judicial involvement than its US counterpart. The DPA code of practice provides a clear, unambiguous directive for the negotiation of deferred prosecution agreements, as well as appropriate terms for the agreement. The UK judiciary is also highly involved in the process, with judicial approval required of both a negotiation’s progress and any final agreement reached. This arguably overcomes the major criticism of the US model, which many see as operating outside the established legal system.

Fighting fraud and corruption in Australia

The US example of a DPA scheme, in operation for much longer than the UK scheme, has shown that deferred prosecution agreements have the capacity to both encourage and enforce behavioural change amongst corporations, while allowing internal redress in sufficient training and compliance. Negotiated agreements, as opposed to complex investigations and criminal proceedings, are more efficient, less costly and result in a more assured outcome for all parties in many cases. Financial penalties payable under a deferred prosecution agreement also allow both an accrual of government revenue as well as redress for wrongdoing and, in some cases, compensation for victims.

There remains a risk for corporations in entering into deferred prosecution agreement negotiations. There is no assurance that once negotiations are commenced an agreement will be formulated and prosecution deferred. As seen in the US and UK, evidence raised and admissions made by companies throughout negotiations can be used in any later prosecution if an agreement is unable to be reached. The prosecutor may also choose to withdraw unilaterally from negotiations and pursue criminal proceedings based on such information. It is likely that any Australian adoption of deferred prosecution agreements would include similar processes.

Nevertheless, history has also shown that corporations are incentivised by the prospect of entering into a deferred prosecution agreement and avoiding criminal prosecution. This is especially so given the reduction in legal uncertainty and costs, negative publicity and the ability to avoid criminal liability and associated consequences. In the US, companies are increasingly more likely to self-report, thereby improving enforcement rates and outcomes for serious economic crimes.

In Australia, adopting the improvements made to the deferred prosecution agreement framework by the UK legislature (by incorporating a judicial function and oversight) would make deferred prosecution agreements an effective option for authorities here in pursuit of corporate wrongdoers. The potential for alternative and individually negotiated outcomes, as well as heightened levels of voluntary reporting and compliance as provided by deferred prosecution agreements cannot be overlooked.

What next for those in the oil and gas sector?

Australia has already been criticised by the lack of anti-corruption proceedings under the OECD Anti-Bribery Convention, enacted in 1999. This dearth of enforcement more probably signifies inadequate strategies for prosecution and a lack of incentives for voluntary reporting than it does the absence of fraudulent or corrupt practices among Australian and foreign companies. The recent scandal involving Unaoil may change that landscape. Against this backdrop, it is clear that new strategies to address corporate wrongdoing, fraud and corruption would assist Australian authorities and enforcement bodies in their endeavours. A new weapon in the arsenal may be the next step to take up the fight against serious economic crime. The introduction of deferred prosecution agreements into the Australian legal framework would be one such mechanism that those in the oil and gas sector might expect to see in the immediate future.

Being ready to respond to an allegation will be critical. For those in the oil and gas sector, conversations with risk and compliance officers and those with governance oversight need to start now as such areas are increasingly in the spotlight when it comes to how organisations manage their affairs, particularly in relation to their compliance obligations.

10 questions you should be asking yourself now:

  • How robust are your compliance and whistleblower policies?
  • Is the “message from the top” encouraging the prevention of fraud and corruption?
  • Do your reporting programs encourage internal reporting versus leaking to the press or notifying regulators?
  • Is your training program about the organisations internal reporting up to date?
  • Are your anti-retaliation policies against employees compliant?
  • What plan is in place to undertake an investigation internally and how will you maintain privilege over documents?
  • What organisational thresholds are in place before recovery actions are contemplated?
  • Is it appropriate to offer incentives to employees for appropriate internal reporting of potential violations?
  • Do you have a comprehensive action plan that will allow immediate responses to a whistleblower tip?
  • Are your employee confidentiality agreements watertight?