On November 4, 2010, U.S.-based Panalpina, Inc. (and its parent Panalpina World Transport Holding Ltd.) (Panalpina), a Swiss freight forwarding company, along with six other companies in the oil & gas industry, settled Foreign Corrupt Practices Act (the FCPA)1 charges with the Department of Justice and the Securities and Exchange Commission (SEC). As a result of the settlement, the companies are required to pay US$236.5 million in criminal fines, civil disgorgement, interest and penalties. Panalpina, which admitted to bribing government officials in seven nations, will pay US$70.5 million of that total amount for their FCPA violations and US$11.3 million in disgorgement of profits it derived from the bribery scheme.
Panalpina and other companies in the oil & gas industry are not unique when it comes to Department of Justice and SEC actions. Extractive industries have historically made up a large percentage of bribery prosecutions under the FCPA, amounting to about 20% of such prosecutions since its enactment.2 Now, there is another new law coming into force: the UK Bribery Act 2010 (the Bribery Act). The Bribery Act, which has a much broader jurisdictional span than the FCPA, is attracting the attention of boards of directors around the world. Due to the global nature of the oil & gas industry and the complexity of the various contractual arrangements with governments, joint venture partners, suppliers and other contractors, the Bribery Act presents another challenge and will require management to focus on updating internal policies and procedures to ensure compliance.
Coming into force in spring 2011, with unlimited penalties and much longer prison sentences, the Bribery Act will raise the standard for anti-bribery policies above that of the FCPA. A company, which carries on any part of its business in the UK, could be prosecuted for failure to prevent bribery even where the bribery takes place wholly outside the UK and the benefit or advantage to the company is intended to accrue outside the UK. The Bribery Act does not define what constitutes “or part of a business” and until that is clarified in the courts, a company should exercise caution. A representative office or UK agent may be sufficient to engage the Bribery Act. The company’s only statutory defense would be to prove the existence of adequate systems and controls. A comparison of the main differences between the FCPA and the Bribery Act is summarized below.
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Another critical issue for the oil & gas industry is the idea that a company may be subject to liability as a result of a violation made by an “associated” person. This broadly defined term embraces any person or third party who performs services for or on behalf of the business, determined by what they actually do and not the capacity in which they do it. Many third parties are likely to fall under this definition. Therefore, this will be of particular concern to the oil & gas sector due to its use of numerous partnering arrangements.
As noted above, there is a defense against prosecution where a company can prove it had adequate procedures in place. The government is required under the Bribery Act to issue guidance on what comprises adequate procedures, which will likely be published in early 2011. In the interim, companies may want to revisit their current policies and procedures in light of the preliminary guidance issued by the Ministry of Justice. The guidance emphasizes the need for a top level commitment by management, and a focus on six main principles, as summarized below:
1. Risk Assessment: The commercial organization should regularly and comprehensively assess the nature and extent of the risks relating to bribery to which it is exposed.
2. Top Level Commitment: The top level management of a commercial organization (be it a board of directors, the owners or any other equivalent body or person) should be committed to preventing bribery. They should establish a culture within the organization in which bribery is never acceptable, and take steps to ensure that the organization’s policy to operate without bribery is clearly communicated to all levels of management, the workforce and any relevant external actors.
3. Due Diligence: The commercial organization should have due diligence policies and procedures which cover all parties to a business relationship, including the organization’s supply chain, agents and intermediaries, all forms of joint venture and similar relationships and all markets in which the commercial organization does business.
4. Clear, Practical and Accessible Policies and Procedures: The commercial organization’s policies and procedures to prevent bribery being committed on its behalf should be clear, practical, accessible and enforceable. Policies and procedures should take account of the roles of the whole workforce from the owners or board of directors to all employees, and all people and entities over which the commercial organization has control.
5. Effective Implementation: The commercial organization needs to effectively implement its anti-bribery policies and procedures and ensure they are embedded throughout the organization. The process should ensure that the development of policies and procedures reflect the practical business issues that an organization’s management and workforce face when seeking to conduct business without bribery.
6. Monitoring and Review: The commercial organization should institute monitoring and review mechanisms to ensure compliance with relevant policies and procedures and identify any issues as they arise. The organization should implement improvements where appropriate.
The oil & gas industry must be very proactive in the area of bribery prevention. Internal ongoing education will be key in order to raise awareness and create the appropriate corporate culture.