As U.S. energy companies prepare for 2017, they would be wise to also shore up their FCPA compliance programs. Because of a new reporting rule issued by the Securities and Exchange Commission (SEC), oil, natural gas and mining companies can expect greater scrutiny under the Foreign Corrupt Practices Act (FCPA) as they are required to reveal more about the payments they make to foreign governments for the rights to extract resources in the countries in which they operate. Moreover, the upsurge of hackers, leakers, and whistleblowers increase the odds of detection of any potential FCPA violations.
The new reporting rule, called Rule 13q-1, is part of a U.S. policy to combat global corruption, promote accountability, and improve governance in resource-rich countries. For the fiscal years ending on or after September 30, 2018, it requires detailed reports of payments made to foreign and domestic governments for the commercial development of oil, natural gas, or minerals. And under the rule's anti-evasion provision, companies will also have to report payments that are related to the commercial development of oil, natural gas, or minerals but that are structured to avoid disclosure. Payments that typically fall under the FCPA – for example, a payment to a local foundation controlled by a foreign official that is required by law or contract and related to the commercial development of oil, natural gas or minerals – fall within the scope of the anti-evasion provision. Accordingly, energy companies will have to disclose information to the SEC, which along with the Department of Justice (DOJ) enforces the FCPA, that could potentially create FCPA liability for those companies.
At the same time, hackers, leakers and whistleblowers are on the rise and shifting the odds of detection of any potential FCPA violations. The SEC has long encouraged whistleblowers in the FCPA space and, as of this month, reported 238 FCPA-specific tips to its whistleblower hotline, an uptick from previous years. Meanwhile, after hackers and leakers exposed the files and customers of the Monaco-based consulting firm Unaoil and the Panama-based law firm Mossack Fonseca, the British-Australian corporation Rio Tinto faced its own leak. The Rio Tinto emails revealed $10.5 million in payments to a consultant who was close to senior government officials in Guinea and who was involved with Rio Tinto's acquisition of rights to iron-ore deposits in the Simandou reserves in that country. Rio Tinto now faces investigations by the DOJ, SEC, U.K.'s Serious Fraud Office, and the Australian Securities and Investments Commission.
Energy companies complying with Rule 13q-1 will thus have to disclose to the SEC certain potentially incriminating payments to governments, while also facing the ever-present threat of hackers, leakers, or whistleblowers disclosing even more potentially incriminating information. There is no better time for energy companies to review and strengthen existing FCPA compliance policies and procedures.
For more on Rule 13q-1, see the Holland & Knight alert titled "SEC Rules for Resource Extraction Issuers Could Lead to Increased FCPA Scrutiny, Disclosures."