The oil & gas industry by its very nature is constantly confronted by bribery and corruption issues not least due to the jurisdictions in which it operates. From both a legal and operational perspective this has been a key issue for many years. The introduction of the Bribery Act has been a real game changer as indeed have other legislative provisions in other countries.
The challenge for the oil & gas industry is getting its due diligence right, structuring and educating its employees, particularly those 'on the ground' and being able to demonstrate this...
A crucial feature of the Bribery Act is that it can result in an unlimited fine on the company in the event of an underlying bribery offence by an employee or associated person, assuming the company does not have in place adequate procedures. Also, of course, is the issue of "facilitation payments" which remain a troublesome issue.
Impact on the oil & gas industry
Over the last few years oil & gas companies have been moving increasingly into high risk and emerging high risk jurisdictions in the pursuit of new reserves. This presents potential bribery and corruption issues due to the lack of maturity of the market and local compliance with international standards. The need for the oil & gas industry to regularly engage with government officials poses an additional threat and requires further consideration within the Bribery Act.
The challenge for the oil & gas industry is getting its due diligence right, structuring and educating its employees, particularly those 'on the ground' and being able to demonstrate this, not only to any regulatory authority, if required, but also ultimately to any buyer or financier of those assets. Third party investors/financiers will be keen to ensure that appropriate due diligence procedures have been undertaken including anti-corruption measures and failure to take these steps could prove costly.
Undertaking an investigation
When undertaking an internal investigation it is important to carefully consider both the practical and legal aspects and decide whether outside counsel should be instructed at the outset of an investigation. Investigative work by its nature is expensive and intrusive and needs to be undertaken properly and in line with SFO guidelines.
From a practical perspective there is a need to understand how to both structure and conduct an internal investigation. As a starting point the internal investigation should be properly scoped and so far as possible be precise as to the team involved and their function. The Terms of Reference is an important document since it will seek to identify the various steps to be undertaken.
So far as the legal aspects are concerned, it is important to understand the implications of carrying out an internal investigation, such as issues relating to privilege (including the status of non-lawyer consultants) and the potential prospect that a self-report may be made. This will involve being aware, for example, of the SFO guidelines and the need for a thorough investigation being produced in a timely manner.
Deferred Prosecution Agreements (DPA's)
The introduction of DPA's in February 2014 aimed in part to encourage a company to make a self-report. Under a DPA, a company which has made a self-report of bribery may avoid prosecution by agreeing to certain requirements which would decrease the probability of bribery reoccurring such as the introduction of a compliance programme. DPA's however are a way of dealing with a problem which has arisen, not avoiding a problem to prevent it from arising. Therefore most companies would only take into account DPA's once they discover a wrong-doing within their company. Companies do not and certainly should not model their compliance programme by reference to a DPA. That said, theoretically at least, DPA's are a positive feature. The problem from a UK perspective is that they are still rather untried and tested and are something of a "no man's land" at the moment. Companies will have difficulty understanding exactly what the end result will be and until this happens, greater definition and guidelines would be useful.
Anti-corruption legislation in emerging markets
Although anti-corruption laws are important, they are not necessarily a remedy for corruption. It is hard to find any country where it is not an offence to bribe a public official. This does not mean that bribery does not take place, rather the issue of bribery is one which is cultural and philosophical. The Bribery Act can be said to put more emphasis on the giver of bribes than the receiver, and that is seen as one way of avoiding the practice. The effectiveness of local law in the host country really depends upon the regulatory enforcement (which may be variable), but that does not inhibit potential regulatory action in this jurisdiction since the Bribery Act has extra-territorial effect. The issue of bribery and corruption continues to present challenges for those who invest in high risk countries.