UK oilfield services firm Petrofac’s announcement that it was establishing a compliance and ethics board while it continued to be investigated for fraud raised a few eyebrows.
Its in-house watchdog was created as the Serious Fraud Office (SFO) examined the firm’s dealings with Unaoil; mainly in Kazakhstan, between 2002 and 2009.
Creating the committee is arguably a case of shutting the barn door after the horse has bolted. A properly-planned and conducted internal investigation into the company’s working practices and / or sound compliance procedures could well have prevented Petrofac’s problems – or at least flagged them up before they became unmanageable.
As it is, the investigation into Petrofac and Unaoil is now a matter for the SFO rather than Petrofac’s management.
But that is not to say that what Petrofac has done is pointless. It may help Petrofac persuade the SFO that it is serious about tackling the problem, which may lead to more lenient treatment. The SFO is likely to be less harsh if it can see genuine signs that a company is looking to put right the wrongs it has been involved in.
With the SFO now having deferred prosecution agreements (DPA’s) as an alternative to prosecution, the creation of such a committee could prove to be a wise move by a corporate looking to prove its commitment to staying on the right side of the law.
Other actions that could have a similar effect include:
- Removing senior figures associated with wrongdoing.
- Changing working practices to avoid any repeat problems.
- Instigating anti-corruption training for staff.
- Creating a whistle blowing procedure for staff and associates to raise concerns.
All these measures can, if executed correctly, help persuade the authorities to impose a lesser penalty.
The response and cooperation the SFO (or other investigating authority) receives – or doesn’t receive – from those it investigates will go some way to determining the action it takes. A compliance committee, as created by Petrofac, could be seen by the SFO as the company taking positive steps. But that will only be the case if the investigators are convinced it is a carefully devised response to the problem, rather than a cynical ploy to escape heavy punishment.
The value of a compliance committee could be even greater before an SFO investigation has begun. If the SFO starts to investigate and the corporate being investigated can point to its committee and explain how it has worked, it will go a long way to showing that adequate procedures were in place to prevent wrongdoing.
When a compliance committee is established, however, it can only be of value if the corporate can produce clear evidence that the committee functions with integrity and is not simply there for show. It has to be devised, staffed and given duties relevant to the existing problems it is looking to tackle or the potential ones it is looking to prevent.
This may require the assistance of a legal expert: someone who can identify current or future problems, the way they need to be tackled and the exact measures needed to tackle them.
What must be remembered is that any investigation will involve a large amount of contact with the investigating authority. Negotiation can, therefore, play an important role in reducing any losses for corporates and individuals.
Having dealt with the SFO (and all the other investigating authorities) for many years, we can say that negotiation is only a genuine option when you are fully aware of all the wrongdoing that has been committed.
If a compliance committee has been in place prior to any investigation and has been the one that raised the alarm, it may well strengthen the corporate’s negotiating position. And even if the committee has only been established after the investigation began – as with Petrofac - it may still be able to bring information to the investigating authority, which may help its position at the negotiating table.
Circumstances will vary from case to case. But what must be remembered is that there is always value in improving compliance; either before or during an investigation.