The African Business Journal Investigates: Exposure to Bribery and Corruption Risks Through Oil and Gas Partners

With the increasing zeal of post-recession regulatory enforcement, compliance breaches have become one of the key risks facing businesses and individual executives. This risk exposure very much includes the area of Bribery and Corruption – both deal-specific (such as during capital-raising) and at an operational level (including logistics, procurement and distribution channels).  Increasingly it is not just the USA that prosecutes these matters, but Germany, the UK and Switzerland as well as many other non-Western regulators. Brazil and China are also becoming especially active, while in Africa regulatory scrutiny is increasing quickly – for example, in Nigeria, Guinea and Gabon.

Oil and Gas companies operating in Africa have been the main focus of US prosecutors, and examples of prosecutions both corporate and individual abound. Indeed, five of the top 10 Department of Justice Settlements relate to the Oil and Gas sector.

JV Liability

PSAs and JVs can take various forms and the purpose of this article is not to look at the legal structure per se. In essence both are business structures intended to manage and apportion risk and raise funding.  Typically there is a lead operating partner responsible for the day to day management of the asset development and exploitation. The other JV partners are then invoiced periodically in respect of their cost share and, as and when profits arise, these are similarly distributed.

The problem arises for a non-operator, who might have both financial and compliance expo-sure, but does not adequately see what is going on, and finds it hard to monitor. The level of accounting detail provided to PSA and JV partners varies case by case, but is rarely down to an individual transaction level for practical accounting and operational reasons.

We think there is going to be increased scrutiny of PSA and JV groups in the event of bribery investigations. It is worth noting that the largest single US prosecution was of a JV formed by a number of leading oil services companies to construct the Bonny Island LNG facility in Nigeria. Indeed 4 of the top 10 settlements set out in Table 1 related to this project – yielding around $1.5 billion in fines. Prosecutors alleged that the illicit payments made were known by consortium members and funded pro rata.

Investor Liability

Companies and individuals can be held accountable to FCPA and similar statutes if they demonstrate ‘conscious avoidance’ or ‘wilful blindness’ in a bribery scheme, even if they may not have actual knowledge of the violation. This applies to both investors, and non-operating PSA and JV partners.

In the case of the United States v. Kozeny, the US Court of Appeals reaffirmed Frederic Bourke’s conviction of violating the FCPA in connection with a failed investment scheme in Azerbaijan, where it involved bribing Azeri government officials to privatize SOCAR the National Oil Company.  The conviction was based on Bourke’s “wilful blindness” as to the probability that bribes were made to foreign officials, as opposed to having actual knowledge of the bribe. The main issue for Bourke and companies facing prosecution is that there is typically a reversal as to the burden of proof combined with the need to prove a negative – that a bribe was not paid. This is clearly problematic and unless contemporaneous records evi-dence robust due diligence and compliance, the risk of an absence of information or actions carrying negative inference is significant.

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So what to do?

Ensure the tone from the top and across the PSA group — appoint a ‘Bribery Czar’ — agree a plan to educate management and employees at the asset level as well as their agents and suppliers on the likely impacts of the Bribery and Corruption risks, and show people how to avoid falling foul of the law. Implement rigorous controls regarding payments and expenses.

Check high risk areas — set out a program to review past practice to identify areas or transactions at risk, and seek independent advice and help to deal with problems and to improve processes. Allow PSA members to review, comment and enhance as appropriate.

Business partners — the operating partner must structure their business to ensure there are contracts with all agents and suppliers that require clear, honest practice. They must put contingency arrangements in place wherever risks lie and retain the right to audit a business partner’s practices – and be prepared to audit in the event of a red flag or whistle-blower allegations. Increasingly, many companies are rolling out specific programs to do just this taking into account the risk based approach referenced above.

Invoicing Structure and Detail – agree to a credible and robust invoicing structure along with accessibility to underlying transactional detail as and when needed

By Toby Duthie

About the Author

Toby Duthie is one of FRA’s co-founders and heads its London office. With experience in cases involving government enforcement in the UK and the US, his expertise lies in internal and regulatory investigations, data protection and complex financial modeling, with particular experience in global, multi-jurisdictional cases. Toby was instrumental in the development of FRA’s service in the anti-corruption and white-collar defense arena across Europe. He spent more than five years in the US, gaining extensive experience advising on damages amounts in a number of complex civil and criminal litigations and in connection with a number of high-profile FCPA enforcement actions (e.g. Panalpina, Bonny Island LNG and Oil for Food). He has also worked on matters involving the UK, Swiss and French regulators.

tduthie@forensicrisk.com
+44 (0)207 269 7837

About Forensic Risk Alliance

Forensic Risk Alliance is an international firm of forensic investigators and accountants, data protection experts and eDiscovery specialists with offices in the US, UK, France and Switzerland. Its people provide independent, conflict-free advice and litigation support services, often in the local language as its team speaks most of the world’s key business languages, including most European languages as well as Arabic, Russian, Portuguese, Mandarin and Cantonese Chinese, Malay and Bahasa Indonesia. FRA collects and analyzes data for use in legal disputes and investigations (often cross-border) in a number of areas, including litigation, fraud, bribery and corruption investigations.

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