Anti-Corruption Law And The Oil And Gas Industry: Evolutions In Both Demand Vigilance

Abstract

Businesses in the oil and gas industry are cautioned to pay careful attention to evolutions in anti-corruption law in the jurisdictions where they operate. The U.S. government has successfully enforced the Foreign Corrupt Practices Act and related laws against several oil and gas firms, and recent developments in U.S. law point to further risk increases. Developments in foreign law are also expanding the anti-corruption traps for the industry. Furthermore, as oil and gas production expands dramatically in the United States, participating firms could face new risks under domestic state law. This paper reports on the present state of the anti-corruption landscape facing the oil and gas industry and encourages businesses to assess and mitigate the specific risks they face in their operations.

Introduction

Oil and gas businesses operate in a dynamic realm of increasing anti-corruption enforcement risk. The industry is perceived to be among the most corrupt, with a high incidence of bribery of foreign officials in resource-rich countries. 1 Prosecutions by the U.S. government have resulted in payments by oil and gas companies totaling hundreds of millions of dollars, and new developments in U.S. law have increased burdens on the industry. New prosecution risks are emerging as foreign governments enact and strengthen their anti-corruption laws and enforce them against oil and gas firms. Moreover, firms engaged in the booming but controversial renaissance in domestic oil and gas production may face additional risks under the anti-corruption laws of the states where they operate. Oil and gas businesses are accordingly advised to regularly re-assess their anti-corruption risk and implement compliance programs that are carefully tailored to their operational profiles.

Oil and Gas Firms Face Demonstrated Anti-Corruption Risk Under Evolving U.S. Law

The principal anti-corruption enforcement tool of the U.S. government has been the Foreign Corrupt Practices Act (FCPA).2 Anti-bribery provisions in the FCPA make it illegal to "corruptly" give, promise to give or authorize the giving of, whether directly or through another, "anything of value" to a "foreign official"3 for the purpose of influencing that foreign official to achieve a business advantage. 4 The prohibitions apply to (1) the conduct anywhere of any business entity (or principal, employee or agent thereof) that issues securities in the United States, (2) the conduct anywhere of a non-issuing U.S. business entity or U.S. individual, or (3) conduct within the United States by a non-issuing, non-U.S. business entity or non-U.S. individual. 5 The FCPA includes exceptions for certain payments that are expressly legal under foreign law, and for certain bona fide expenses. 6 But the FCPA offers no "good faith" defense to corporations for acts of their employees or agents and no exception for de minimis violations.

The anti-bribery provisions of the FCPA are complemented by accounting provisions applicable to any issuer of securities in the United States. 7 Issuers must maintain fair and accurate books and records, and must implement internal controls to assure that corporate acts are duly authorized.8 The Sarbanes-Oxley Act of 2002 sharpened the teeth of those provisions by mandating certain disclosures and corporate compliance procedures, and by requiring officers to certify financial statements under the threat of civil and criminal penalties. 9

The Department of Justice (DOJ) and the Securities and Exchange Commission (SEC) have enforced the FCPA aggressively in recent years, with the oil and gas industry accounting for many of the prosecutions. 10 In 2006, the Norwegian firm Statoil ASA agreed to pay $21 million in penalties and disgorgement as part of a deferred prosecution agreement.11 Statoil admitted to violating the bribery provisions of the FCPA when it made payments to an Iranian official in exchange for assistance in securing a contract to develop certain oil fields in Iran.12 The company further admitted to violating the books and records provisions by failing to properly account for the payments and for characterizing the arrangement as a "consulting" agreement. Finally, the company admitted that it violated the internal control provisions by failing to maintain adequate compliance processes. 13

A group of FCPA prosecutions further shook the oil and gas industry in 2010. Seven parent corporations and certain subsidiaries agreed to pay more than $236 million in payments to settle prosecutions arising from the investigation of the Swiss corporation Panalpina World Transport (Holding) Ltd. (PWT). PWT and its subsidiaries provided global freight forwarding and customs clearance services with a primary focus on the oil and gas industry. 14 PWT admitted that, for its own benefit and as an agent on behalf of its customers, it paid approximately $49 million in bribes to foreign officials in at least seven countries, with more than $27 million paid on behalf of U.S. issuers or U.S. businesses.15 There were various reasons for the illicit payments, but the agreement highlighted payments made to customs officials in Nigeria to bypass the customs process or avoid the imposition of duties or penalties on improper imports. 16 PWT agreed to pay a $70.6 million criminal penalty, an amount set below the federal sentencing guideline range in part in consideration for "substantial assistance" provided to the DOJ in investigating PWT and its customers. 17

The United States disclosed six other oil and gas-related...