Bribery and corruption are widespread and endemic in the oil & gas sector. These are becoming an increasing concern for businesses, and company executives and firms operating in this sector. As the commercial and operational risk profiles of companies change, consideration needs to be given to the identification and management of bribery and corruption risk. As part of a rigorous risk assessment, it’s important for companies to perform detailed reviews of the consultants, distributors, and sub-contractors with whom they work. Companies should also establish ongoing third-party controls and monitoring.
So, here we will discuss practical considerations for companies looking to manage corruption risks.
A research study shows many large corporations have not put in place basic safeguards to protect themselves from commercial and reputational risks associated with their suppliers. One third of oil and gas firms do not have an anti-bribery and corruption policy for their main suppliers, and one in 10 do not have a health and safety policy for their main contractors. In addition, when suppliers do provide information, large oil and gas firms admitted that they are not validating the details, or auditing suppliers on site to check whether they are adhering to their own policies. A third of the sampled oil and gas buyers admitted that they do not carry out basic checks – such as internet research or making telephone calls – to validate suppliers’ information relating to anti-bribery and corruption or financial reports. One in five companies does not check health and safety documents. Further, many oil, and gas companies did not conduct any visits to supplier sites to check whether contractors were operating in accordance with statements made in their health and safety, anti-bribery and corruption and financial documents.
Steps oil and gas company can use successfully to respond to bribery and corruption risks
Companies in the oil and gas sector need to address their corruption risks proactively by implementing an effective anti-corruption compliance program.
Conduct an effective risk assessment program: A thorough risk assessment process puts a company in a position to demonstrate that it used due care in assessing its risk, should unforeseen issues arise. The corruption risk assessment should focus on actual risks posed by the nature of a company’s operations, the degree of business with governmental entities, the countries where it does business, the regulatory environment, and other factors.
Develop and implement corporate anti-corruption policy: The global nature and scale of the oil and gas sector, and the complexity of the working and contractual relationships with governments, venture partners, suppliers and other contractors, make compliance with anti-bribery and anti-corruption regulation something that requires significant management focus.
Implement anti- corruption financial controls: Good controllership is the first line of defence against corrupt payments and limits the number of opportunities for fraud, bribery and corruption to occur. Reconciling bank accounts monthly is a key cash control that also protects against misappropriation and possible off-books payments.
Conduct anti-corruption compliance audits: Conduct anti-corruption compliance audits to test for substantive compliance by seeking to identify potential violations or red flags. Audits also often uncover new risks not previously seen or fully appreciated. In this way, they act as part of an ongoing corruption risk assessment process.
Re-assess risk and modify program: Comprehensive corruption risk assessments should be conducted periodically, to make sure that the anti-corruption program is evolving to meet new risks posed by the changing business and regulatory environment. If the business changes significantly, such a process should be accelerated.
Solely having a compliance program in place may not eliminate risk completely, whereas companies should implement compliance programs and policies that effectively address bribery laws. It’s important for companies to monitor their dealings with government officials, and provide comprehensive FCPA training and guidance regarding the applicable laws and regulations of those countries in which the company operates. Oil and gas companies should also be keenly aware of risks associated with business partners particularly because of the high-risk jurisdictions in which they operate. Companies should conduct due diligence on joint-venture and other business partners. As part of this process, it’s important to make sure that business partners are compliant with the company’s own policies and have controls in place to account for the FCPA and other anti-corruption laws. As part of a rigorous risk assessment, it’s important for companies to perform detailed reviews of the consultants, distributors, and sub-contractors with whom they work. Companies should also establish ongoing third-party controls and monitoring.
By virtue of where they operate and those parties with whom they frequently interact, oil and gas companies will continue to face heightened exposure to bribery risk in the foreseeable future. Therefore, companies are well advised to build defendable and holistic anti-bribery compliance programs.
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