Executive Viewpoint

	Vol. 231 No.8
WILLIAM JACOBSON, CHIEF COMPLIANCE OFFICER, WEATHERFORD

Strengthening anti-corruption compliance for the energy sector

In January, 22 individuals involved in the military and law enforcement supply industry were indicted and arrested in what the US Department of Justice (DOJ) called its largest operation ever against individuals for Foreign Corrupt Practices Act (FCPA) violations. Those arrested were almost exclusively corporate executives. The joint US-UK sweep was among the most dramatic examples of the two countries’ increasingly aggressive enforcement posture. The case also serves as a reminder of the international nature of the risks associated with noncompliance in the modern global marketplace.

Risky business. Global FCPA compliance concerns are also affecting the oil and gas industry in a very real way, from the largest firms down to the smallest service companies. On a daily basis, companies working in oil-producing countries find themselves faced with many opportunities to run afoul of a range of anti-corruption, trade and antitrust laws. The oilfield services industry is particularly vulnerable. In addition to operating in countries fraught with corruption issues, day-to-day operations often call for employees to interact with customs officials and representatives of national oil companies. These foreign business activities take place today under the intensified scrutiny of US DOJ and Securities and Exchange Commission and the regulatory bodies of a growing number of the European signatories of the Organization for Economic Cooperation and Development’s anti-corruption convention.

The UK, for example, has increased both civil and criminal penalties for those found guilty of corrupt practices. As a result, firms with major UK connections now may well find themselves subject to penalties similar to those faced by US companies. Other European nations are cracking down as well. Germany has brought several anti-corruption cases, and Switzerland is pursuing a number of ongoing investigations of alleged foreign bribery. As we have seen in several recent FCPA cases, the growing sophistication of international enforcement efforts may multiply the effects of noncompliance. A DOJ enforcement action against an international company, for example, may incite authorities in that firm’s home nation to launch its own investigation.

Meeting the challenge. The complex legal environment requires companies to be meticulous in their oversight and review of every aspect of corporate compliance. In addition to adhering to US laws that increasingly present the risk of global enforcement, firms also must put into place compliance resources specifically designed to address the legal requirements of countries in which they operate, as well as the laws governing the home countries of international partners. But that alone is not enough: The oil and gas industry operates primarily in countries that pose some of the most difficult compliance challenges in the world. Many companies in the oil and gas sector have already begun to ramp up their compliance efforts in specific ways to begin addressing the complexities of these markets.

For example, Weatherford has, over the past two years, significantly improved its compliance function. Much of this effort has been driven by my experience as a prosecutor at the DOJ with responsibility for enforcing the FCPA. Based upon this experience, we recommend implementing the following steps for increased compliance:

Engage experienced compliance specialists. To meet its FCPA needs, consider staffing your compliance office with former prosecutors, fraud investigators, forensic accountants and other specialists who possess extensive FPCA experience.

Use local compliance counselors. This strategy provides employees in a company’s various regions with easy access to local compliance professionals who are able to quickly answer thorny questions, and who possess a deep knowledge of local laws and customs. These staff members also enable the firm to provide compliance training in local languages.

Regularly examine operations to help head off unethical practices. Some type of compliance audit is the best way to measure the anti-corruption risk in any given country and to discover a problem, should one exist, through a dedicated global team of lawyers and forensic accountants. Our team at Weatherford can perform a thorough examination of company books and records, review countries’ adherence to compliance procedures, search for potential weaknesses and suggest any needed training in eight to 10 countries per year.

Ensure that compliance efforts are not compromised. By placing the trade compliance function outside its traditional home in logistics, we can ensure that goods and services not only move quickly, but also in compliance with the law. The compliance department may also include an antitrust expert charged with spotting compliance issues that may arise from potential mergers and acquisitions, partnering arrangements and other business activities. Collecting the firm’s corporate compliance professionals into one organization helps to insulate the compliance function from the influence of business pressures.

These and other measures must be used as part of a broader effort to make ethics and compliance pervasive throughout an organization’s culture. Oilfield companies also need to remember that they should not greet heavy-handed enforcement with a heavy-handed response. Compliance departments are often thought of as the people who simply say “no.” To the contrary, what is more commonly needed is simply to adjust the transaction in some way so as to minimize any corruption risk. Adhering to compliance procedures may slow down a particular transaction a bit. However, in the end, compliance will actually facilitate business, by allowing everyone involved to feel comfortable that business is being transacted in the proper way.