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The UK Legal 500 2017

MANAGING THE PROBLEM OF BRIBERY IN HIGH-RISK COUNTRIES

September 2017 - Crime. Legal Developments by Rahman Ravelli Solicitors.

More articles by this firm.

Aziz Rahman considers the corruption problems energy and resources companies have encountered and assesses how they can be minimised.

Oil field services company Halliburton is to pay nearly $30 million to resolve allegations of bribery in Angola.

Former Halliburton vice president Jeannot Lorenz also agreed to pay a $75,000 fine for falsifying the company's books and circumventing internal controls, the US Securities and Exchange Commission (SEC) has announced.

Lorenz directed $13 million in contracts to a company owned by a former Halliburton employee who was linked to an official at the Angolan state oil company, Sonangol. The official then approved lucrative contracts for Halliburton, bringing in profits of $14 million for the Houston-based company, according to the SEC.

Halliburton said the investigation began in late 2010 when the company received information anonymously. It said, in a statement, that it reported the allegation to the US Department of Justice (DOJ), conducted a thorough internal investigation and cooperated with investigations by the Securities and Exchange Commission and the DOJ

Halliburton has agreed to hire an outside consultant to oversee the company's anti-corruption practices in Africa.

High Risk

The case indicates both the dangers of bribery and the need to prevent it.

Companies that trade in parts of the world that have been publicised as high-risk when it comes to bribery need to be extra vigilant regarding all aspects of their business.

The fact that Halliburton only became aware of the problem due to an anonymous tip off indicates shortcomings in its efforts to prevent bribery. Such efforts have to be tighter in areas where there is a recognised risk of corruption.

Angola is 164th out of 176 nations in Transparency International’s (TI) 2016 Corruption Index. On the Index, the most corruption-free nation is first and the worst is 176th. Halliburton can have little excuse for being unaware of – or not taking precautions against – the bribery dangers in Angola.

It is a country, like many in Africa, which is wrestling with the problem of corruption. There are no African countries in the top 30 of the Transparency International Index. A number of the major African countries, including South Africa, Nigeria, Tanzania and Kenya, have failed to improve their scores on the Index.

It would be wrong, however, to restrict any warnings to Africa. But what those looking to do business in the energy and resources sector must do is take well-researched precautions to make sure they do not find themselves facing corruption allegations.

Allegations

Recently, we have seen the oil corporations Unaoil and Petrofac investigated over allegations of, among other things, bribery in Kazakhstan; which is 131st on the TI Index. Unaoil is also under investigation for similar activities in Iraq (166th) and Kuwait (75th).

The Serious Fraud Office (SFO) is probing mining group Rio Tinto over bribery allegations in Guinea (142nd) while mining giant ENRC is under investigation for its Kazakhstan activities, as well as for corruption in sub-Saharan Africa.

None of the countries where the alleged corruption took place are in the top half of the TI Index. This not only indicates the source of the problems – it also highlights the lack of effort from the companies involved to reduce the scope for such corrupt behaviour.

It may be that those at the top believe it is a risk worth taking; even a necessary bit of naughtiness to clinch the business. But with many of the aforementioned companies having suffered plunging share prices, the arrest, suspension and investigation of senior figures and the threat of legal action by investors, such an approach seems reckless.

Prevention

Once such allegations are identified, the damage to a firm’s finances, reputation and ability to keep fully functioning can be irreparable. In the UK, a conviction under the Bribery Act, for bribery anywhere in the world, can lead to unlimited fines, up to ten years in prison and assets being confiscated.

For this reason alone, bribery has to be seen as a practice that must be prevented instead of encouraged or ignored.

The energy and resources sector is, as we have said, the subject of a number of major corruption investigations. But it does not matter what line of business a company is in or where it does that business – it will still need a properly researched and enforced compliance programme to reduce the chances of bribery (or any other white-collar crimes) being committed in its name.

It must be a set of measures that helps a company identify the potential for, and prevent, wrongdoing. Wrongdoing may still be carried out. But the authorities will treat a company more leniently if it can show that it took genuine steps to be legally compliant; especially if it identifies the wrongdoing itself and reports it.

A weak attempt at compliance for appearance’s sake will be of little or no use. The investigating authorities will be looking for genuine effort to prevent crime:  an awareness of the corruption risks in the countries where the company trades, proactive measures to check on those who work for or with it and whistle blowing procedures that ensure all suspicions are reported and properly investigated.

Leniency

The punishments for bribery can be heavy. But there is scope for leniency.  A lenient approach may be taken by the authorities if – as we mentioned earlier - they are convinced that a company had done all it could to prevent bribery.

But companies can also increase their chances of receiving less harsh treatment by taking the right action if they suspect they have become involved in bribery.

Conducting a thorough internal investigation into any suspicions not only helps a company identify what, if any, illegal behaviour has gone on. Reporting any findings of wrongdoing to the authorities before they are aware of them is likely to lead to a less severe punishment than if the powers that be find them without any assistance from the company.

DPA’s

The introduction of deferred prosecution agreements (DPA’s) has given the authorities the opportunity to impose conditions on a firm rather than prosecute it. But a DPA is less likely to be offered to a company that has shown no effort to either report or put right the wrongs that have come to light.

The UK has so far only seen a small trickle of DPA’s because they only became an option under the Crime and Courts Act 2013. At Rahman Ravelli, we have been heavily involved in that first trickle – and look set to be involved in more. Having been involved in securing a DPA for clients, we would emphasise the need to negotiate shrewdly with the SFO. Reporting the wrongs and / or putting them right is no guarantee of a DPA. Obtaining one – and avoiding the cost and trouble of a prosecution - requires cooperation backed with a tactical approach.

Rolls-Royce

As a high-profile example, let us look at the DPA obtained by Rolls-Royce. The aircraft giant agreed to pay £671M to settle bribery allegations against it and even managed to obtain a discount on the penalties included in the DPA.

So how did Rolls-Royce manage this? Especially as it did not even self-report its wrongdoing? There are a number of reasons:

* The Rolls-Royce settlement makes it clear that the company was granted a DPA because of the “extraordinary cooperation’’ it had volunteered. This cooperation helped obtain the 50% discount on the financial penalty that Rolls-Royce was ordered to pay.

* After the bribery came to light, Rolls-Royce introduced crime prevention procedures that, according to the settlement, meant that it was “no longer the company that once it was’’. It appointed Lord Gold to review its compliance policies, improved compliance training and reviewed its due diligence and risk assessment measures.

* Rolls-Royce emphasised in negotiations with the SFO that is employed 50,000 people, was “of central importance to the United Kingdom’’ and prosecuting it would damage the UK defence industry, harm businesses in its supply chain, distort market competition and cause redundancies and falling share prices.

It was a shrewd and well thought-out combination of cooperation, actions in response to the allegations and negotiation that convinced the SFO that Rolls-Royce was serious about putting right the wrongs.

Anyone facing bribery allegations that wants to achieve a similar, favourable outcome must be able to plan and execute an equally intelligent approach.

It requires the assistance of a legal team that can boast experience of dealing with the SFO, the rarer experience of having obtained a DPA for clients and unrivalled expertise in the field of bribery.