Compliance After The Event In Bribery And Corruption Cases

Syedur Rahman and Nicola Sharp examine the merits of compliance
committees and how improving your compliance measures can help you, even while
you are under investigation, in global corruption cases.

In a move that attracted a fair amount of attention in the
business world, UK oilfield services firm Petrofac announced it was
establishing a compliance and ethics board.

The fact that Petrofac was creating the board was itself
newsworthy. But Petrofac’s decision to announce its creation while it continues
to be investigated for fraud raised a few eyebrows.

While Petrofac sets about establishing its in-house watchdog
for compliance and ethics, the Serious Fraud Office (SFO) is investigating the
firm’s dealings with Unaoil. Petrofac’s chief executive and chief operating
officer have been interviewed under caution and there is close scrutiny of the
firm’s hiring of Monaco-based Unaoil to provide local consultancy services;
mainly in Kazakhstan, between 2002 and 2009.

Regardless of its ongoing troubles, Petrofac said in a
statement: “As part of the company’s ongoing commitment to, and focus on,
compliance and ethics, Petrofac today announces that it has established a new
Compliance and Ethics Committee of the Board.

“This committee will be responsible for overseeing the
company’s compliance and ethics programme, as well as the continued monitoring
of the effectiveness of the company’s code of conduct and other Petrofac
policies and standards in relation to compliance and ethics.

“These include the standard for the prevention of bribery
and corruption and the ethical, social and regulatory risk policy.”

The Committee is made up of three non-executive directors
and has also appointed a senior external specialist to respond to the SFO
investigation.

Investigation

It could be argued that creating the committee is a clear
case of shutting the barn door after the horse has bolted. A properly-planned
and conducted internal investigation into the company’s working practices and /
or sound compliance procedures could well have prevented Petrofac’s problems –
or at least flagged them up before they became unmanageable.

As it is, the investigation into Petrofac and Unaoil is now
a matter for the SFO rather than Petrofac’s management.

But that is not to say that what Petrofac has just done is
pointless. If anything, it may help Petrofac persuade the SFO that it is
serious about tackling the problem, which may lead to more lenient treatment.
The SFO is likely to be more lenient if it can see genuine signs that a company
is looking to put right the wrongs it has been involved in.

Commitment

With the SFO now having deferred prosecution agreements
(DPA’s) as an alternative to prosecution, the creation of such a committee
could prove to be a wise move by a corporate looking to prove its commitment to
staying on the right side of the law.

Similarly, any other action taken by a corporate under
investigation could, if carried out properly, help it avoid the harshest of
penalties. Removing senior figures associated with wrongdoing, changing working
practices to avoid any repeat problems, instigating training for staff and
creating a whistle blowing procedure can all be worthwhile measures when it
comes to minimising the damage caused by legal trouble. These measures can certainly,
if carried out correctly, help the authorities decide on a lesser penalty for
the current legal problems a corporate faces.

In Petrofac’s case, only the SFO can determine whether this
is a case of too little too late. But the role of Petrofac’s committee could be
crucial as the company moves forward and looks to identify and combat any
future problems.

This argument could be used for many companies. If a
compliance committee can help a corporate identify possible problems – whether
they be bribery, money laundering, tax evasion or other offences – or even
avoid them in the first place, it will be of immense value. Such a committee,
if established and run properly, can go a long way to steering a company clear
of legal, financial and reputational problems.

Response

The SFO has many unique powers. But it is like many
investigating authorities in that the response and cooperation it receives – or
does not receive – from those it investigates will go some way to determining
the action it takes against them.

A compliance committee could be seen by the SFO as the
company taking positive steps. If that is the case, the SFO is unlikely to
“throw the book’’ at the corporate.

If a corporate creates such a committee once it is under
investigation – as Petrofac did – it could certainly be viewed as a cynical
ploy to seek a light punishment. But if the SFO can see for itself that the
committee has been carefully devised and that proper thought has been given to
its duties and its membership, it can act as a positive factor when the SFO
decides the corporate’s fate.

The role of a compliance committee before an SFO
investigation has begun could, arguably, be even bigger. If the SFO starts to
investigate and the corporate being investigated can point to its committee and
explain how it has worked, it will go a long way to showing that adequate
procedures were in place to prevent wrongdoing.

When a compliance committee is established, however, it can
only be of value if the corporate can produce clear evidence that the committee
functions with integrity and is not simply there for show. This is the case
whether the committee has been established before or after an investigation has
commenced.

If such a committee is to be of any value, therefore, it has
to be devised, staffed and given duties relevant to the existing problems it is
looking to tackle or the potential ones it is looking to prevent. This may
require the assistance of a legal expert: someone who can identify current or
future problems, the way they need to be tackled and the exact measures needed
to tackle them.

Negotiation

What must be remembered is that any investigation will
involve a large amount of contact with the investigating authority. For those
not used to this, it can be daunting. But for those with experience of, and
expertise in, dealing with such authorities, it offers scope for negotiation.

For anti-corruption bodies, litigation is no longer the
primary strategy. Negotiating can, therefore, play an important role in reducing
any losses for corporates and individuals.

Having dealt with the SFO (and all the other investigating
authorities) for many years, we can say that negotiation is only a genuine
option when you are fully aware of all the wrongdoing that has been committed.

If a compliance committee has been in place prior to any
investigation and has been the one that raised the alarm, it may well
strengthen the corporate’s negotiating position. And even if the committee has
only been established after the investigation began – as with Petrofac – it may
still be able to bring information to the investigating authority, which may
also help its position at the negotiating table.

Circumstances will vary from case to case. But what must be
remembered is that there is always value in improving compliance; either before
or during an investigation.

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