Urgent Anti-Corruption Mechanisms in the Energy Sector

This article was first published in Oil & Gas Magazine on November 28, 2022.

Corruption in the oil sector is a persistent source of concern for the industry and its stakeholders. Due to the multiple aspects that characterize the sector (high levels of spending and investment, homogeneous and difficult-to-trace products, a high degree of subcontracting, exposure to countries with underdeveloped legal and regulatory frameworks, to name a few), particularly the upstream subsector, the various forms of corruption are a pervasive risk. As a result, entities engaged in exploration and production activities, whether they are governments themselves, their regulatory agencies, and national oil companies as well as the private sector, face major challenges in minimizing the risk of becoming involved in illicit activities, either within their own corporation or through interactions with third parties.

In addition to the above, companies that develop their exploration and production activities in countries with a high risk of corruption, and at the same time, resort to international financial markets for financing, must be aware of the gap between the risk inherent in their operations and the scrutiny they are submitted to under anti-money laundering (AML) and anti-bribery and corruption (ABC) laws.

With the increasing focus on AML and ABC, large organizations in the industry are increasing the level of scrutiny to which they subject their stakeholders. All potential partners, intermediaries, suppliers and potential customers must comply with ABC and AML standards. For large oil and gas companies, independent reporting is essential if they are to establish rigid due diligence frameworks to decrease the risk to which they are exposed.

We identified some elements and best practices that should form the foundation for any compliance program, whether for exploration and production companies, their partners, service providers or suppliers:

• Policies and procedures. Companies should develop and communicate their internal AML and ABC policies in a clear and concise manner. Each policy should address the following topics: gifts and entertainment, political contributions, donations and charitable acts, facilitation payments and suspicious activity reporting.
• Periodic review. To ensure compliance with established policies and procedures, each company must implement an internal control system that supports the periodic review and identification of risks.
• Independent supervision. The implementation of and adherence to compliance policies and procedures should be the responsibility of the company's highest control body, which in turn may rely on independent external experts.
• Continuous training. All employees, suppliers and other third parties should undergo periodic training on the AML and ABC policies, as well as guidelines adopted by the company. Part of the training program should be certification of directors, officers, and where appropriate, third parties.
• Internal reporting and monitoring. Every effective internal control and compliance system should include an internal anonymous whistleblowing facility to confidentially report any potential violation of internal policies or any law. Such reports should also receive appropriate follow-up until their conclusion, whether favorable or unfavorable.
• Implementation and compliance monitoring. In order to achieve adherence to internal AML and ABC policies from all employees and suppliers, it is key to properly incentivize compliance and sanction violations accordingly.
• Relationships with third parties. All potential partners, intermediaries, suppliers and potential customers shall be subject to an appropriate due diligence process prior to the signing of any contract or agreement, as well as periodically thereafter to ensure adherence to the policy.

How Can Kroll Help?

Due diligence using Kroll's independent approach can help any organization detect potential underlying risks, such as hidden ownership structures and ties to government officials, as well as some of the more obvious problems, such as allegations of corrupt or criminal practices.

Kroll has extensive experience in assessing global companies' ABC and ethics programs in order to meet the ABC compliance requirements of international bodies. Based on Kroll's findings, clients can assess their actual ABC risks. In addition, Kroll provides the client and its legal team with a set of recommendations for ABC controls and a compliance program for FCPA and other ABC regulations.

Kroll's review covers areas related to general misconduct prohibition, anti-bribery and corruption compliance, anti-fraud compliance, antitrust issues, anti-money laundering, sanctions, risk assessments, corporate liability and oversight, provision of training, whistleblowing, due diligence, sample testing of books and records transactions for accuracy, and general remediation considerations to enhance the ethics and compliance program across the enterprise, including recommendations for improvement.

For this purpose, Kroll has developed assessment methodologies for ABC and AML compliance programs based on the assessment guidelines issued by the U.S. Department of Justice (DOJ) and other regulatory entities. Adapted to Mexico's corporate reality, our assessment solutions provide an important component of transparency and independence in compliance program evaluations.