Beware: FCPA will follow US companies anywhere

The Foreign Corrupt Practises Act (FCPA) is arguably the most far-reaching piece of extraterritorial American legislation there has ever been, and it has huge implications for the oil and gas industry, given its global nature.

David Lorello of London law firm Steptoe & Johnson LLP warned delegates at the IADC World Drilling 2009 Conference & Exhibition in Dublin on 18 June that this legislation basically impacts everyone in the industry, especially in dealings with foreign countries, whether directly or indirectly.

Mr Lorello warned that bribery is a front-page issue these days, and the NGOs are taking a particular interest in whether the petroleum industry is keeping its nose clean.

He said local agents pose the greatest risk, as do joint ventures, including those with government entities in certain countries.

Also fraught could be sales and marketing relationships with governments, and complex tax and customs-related issues are not immune either.

Mr Lorello said a number of conventions have been forged, including by the OECD and UN and that, broadly, they were similar and were converging. Moreover, the FCPA model is being adopted as the one to follow, though different countries still have different standards, plus the approach in the EU is different from the US.

As for the FCPA itself, his message was simple: “If you are a US citizen, the FCPA follows you anywhere. It applies to the conduct of other nationals and entities too if their activities are in any way linked with the US.”

It was explained that the FCPA has made a particular effort to target foreign companies and that there have been a number of high-profile cases. Step back 20 years and fines of $1 million were uncommon. Today, fines totaling tens of millions and even hundreds of millions of dollars have been levied.

Mr Lorello said there are no signs that the global credit crunch is having any beneficial impact in terms of putting the brakes on corruption.

He said too that one didn’t even have to hand money over to get caught.

“You don’t even have to make a payment. The promise is enough … a dollar is enough.”

Focusing on the EU, he said that any entity that is proven to have been involved in corruption could be debarred under the sophisticated procurement laws designed to promote fair and open competition. So this is surely a further disincentive to getting snared in corruption.

He pointed out that there are a number of ways in which companies could protect themselves against this insidious problem, including ensuring all relevant personnel … management and on the ground … are adequately coached in the issue and how to handle situations; by carrying out risk assessments; by ensuring that appropriate policies and procedures are in place and that audits are conducted as necessary.

Mr Lorello added that there are various “red flags” that are easy to spot, not least payments requested to get approval of business; the lack of appropriate qualification of intermediaries beyond knowing key people personally; excessive commissions; and a lack of transparency.