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Corruption and bribery in the oil and gas industry

World Pipelines,

A recent EY report, ‘Managing bribery and risk in the oil and gas industry’, has highlighted that company executives and firms operating in the oil and gas industry are among those that have incurred the most significant penalties for bribery and corruption.

In its 2011 Bribe Payers Index, Transparency International identified companies in the oil and gas sector as being perceived to be more likely to bribe than those in other sectors: it was in the bottom 25% of 19 sectors.

Why oil and gas?

While anti-bribery and corruption (ABAC) enforcement actions have been seen in a number of industries, the oil and gas sector has been subject to numerous high profile cases. EY holds that this is not because individuals or companies who operate in this sector are more corrupt or susceptible to bribery, but there are characteristics of the sector that increase the risks:

Conducting business in emerging markets

Unstable political situations in emerging markets and the lack of infrastructure and controls necessary to combat corruption can make these locations inherently risky.

Africa, Latin America, Asia and the Middle East are all key growth markets for the oil and gas sector. In general, countries in these locations tend to have lower rankings on Transparency International’s Corruption Perceptions Index, indicating that there is perceived to be higher corruption.

Working across countries with differing cultures, as well as differing access to technology, adds to the challenge. EY highlights that in-country employees and other stakeholders may be accustomed to a particular way of operating and, as a result, modify or bypass global policies to proceed with business activity that may be fraudulent or corrupt.

Frequent dealings with government officials

EY emphasises that many organisations involved in the oil and gas sector are either wholly or partially state owned, and their employees are likely to be considered foreign officials under bribery and corruption legislation around the world. Emerging markets tend to be excessively bureaucratic, which results in many touch points with government where bribes can be demanded.

In some markets, government officials have low salaries compared with those in the private sector, raising the temptation for them to take bribes. This might not be restricted to cash bribes. Even small gifts, meals or entertainment that might be considered de minimis in other countries may be perceived as attempts to improperly influence decision making.

Heavy reliance on third parties

Oil and gas companies often hire third parties to manage their on the ground transactions. Under the Foreign Corrupt Practices Act (FCPA) in the US and most other international anti-corruption legislation, companies may be liable for corrupt payments or other benefits provided to government officials by third parties.

Under the UK Bribery Act, the company will be liable for an associated person’s bribery if it is intended to obtain or retain business, or a business advantage, for the company. EY highlights exercising control over third parties as a significant challenge. 

For more on these risks see also 'Corporate policy compliance pressure points'.

Adapted from a report by Emma McAleavey.

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