KPMG survey: Oil price collapse drains funding for FCPA compliance

As if historically low commodity prices are not enough for energy and natural resource executives to contend with, a recent KPMG International survey found that addressing anti-bribery and corruption remains highly or exceedingly challenging. At the top of the list of challenges for 89 percent of respondents? Employee awareness, training and communications, and varying country regulations.

Recognizing the magnitude of anti-bribery and corruption challenges, KPMG International conducted a survey of 659 executives in a range of functions and industries from around the world. Fifty-four (8 percent) work in the energy and natural resource sector (38 of which are in oil and gas).

These results suggest that a growing number of companies are continuing to find it difficult to deal with anti-bribery and corruption issues because of their complexity, increasing globalization of operations, and the need to deal with these matters in many different jurisdictions in an extremely cost-conscious environment.

However, the energy and natural resource companies are particularly cognizant of the significant cost of failing to comply with anti-bribery and corruption regulations somewhere in the world: sizeable fines, the possibility of imprisonment, and the loss of corporate reputation.

Eighty percent of respondents also say that auditing third parties for compliance is one of the more difficult areas to deal with as it relates to anti-bribery and corruption. Energy and natural resource executives also say they are challenged by the variation in national regulations pertaining to bribery and corruption and conducting due diligence. Sixty-nine percent of energy and natural resource respondents say their company’s anti-bribery and corruption risk assessment examines the potential risk posed by third parties. But, 41 percent say they do not have a risk-based process for onboarding third parties.

This gap is significant. A proper procedure to vet third-party agents during the onboarding stage can prevent the contagion of corruption spreading through the organization. And in addition to focusing on onboarding, companies need to make a greater effort to assess third-party risk more generally.

When asked which business areas they perceive to be high-risk, half of the survey respondents cited corruption at customs and export agencies as they negotiate ports, border crossings and airports to bring in equipment and goods to develop energy and natural resource projects outside their home country.

When asked how they manage the risk of bribery and corruption during the transport of equipment and materials across borders, half the oil and gas respondents say they enhance the monitoring of invoices from third-party logistics providers; 47 percent say they conduct follow-up investigations of allegations and take appropriate disciplinary action against employees and third parties, and the same proportion say that they train logistics managers on bribery and corruption awareness and red flags.

Even though there is room for improvement in energy and natural resource companies’ anti-bribery and corruption compliance programs, it seems that organizations are aware of the reality of corruption and are taking steps to raise the bar. Indeed, 80 percent of energy and natural resource respondents say their company has a formal, written anti-bribery and corruption compliance program.

Also, many companies have an array of weapons in their arsenal to combat corruption. Between half and 69 percent have a several elements in their program, including whistleblower mechanisms, training programs, continuous monitoring, a full-time anti-bribery and corruption compliance officer, and anti-bribery and corruption compliance risk assessments.

Energy and natural resource and oil and gas companies were at the forefront of the resurgence of FCPA enforcement in the U.S. and continue to engage in higher risk business activities in higher risk locations globally. While the precipitous drop in oil, metals and commodity prices has strained compliance budgets, the anti-bribery and corruption risk profile of energy and natural resource and oil and gas companies remains high as does governments’ expectations that companies maintain effective, risk-based, compliance programs.

*     *     *

Please visit www.kpmg.com/ENRforensics to download a copy of the KPMG International survey: The growing global challenge: Managing anti-bribery and corruption compliance in energy and natural resources.

____

Michael Schwartz, Principal in Forensic Advisory Services at KPMG LLP, assists clients across all industries, including oil and gas, in preventing, detecting and investigating fraud, waste, abuse and other misconduct. Since joining KPMG in 2002, Mike held a series of increasingly responsible positions, including being the inaugural head of KPMG’s crisis management services solutions; and the forensic practice leader in providing services to the public sector, anti-bribery and corruption-related services to corporations, and computer forensic services.

Nicholas D’Ambrosio is a Director in Forensic Advisory Services at KPMG LLP. As an auditor, forensic accountant, and economic and valuation analyst, Nicholas has assisted clients for more than twenty years with a wide range of complex business challenges. Nicholas investigates allegations of corporate fraud, waste and abuse as well as regulatory non-compliance. He has serviced clients in a wide range of industries including oil and gas, petrochemical, pipeline, utility, computer software and hardware, internet, financial services, medical technology, pharmaceutical, and industrial and consumer manufacturing, distribution and retail.