The Huffington Post/Fairfax Media’s report of bribery at Unaoil is another cautionary tale on how entire industries can find themselves under investigation for use of the same intermediary.
I worked in corporate investigations from 2003 to 2011. Conducting FCPA due diligence on intermediaries in the Middle East and Africa was the bread and butter of my job. Corporate clients would ask for investigations into agents on a regular basis, and it was striking how often the same names came up — including Unaoil.
Often the agent in question would have a low public profile, with limited media hits, and an offshore ownership structure. Sometimes we would be asked to conduct discreet inquiries into the reputation of the agent, and credible but unsubstantiated allegations of corruption would emerge. We would often conclude that the relationship was likely to threaten our client with reputational or legal risk.
We would then brief the client on our conclusions. Usually the compliance team had required the due diligence but the sales team was paying our invoice, and seemed to hold all the decision-making power. We would highlight the low media profile of the agent, the opaque corporate structure, and the negative views of our contacts.
These findings were rarely seen as “red flags” by the sales team, who I never saw having any trouble overriding concerns from the compliance officer. In this context, red flags were limited to a listing on sanctions databases, a bankruptcy or a criminal conviction. Signs of high level political access would be seen as comforting, not a cause for further questions. Even extensive, unproven negative media coverage might not be enough to scupper the deal.
The credibility of our sources and our work would be questioned aggressively. The burden was on us to provide documentary proof that there was a problem with the relationship, not on the client to demonstrate that the integrity of the agent had been established.
Today this landscape has definitively changed. There is much greater pressure to document beneficial ownership, professional track record, and clarity over the agent’s actual activities. Civil society and regulators are rightly focusing on what lies behind opaque ownership structures. However, drawing conclusions from an absence of information remains challenging.
Although offshore ownership is increasingly seen as a red flag for corruption, it is still a core element of many mainstream corporate structures designed to minimize tax. And the FCPA due diligence industry is becoming increasingly commoditized, automated, and unsuited to the nuanced judgment calls that are actually needed. Often the question is not how to respond to red flags but how to respond to an absence of any definitive information at all.
Unaoil offers one answer to this. Companies should no longer make risky judgment calls on using sales agents and hope for the best. The result could be an avalanche of jaw-dropping internal emails released into the public domain at any time.