Alexandra Gillies, who sometimes writes for the FCPA Blog, has published a new book, Crude Intentions: How Oil Corruption Contaminates the World. I recently spoke with her about the book and her wider work.
RB: Congratulations. Crude Intentions is a great read with super reviews, and I highly recommend it. Why did you decide to write about corruption in the oil sector?
AG: For more than a decade, I’ve worked on oil sector governance issues as part of my PhD research and while working for the Natural Resource Governance Institute (NRGI), an NGO. I realized that the 2008-2014 oil boom offered the perfect petri dish for observing how corruption works across a diverse set of countries and players, from Goldman Sachs to the national oil company of South Sudan. I set out to see what we could learn from all these cases about how to build a smarter fight against corruption in the future.
RB: But the oil boom is now behind us. The bling, as you call it, is gone, and oil prices have fallen fast.
AG: True. And in general, austerity in the industry helps control corruption. But there are new risks brought on by low prices. Storage facilities are in high demand, which could create incentives for bribery. In countries where oil is found, especially newer producers, governments may offer all kinds of incentives to convince oil companies to invest in producing their oil, or companies could push for special treatment. This could lead to a dangerous race to the bottom, with public protections dropped in order to entice investment.
Another risk has to do with powerful oil companies leaning on public officials to help them weather the downturn. In countries where oil companies enjoy close ties to political elites, such as the United States and Russia, politicians may choose to use precious public funds to help their industry friends at the expense of the wider public interest. So, there’s certainly plenty of reason to remain on guard.
RB: Middlemen of various sorts play a role in quite a few extractive industry corruption cases. How are companies now handling that problem?
AG: The use of agents and intermediaries to distribute bribes is definitely one of the more obvious trends I saw when examining all these cases. The fixer company Unaoil alone channeled bribes to oil sector officials in nine different countries on behalf of clients from the Netherlands, the United Kingdom, the United States, and beyond.
Companies are increasingly aware of this risk, which is encouraging. Some companies from the extractive sector have said they’ll stop working with agents when seeking new business, or significantly reduce this practice. Others have upped the due diligence checks on agents or started requiring their contractors to provide beneficial ownership information. These are all positive steps but are hardly silver bullets. Even if companies ban agents, they could route bribes through consultants, lawyers, or subcontractors. What would help, in addition to these measures, is more openness from companies about their anti-corruption policies, such as their rules around dealing with agents, and more openness about who they’re hiring and contracting with, such as published lists of contractors. This kind of openness would discourage taking on partners who pose legal or reputational risks, including but not limited to agents.
RB: You ask a great question in your book: “When does wooing become corruption?” Any guidance about hospitality and similar perks?
AG: It does seem to be a judgment call, that’s for sure. U.S. authorities fined the commodities giant BHP Billiton for hosting government officials at the Beijing Olympic Games, and the bank BNY Mellon for providing internships to the relatives of government clients. These kinds of enforcement actions send helpful messages about what behavior is acceptable. But it’s hardly straightforward, whether you’re talking about oil companies making campaign donations to U.S. politicians or a big multinational firm providing data, analysis, travel and other goodies while negotiating deals with small developing-country governments. These kinds of “wooing” might be both legal and inappropriate.
RB: You talk about individuals paying the price for their conduct. But you also say “systems and the corporate leaders atop them should shoulder some of the blame.” Speaking generally, why?
AG: In some of the cases described in the book, company executives tried to shift blame onto “rogue” employees. However, those individuals often operated in systems that failed to control corruption, or that even created incentives that favored it. In these situations, the individuals who run the company should shoulder the blame as well as the individual(s) who arranged the wrongdoing. Unless these leaders also face consequences, the lure of corruption will remain too enticing, especially when big potential profits are up for grabs. Corporate fines combined with hanging mid-level operators out to dry is just not enough.
RB: Are we making progress in turning the tide against corrupt officials, kleptocrats and their ecosystem of enablers? What seems to be working?
AG: Every corruption case I looked at is a success story of sorts: the facts came to light and the parties involved faced some kind of consequences. So, we know what’s working. More governments are actively enforcing their anti-bribery laws and collaborating on cases across national lines. Law enforcement is also getting better at going after offshore flows of dirty money, as we’ve seen in the “Bien Mal Acquis” proceedings in France, the U.S. asset seizures that helped break open the 1MDB case, and the UK’s introduction of Unexplained Wealth Orders. And, we’re seeing more much attention devoted to how anonymous shell companies and secrecy jurisdictions enable corruption, though policies and practices have yet to change as much as they need to. All of that’s positive, it just needs to be pursued with a lot more urgency and consistency.
Past cases also reveal some clear problem areas, which can further inform an agenda for action. Within the oil sector, many of the corruption cases feature national oil companies, oil trading companies and oilfield service companies, suggesting all three sets of actors could use more scrutiny and more accountability.
More generally, it’s way too easy for political elites and oligarchs to turn their insider access into global business empires. We saw this recently with the Luanda Leaks. Isabel dos Santos had no trouble acquiring foreign business partners and top-notch service providers, from PwC to the Boston Consulting Group. Only when scandal broke did these partners walk away. When it comes to kleptocrats and their associates, companies should take a much tougher line on who they’re willing to do business with, rather than waiting for the scandals to arrive.
Crude Intentions: How Oil Corruption Contaminates the World by Alexandra Gillies, published by Oxford University Press (January 21, 2020), is available from Amazon here.
Excellent interview and comments from Alexandra, and thanks Richard for taking this on in the blog. What I’m concerned about is the morality vs legality issue. We need to be very careful about where we draw the line between prescribing business practices based upon culturally biased moral arguments versus strict, technically legal compliance in a particular jurisdiction. This is such a grey area that perhaps some internationally recognized and non-culturally biased standards, should be promoted. For example, shouldn’t this be an area for ISO 37001? Certification to ISO standards has created a shift in corporate behavior across borders ranging from Quality assurance, Risk Management, Project Management to Health Safety and Environmental practice. By pushing this anti-corruption agenda through the ISO systems, it takes the issue out of the realm of culturally biased ideologies (that can be dismissed by some and championed by others), yet moves it beyond the “whatever we can get away with legally” compliance approach. .The added advantage for the Petroleum industry is that ISO standards certification and compliance is already accepted by most of the major Oil and Gas producers and Service companies. We just need to get them to specifically buy into ISO37001.
Thanks Richard! Great interview, and great book (Alexandra).
While I think standards like ISO 37001 are good for middle management and the compliance staff, it does nothing to change the inclinations of senior executives, and possibly board members, who might be involved in questionable behaviour.
In my read of Alexandra’s book, it focuses on a broader audience and highlights what should have been identified as high-risk activities. It clearly articulates common sense issues.
For example, Alexandra mentions the BHP Billiton case and their settlement with the US SEC.
One of the four cases discussed in that settlement, and available on the US SEC web site, involves an invitation that was given too, and accepted by, the former Secretary of the Department of Environment and Resources in the Philippines.
It’s important to note that the mere acceptance of something of value by a government official in the Philippines, in certain circumstances, can be considered bribery under Philippine law. It doesn’t matter what the intent behind the gift is. The fact that it was given and accepted can be considered a violation of the country’s anti-graft laws.
This is certainly a more stringent view of what is considered bribery in the US, where intent needs to be shown. It also demonstrates that what you can “get away with legally” in the Philippines is a lot less than in the US.
One would assume that this risk would have been identified before the invitation was given to the former Secretary, no matter what other circumstances were involved. This should have been a show stopper.
Again, Alexandra’s book is exceptional and provides a great read for all levels of an organisation, especially at the executive level.
This is a fantastic read Alexandra, and I agree with the comments from Elizabeth. In reading the detail behind the BHP matter, it seems that this was more than a simple wining and dining exercise, as mentioned in the book. The $12,000 apiece for luxury hotel accommodations and sightseeing excursions doesn’t seem to capture the additional round trip business class airfares, which would have been substantial for the minister from Burundi and his wife.
Also, western companies often look at their compliance through a UK or US lens, never considering whether the local regulations are more stringent. BHP’s offer to a Philippine government official, and his acceptance of the invitation, would appear to be a violation of Philippine anti-graft laws, which Elizabeth identified. In addition, and unlike US anti-bribery regulations, the statute of limitations for many of the Philippine anti-graft laws run for decades.
Alexandra’s book reminds us that financial resources are precious and are needed in times when things get tough. When private citizens and governments illegally divert those resources (in the billions of dollars) for their own gain, then we are not prepared to manage a crisis like the one we are currently experiencing.
We need strong institutions and corporate policies to fight corruption and it should be an all hands-on-deck approach.
The process needs to focus on the person giving the bribe and the person receiving the bribe. Unfortunately, there seems to be considerable effort devoted to addressing the entities receiving the bribes and not enough on the ones giving the bribes.
I can understand why this happens. It’s a classic example of misdirection. “It’s not us, it’s them”.
This is a particular problem when the details of corporate corruption can be hidden in confidential settlements or deferred prosecution agreements.
If we look at the examples given in Alexandra’s book, it’s clear that there are two parties to the “bribe equation” and the person giving the bribe is likely to be as guilty, if not more, than the person receiving it.
I would personally like to see organizations, like Transparency International, pay more attention to addressing this risk.
After just watching an interview between Stephen Colbert and author Jon Meacham, where Meacham states that what the US really needs now is an Avengers Team of Presidents, I think it would be appropriate for TI to organize an “Avengers Team” of auditors to review the effectiveness of anti-corruption and anti-bribery policies at a group of companies that claim to have the best systems in the world.
Perhaps they could start with Transparency International’s corporate sponsors. Those who contribute directly or via their foundations.
The end product would be a report that identifies what works and doesn’t work and should entail a review of the entire management system. It would provide tremendous assistance to both regulators and the regulated community.
The audit team should be an international group consisting of the best-of-the-best. For example, people like Ms Hui Chen, Ms Lise Kingo (CEO of UN Global Compact), etc. The interviewer and interviewee in the article above would also be excellent choices.
I’m sure an appropriate mandate and protocol could be worked out between the corporations and the audit team, and video conferencing and electronic data rooms can be used in lieu of travel. It would serve as a wonderful example on the part of the corporate participants in delivering social value.
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