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.