Feds to crack down on foreign corporate corruption
And experts say oversight of the oil patch will likely increase
Canadian oil and gas companies operating in locales where corruption is rampant had best be on their guard – the federal government is cracking down on the shady practice of paying bribes to foreign officials.
Griffiths Energy International Inc. knows how painful the fallout of a bribery investigation can be. In January, the privately-held Calgary-based company with operations in Chad was fined $10.35 million by the Court of Queen’s Bench of Alberta for doling out US$2 million in bribes to Nouracham Niam – the wife of Chad’s former Ambassador to Canada.
It was the second time in the past 20 months that a Canadian oil and gas company has run afoul of the country’s anti-corruption legislation – the Corruption of Foreign Public Officials Act (CFPOA). In 2011, Niko Resources Ltd. was fined $9.5 million for paying bribes worth approximately $200,000 to a former Bangladeshi energy minister.
Corruption watchdogs like Transparency International have taken Ottawa to task for lax enforcement of its own anti-corruption laws. Now the federal Conservative government has stepped up its game in this area. Two RMCP units have been set up to investigate these matters – one in Ottawa and one in Calgary – and experts say the Canadian oil patch can expect oversight to increase. “We’ve seen a significant sea change in the attitude of the Canadian government to enforce the CFPOA,” says Riyaz Dattu, an expert on anti-bribery laws with the Osler law firm’s Toronto office. “The risk of exposure is increasing year-by-year.”
Recent statistics bear out Dattu’s view. Transparency International notes in its 2012 progress report on country enforcement of the Organization of Economic Co-operation and Development’s Convention on Combating Bribery of Foreign Public Officials in International Business Transactions that there were 34 active investigations into bribery of foreign officials underway in Canada. That was an increase of 11 investigations (or 50 per cent) from the previous year. “This is a positive change after the disappointing 2011 progress report,” Transparency International wrote.
But the zeal of Canadian authorities to investigate potential bribery of foreign officials by Canadian companies– brought on, Dattu says, by pressure from the United States and criticism by the OECD – has serious implications for Canadian oil and gas companies operating abroad.
As most of the good land is already spoken for in the cozy confines of the Western Canadian Sedimentary Basin, some domestic companies venture to lands – Chad, Bangladesh, and Kurdistan, to name just a few – where there is potential to discover big pools of oil and natural gas. But many of these countries also present significant above-ground risks for the companies – including the fact some government officials in foreign lands expect to be paid bribes.
However, as the risk of being caught by Canadian authorities increases, oil and gas companies that put off establishing anti-corruption policies because they are too costly or time-consuming are making a mistake. “What I would ask companies is whether they think they can still afford to turn a blind eye to [corruption]? I mean, look at the recent headlines,” says Peter Vakoff, a forensic technology expert with PricewaterhouseCoopers Canada.
Bad press is just one of the things management and directors must worry about when their company is investigated for bribery. Vakoff says these investigations also divert management’s attention away from running the day-to-day operations of the company. It shakes the public and shareholder’s trust in the company, which can have a negative impact on share price or the ability to obtain financing from investors. Hiring accountants and lawyers to interview employees, check company records and do forensic analysis of financial statements can be extremely costly. And then there is the possibility management and board members can serve jail time if their company is found guilty of corruption under the CFPOA.
The current management and directors of Griffiths Energy did not suffer that fate. The bribe in question was paid out on the watch of the company’s original management – former chairman and co-founder Brad Griffiths, as well as fellow co-founders Naeem and Parvez Tyab – and once the company’s new regime discovered a bribe may have been paid, it self-reported the matter to the RCMP and did its own internal investigation.
Still, much damage has been done. Not only was the company hit with a $10.35-million fine, but in the Agreed Statement of Facts of the case, Griffiths says it has paid $5 million to its legal and accounting advisors during the internal investigation and also decided to withdraw its Initial Public Offering, causing the company to write off $1.8 million in pre-IPO expenses.
The kicker for Griffiths Energy? The bribe wasn’t even effective. According to the Agreed Statement of Facts, there is no evidence that the US$2 million paid to Niam had any impact on the Chadian government’s decision in 2010 to award the company the rights to two exploration blocks. That’s just more evidence for Canadian oil and gas companies operating overseas that bribing is bad for business.