Oil and grease: Third wave of bribery convictions in Petrofac investigationOctober 2021
On 4 October, the Serious Fraud Office (“SFO”) confirmed it had secured the conviction of Petrofac Limited for seven separate counts of failure to prevent bribery between 2011 and 2017. Petrofac, a Jersey-registered energy services company, pled guilty to the charges and was ordered to pay £77 million. This is the third set of convictions arising from the investigation, which was first confirmed in 2017.
The relevant conduct related to the payment of bribes of £32 million (US$ 44 million), to help the Petrofac Group win over GBP 2.6 billion (USD 3.5 billion) of contracts in the oil and gas industry in Iraq, Saudi Arabia and the United Arab Emirates. Petrofac had gone to extraordinary lengths to cover up its misdeeds. These included the creation of artificial contracts and making payments through agents and sub-contractors often on a cross-border basis.
The Bribery Act 2010 (“the Act”) creates offences for individuals and organisations. To paraphrase, Sections 1 and 2 of the Act respectively prohibit the offering or payment of bribes and the solicitation or receipt of bribes. These offences are usually committed by individuals. Section 7 makes it a crime for an organisation to fail to prevent bribery committed by its “associated persons” (a term defined in Section 8 of the Act).
Petrofac admitted it had failed to prevent its senior executives from paying the bribes over a six-year period, contrary to Section 7. Fuller details of Petrofac’s conduct are available here: https://www.sfo.gov.uk/cases/petrofac/ . A common denominator in many of the instances was large sums being paid to an intermediary to secure the contracts concerned.
Petrofac Group’s former Head of Sales was also sentenced receiving a two-year custodial sentence, suspended for 18 months, for committing 14 counts of bribery. On the charge sheet against him were counts of making corrupt payments to agents (totalling around $30 million) to influence the award of an EPC contract in 2013 and a front-end engineering design (FEED) contract awarded in 2014. He co-operated with the SFO inquiry.
It is interesting that Petrofac was not successful in securing all of the contracts he had targeted. Overtures apparently being rebuffed on some occasions. Offering bribes to win those projects was, however, enough for the Head of Sales to commit an offence under Section 1, notwithstanding that the relevant payments were never ultimately made.
Competition Law violations?
The SFO has said that the bribes paid in the Petrofac case “distorted the competitive process” with regard to tenders. Petrofac may therefore have infringed the competition laws of a number of jurisdictions.
Iraq, UAE and Saudi Arabia all have laws on the statute books prohibiting anti-competitive conduct. It is not known whether Petrofac is facing antitrust investigations in any of those states or within the UK or EU, whose competition laws can sometimes apply to offences committed outside their respective jurisdictions.
The Petrofac prosecution was known about previously and other related convictions have already been secured. However, this development further illustrates that business organisations must keep their anti-corruption policies and whistleblowing procedures under review. The SFO appears to be increasingly active in its enforcement of the statute, as illustrated by another charge announced in August (see our update: here).
As we said in our previous update, there may be a defence for any organisation charged with an offence under Section 7 of the Act to show that it had taken “adequate procedures” to prevent bribery, despite its occurrence. For whatever reason, Petrofac does not appear to have pleaded that defence in this case.
“Adequate procedures” would need to include written policies, training and an internal reporting procedure. Written policies are necessary but may not be sufficient by themselves (see for example R v. Skansen Interiors Limited ). Businesses should seek advice on what is needed. More important than the defence itself is the prospect of bribery being averted completely through effective internal policies, education and monitoring processes.
Separately, businesses need to give consideration to their obligations under competition law. As illustrated in this case, anti-competitive conduct and corruption often go hand in hand. Competition bodies and prosecutors often share intelligence for that reason. Does your organisation have an antitrust compliance policy? Have bidding teams been given training on competition law? Has management communicated the imperative of compliance and has that advice been flowed down to subsidiaries?
Finally, the case highlights the importance of being prepared for investigations. Would your organisation know what to do if visited unexpectedly by a law enforcement authority? Having a game plan and knowing who to call for help are key components in any effective plan for dealing with “dawn raids”. Don’t let your preparation begin when investigators arrive on your doorstep.
 https://www.sfo.gov.uk/2021/10/04/serious-fraud-office-secures-third-set-of-petrofac-bribery-convictions/Download PDF