Corruption in the Energy Sector: Criminal Fines, Civil Judgments, and Lost Arbitrations

Article excerpt

Synopsis: This article examines the anti-bribery legislation of three countries, the United States, Canada, and the United Kingdom. The legislation of the three countries is compared and virtually all the criminal prosecutions are examined in some detail. There is also a detailed analysis of the extraterritorial effect of the legislation in each of the three countries. The article outlines the degree of international cooperation between governments enforcing this legislation as well as the extensive use of enforcement mechanisms such as whistleblowing and immunity programs. The article then goes on to look at the civil liability that invariably follows the criminal prosecutions driven by class actions based on misrepresentations under the securities laws and breach of fiduciary duties by directors. Finally, the article examines the consequences of anti-bribery prosecutions on arbitration proceedings and the non-enforcement of arbitration awards under the New York Convention where a breach of public policy is discovered. In an industry where virtually all agreements have arbitration clauses, this is no small matter.

I. INTRODUCTION

For the past fifty years, the greatest threat to multinational corporations in terms of criminal liabilities fell under the competition laws and antitrust laws. In the last five years, that has changed. This initiative began in the United States when the Foreign Corrupt Practices Act (FCPA) was enacted in 1977.1 Serious enforcement activities only began five years ago, but the U.S. Department of Justice (DOJ) and the Securities and Exchange Commission (SEC) have certainly made up for lost time.

A more modest version of the U.S. legislation came in the form of the Canadian anti-bribery legislation in 1998.2 However, in 2011 the United Kingdom (U.K.) Bribery Act arrived on the scene with extensive extraterritorial reach.3 Even more jurisdictions are now implementing anti-bribery legislation. The Mexican government enacted a law in June of 2012,4 and the European Union (EU) is drafting anticorruption laws that will make it illegal for oil, gas, and mining companies to make bribes to officials in resource rich countries.5

The energy sector is particularly vulnerable to anti-bribery legislation. The industry operates worldwide and is constantly negotiating leases with foreign governments and engaging in exploration and production on these properties through a wide variety of subsidiaries, agents, and contractors, as well as joint venture partners.

A. The United States

"Since 2009, the Justice Department has brought 108 cases while the SEC has brought 77, yielding a total of more than $2 billion in penalties."6 The high water mark was 2010 when companies settling FCPA related charges "paid a record $1.8 million in financial penalties to the DOJ and the SEC." 7

The first major energy prosecution was the Siemens case in 2008, which involved the corporation's subsidiaries in Argentina, Bangladesh, and Venezuela.8 The contracts related to the construction of electricity generation and distribution facilities. "Siemens agreed to pay U.S. authorities . . . [a] $450 million [fine] and $350 million in disgorgement of profits. . . . The company [also] agreed to pay German authorities $850 million in similar penalties and disgorgement of profits."9

Four companies paid a total of $1.5 billion in fines to U.S. authorities for bribery involving a joint venture constructing LNG facilities in Nigeria. The four companies, Kellogg Root & Brown (and then-parent company Halliburton), Technip SA, Snamprogetti, and JGC Corporation, all pleaded guilty.10

In September 2010, ABB Ltd. of Sweden settled FCPA charges with the DOJ and the SEC regarding bribes to officials at Mexican state-owned electric utilities and UN Oil-for-Food Program kickbacks in Iraq. The company paid a $19 million criminal fine to the DOJ and $39 million in penalties and disgorgement to the SEC.11

Panalpina World Transport Ltd. …