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Compliance in emerging risk areas

09.01.2012  |  Thinnes, Billy,  Hydrocarbon Processing Staff, Houston, TX

Keywords: [business] [Foreign Corrupt Practices Act] [FCPA] [audit] [training] [bribes] [graft] [under the table] [legislation]

Ernst & Young recently held a seminar on risk compliance for today’s global oil and gas companies. One session in particular during the seminar focused on emerging risk areas in the energy market, which include antitrust, the Foreign Corrupt Practices Act (FCPA) and financial statement fraud. To avoid such potentially damaging missteps, many energy companies are upping their investment in compliance. The addition of chief compliance officers and the hiring of compliance professionals to work in key business regions enable companies to better implement formalized risk assessments and audits on a regular basis. Communication between the compliance, internal audit and legal functions occurs on a daily basis, and many companies have a structure process to identify, rank and mitigate emerging risks.

Regardless of size and scope, however, all compliance programs need the support of senior managers and the board of directors, session panelists said.

“Compliance must be taken seriously, and senior management must set the proper expectations,” said Jeff Johnston, a partner at Vinson and Elkins. “Companies must be willing to walk away from business if there is something unethical about the project. You cannot send employees into high-risk countries without significant amounts of training and a structured plan for how they are to operate.”

“The tone at the top is the most important element,” said John Freeman, general counsel for Technip USA. “There has to be more than a formal code of conduct; senior management must talk about compliance in a way that shows commitment to following the law.”

In recent years, the FCPA has become a focal point for international energy companies. Most companies have some level of compliance program in place to train employees on the FCPA as well as auditing behavior in the field.

Yet antitrust issues continue to grow in importance as the energy industry relies more heavily on joint ventures and partnerships that require sharing of information and cooperation among competitors.

“The government certainly has not reduced its antitrust efforts,” Mr. Johnston said. “Last year there were a record number of antitrust cases and a record number of fines. Regulators are very focused on the energy industry. They are on the lookout for collusion, and they aren’t afraid to move in if they suspect anything.”

Antitrust issues can also arise during the acquisition process. “We are very concerned about “gun-jumping,”” Mr. Freeman said. “There are still a lot of people who don’t understand that you can’t act as one company prior to the closure of an acquisition. While you can do integration planning, you can’t share competitive information.”

To increase awareness of antitrust regulations, companies should implement mandatory training for all employees who have any contact with competitors/partners. Because many antitrust violations occur informally, follow-up monitoring and auditing are difficult and the bulk of a company’s efforts must be up front.

“Most violations of this nature don’t have a paper trail,” Mr. Freeman said. “They happen when people are talking to one another at dinner or after a meeting, and information is shared inadvertently.” HP

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