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Compliance Man Chooses the Target with Tim Khasanov-Batirov.
Episode 3: Oil & Gas
Welcome to Episode 3 of Compliance Man Chooses the Target with Tim Khasanov-Batirov series of podcasts. My goal is to highlight matters that should be on agenda of practitioners that deploy compliance programs in industries or countries of active FCPA enforcement. In next three minutes, I will target three specific matters that you might like to address in the course of implementation of your compliance program. Today we will focus on Oil & Gas industry.
Target #1: Joint Ventures.
It is a standard practice that an operating company per request of a government of emerging nation could be formed as a JV between foreign investor and local state-owned company. The following risks will arise in this case:
- Employees of the JV, which are simultaneously employees of the state-owned company, might be considered as governmental officials. Thus, for instance, corporate gifts’ limitations will be applicable to them as well.
- Level of control over the JV’s operational activity might not necessarily be dependent exclusively on allocation of shares in the charter capital but on composition of the management team and actual de-facto power of the local partner. As a result, attempts to implement foreign compliance practices might at your JV be subject to will of the local managers.
Target #2: Requests for Donations.
For Oil & Gas companies which operate in emerging markets it is common to get various requests for donations from authorities of the region where they operate. These could be request to finance local sport team, NGO or charity fund. In addition to standard FCPA scrutiny, you might want to check out local laws on legality of making such donations. For example, if local enforcement agency asks to support “law & order” in the region of your company’s operations by donating money to the “police charity fund” please check if local law allows the private business to finance enforcement bodies. If it is not or not clearly stipulated in the nation’s legislation you can use this argument to deny such requests.
Target #3: Consultants.
If business people want to hire a consultant in country of the high FCPA risk, it is more than a red flag. No matter whether the company intends to enter the market or expand local presence your scrutiny over such engagement should be extremely high. To add standard due diligence process I would recommend to pay attention to the Fair Market Value concept as well. In plain language, the company should be ready to justify amounts of moneys to be paid as consultants’ remuneration in comparison to market rates for the similar services. Such evaluation could become a challenging but really important exercise for mitigating corruption risks for your company.
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