TL;DR: Unaoil clients face risks from corruption-related investigations.
Australia’s Fairfax Media and Huff Post’s investigation into Unaoil, the energy services firm that has apparently been used by Western and Asian oil and gas companies to bribe governments in the Middle East and Central Asia, is mesmerizing. The investigation published as “The Bribe Factory” was conducted over several months, snags some of the biggest American, European and Asian energy and energy services companies, who are now likely to be the subject of corruption probes in the US, the UK and Australia.
Truth or Set-Up?
The story is based on leaked emails implicating Unaoil, its corporate clients and middlemen, which in turn, were sent to Fairfax Media by an anonymous source, this story’s Deepthroat. Can email leaks be trusted? In this day and age when black hackers can penetrate the tightest information security system, there is always the possibility that these emails were planted and deliberately leaked. But the story has things going for it. For one, these leaks support a 2013 story the publication did on Unaoil’s services for Australian firm Leighton Holdings. Therefore, there was already suspicion on Unaoil’s activities even before these leaks were handed to Fairfax. Moreover, Fairfax contacted the companies implicated in the email leaks and while many took pains to explain their anti-corruption policies, none apparently made a convincing denial of having worked with Unaoil. Finally, the US, UK and Australian governments are investigating the bribery cases, lending credibility to the source of the story.
Among the Biggest Suspects
CIMIC Group Ltd. (ASX: CIM): CIMIC is the company formerly known as Leighton Holdings, and is the most heavily implicated in this story. SMH reported that Leighton Holdings “made corrupt payments and laundered money in the Middle East using Unaoil.” Its former offshore executives actively paid money through Unaoil to win more than $1.3 billion worth of contracts in Iraq.
CIMIC website states that it provides “construction, mining, engineering, concessions, and operation and maintenance services to the infrastructure, resources and property markets” and lists Leighton Offshore as one of its subsidiaries. Leighton Offshore has had two projects in Iraq: the $733 million Iraq Crude Oil Export Expansion Project (Phase 1) started in 2010 and completed in 2013, and the $518 million Iraq Crude Oil Export Facility Reconstruction Project, started in November 2011 and completed in January 2013.
Leighton Offshore is covered by CIMIC Group’s Code of Conduct that states:
“The Group prohibits, and has zero tolerance for, all forms of bribery and corruption. You must obey all relevant laws and regulations, and must not participate in any arrangement which gives any person an improper benefit in return for an unfair advantage to any party, directly or through an intermediary. This includes facilitation payments (payments of cash or in kind made to secure or expedite a routine service, or to ‘facilitate’ a routine Government action), even if allowed under local laws or customs.”
CIMIC Group considers “bribery and corruption” and “ensuring compliance in emerging markets” as two of its most material ESG issues, according to its 2015 sustainability report. The company requires third parties to make a “Third Party Anti‐Bribery and Corruption Declaration” annually and carries out a due diligence on potential partners.
The two senior executives of Leighton Offshore who were reportedly involved in bribing Iraqi officials have left the company, but the company may still be held liable, especially if these bribes were buried in the company’s accounting as operational costs.
Saipem SpA (BIT: SPM): The report alleged that Saipem, an Italian oil fields service firm, worked with Unaoil and paid bribes in Iraq. Saipem is no stranger to bribery allegations. In recent years, it had been linked to bribes paid in Algeria, and in August 2015, the company confirmed that it was under investigation for links to the Petrobras corruption scandal.
Saipem works in Iraq through the 60% owned Sajer Iraq LLC. The company has a significant commercial footprint in Iraq, having won contracts in oil and gas production and processing, refinery, civil infrastructure development, power generation and pipeline construction.
The rest of the players are here, and includes Italian energy firm, ENI SpA, French oil firm Total, Dutch company SBM Offshore, US firm Halliburton/KBR, British firm Rolls Royce, Swedish company ABB, and Asian giants Keppel Industries, Samsung, and Hyundai Engineering.
All companies named in the report are likely to be investigated by US, UK and Australian authorities, if they are not already. Many, especially those who were aware of Unaoil’s practices, face penalties that may run up to hundreds of thousands of dollars and possibly deferred prosecution agreements. Since most of the bribes appeared to have been paid several years ago, many of the projects may have already been completed or nearing completion, which mitigates the risk of project suspension. Criminal prosecutions of former and possibly existing staff are entirely possible.
Pandora’s box has been opened and the worms are coming out.