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The International Association of Oil & Gas Producers has access to a wealth of technical knowledge and experience with its members operating around the world in many different terrains. We collate and distil this valuable knowledge for the industry to use as guidelines for good practice by individual members.
Disclaimer
Whilst every e ort has been made to ensure the accuracy of the information contained in this publication, neither the OGP nor any of its members past present or future warrants its accuracy or will, regardless of its or their negligence, assume liability for any foreseeable or unforeseeable use made thereof, which liability is hereby excluded. Consequently, such use is at the recipients own risk on the basis that any use by the recipient constitutes agreement to the terms of this disclaimer. The recipient is obliged to inform any subsequent recipient of such terms.
Copyright OGP
All rights are reserved. Material may not be copied, reproduced, republished, downloaded, stored in any retrieval system, posted, broadcast or transmitted in any form in any way or by any means except for your own personal non-commercial home use. Any other use requires the prior written permission of the OGP. These Terms and Conditions shall be governed by and construed in accordance with the laws of England and Wales. Disputes arising here from shall be exclusively subject to the jurisdiction of the courts of England and Wales.
Acknowledgements
This guideline was produced for Members of the International Association of Oil & Gas Producers by the Anti-corruption Subcommittee.
Subcommittee members:
Genevieve Lay Murphy Jack Lynch Kit Armstrong Stuart Brooks Raphael Vermeir Valentina Ferri Laurence Fry Judith Tocher Nick Boydell Paul Fenby Anne McAdams Sophie Depraz Erik Andreasen Anna Hensel Sverre Bjerkomp Odd Robberstad John Campbell Alan Grant Lloyd Slater Michaela Reeh Olayinka Ilori Albert Wong Atle Andreassen David Platts Malcolm Webb API BP ChevronTexaco ChevronTexaco ConocoPhillips ENI ENI ENSCO ExxonMobil ExxonMobil ExxonMobil IPIECA Mrsk Marathon Norsk Hydro Norsk Hydro OGP OGP OGP OMV Schlumberger Shell Statoil Statoil UKOOA Chairman
Table of contents
Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 I II III IV V VI Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 Pressure from all sides . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 Roles & risks. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 Purpose, process & product . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 Selection of associate or employee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .10 Base information collection . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .11
VII Pre-contract verification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .13 VIII In-house research . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .15 IX X XI Assessment and resolution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .17 Documentation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .17 Safeguards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .18
XII Integrity management of the relationship . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .19 XIII Training . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .19 XIV Guidance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 Appendices
Appendix 1 Sample documents 1.1 Potential associate: letter of authority . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.2 Potential employee: letter of authority . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.3 Potential associate: information to be requested . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.4 Potential employee: personal details for an employment application form . . . . . . . . . . . . . . . Appendix 2 Red flags . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Appendix 3 Due diligence & offshore companies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 22 23 25 27 30
Denitions
The following words are dened in the context of these guidelines: Associate Intermediary Partner Supplier Employee Foreign Ocial Partner, co-venturer or supplier. Agent, representative, consultant, distributor. Co-owner of a business enterprise, with dened rights and obligations. Provider of goods or services, including contractors. Individual hired directly by a principal on a contract of employment. The Foreign Corrupt Practices Act denes the term foreign ocial as: Any ocer or employee of a foreign government or any department, agency, or instrumentality thereof, or of a public international organization, or any person acting in an ocial capacity for or on behalf of any such government or department, agency, or instrumentality, or for or on behalf of any such public international organization. Any agent, ocer, or employee (elected, appointed or career) of (1) a government or any department or agency of a government at the federal, regional or local level; (2) a political party or candidate for political oce; (3) any company in which a government holds a substantial ownership interest; or (4) a public international organisation such as the World Bank, the United Nations or the International Monetary Fund. The process involved in: (a) researching potential associates and employees in order to identify and deal with ethical risks or areas of uncertainty; (b) integrity management of the on-going business relationship. An act done with the intention of giving some advantage inconsistent with a public ocals duties. Such acts include the misuse of a public ocials position in order to procure some benet for oneself or for another as well as acts intended to induce a public ocial to misuse his or her position or character. An act done with the intention of giving some advantage inconsistent with the rights of others. Such acts include the misuse of a position arising from a diuciary relationship in order to procure some benet for oneself or for another who is not an intended beneciary of the duciary relationship as well as acts intended to induce another to misuse his or her positon arising from a duciary relationship. One founded on the trust or condence placed by one person in the integrity and delity of another which gives rise to a duty to act primarily for the others benet in matters arising out of and from that relationship. For purposes of these guidelines, both employees and intermediaries will be considered as having such a relationship with their employer/principal. In reference to associate, he also refers to she, they or it.
OR:
Ocial
Due diligence
Public corruption
Private corruption
Fiduciary relationship
He
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I Introduction
The point at which companies interact with others in the pursuit of business represents both opportunity and risk: Opportunity because the other party may provide additional resources, valuable knowledge, assistance or access to business and markets, which might not otherwise be available; Risk because companies, relying on associates or employees unfamiliar to them and who have not carried out appropriate due diligence research, may unwittingly suer the consequences of undesirable practice or harm by association. The risk increases when the operation takes place in new, hazardous or uncertain environments, or when the business relationship is not underpinned by eective controls, mutual understanding or clear agreements. Companies are more vulnerable when knowledge of their associates and employees is poor. Those who have carried out the appropriate due diligence process on associates, employees and business environments will be better positioned to identify areas of risk and reduce the likelihood of corrupt practice and reputational damage. Additionally, in certain circumstances, proof of having conducted appropriate due diligence research might be successfully used in a court of law. While companies cannot guarantee that improper conduct will never occur, they can take reasonable precautions to prevent it by use of appropriate due diligence and eective risk management. Where the risks are internal (employees and certain types of intermediaries), many risks may be mitigated by eective internal controls. Where the risks are external (nonrelated business associates), the parties may be able to limit their liabilities to one another through mutual undertakings. In hybrid situations (joint ventures), a variety of controls and limitations on liability may be appropriate. Corruption within the context of these guidelines includes both the public and private sector. While the bribery of government and state ocials remains a serious concern, it must be recognised that corrupt practice can and does also occur entirely within the private sector. These guidelines are designed as a resource for companies intending to establish and/or maintain eective anti-corruption practices. These include evaluation of the potential risks of doing business with associates and implementation of measures to reduce those risks. It sets out to provide guidelines on designing and conducting due diligence procedures and establishing a framework for in-house programmes. Members can adapt the guidelines to t the particular needs and circumstances of their own organisation. While every care has been taken to render an accurate interpretation of current legislation, the information in these guidelines is not provided as professional legal opinion. Advice should always be sought from qualied legal counsel.
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II
Legislation
The US Foreign Corrupt Practices Act (FCPA) and the OECD Convention on Combating Bribery are the two best known and widest ranging pieces of anti-corruption legislation. They have direct consequences for companies publicly listed in the United States or registered in one of the countries which have implemented legislation based on the OECD convention. Most OGP member companies fall under the umbrella of at least one of these documents. The documents are broadly similar and both prohibit the bribery of foreign ocials, either directly or through third parties, for the purpose of obtaining or keeping business.
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take all necessary precautions to ensure they have formed a business relationship with reputable and qualied partners and representatives. The expectation upon companies to carry out some form of screening is therefore implicit. Those who fail to establish commensurate programmes may nd mitigation dicult in the event of a prosecution under this or similar laws.
The OECD Convention on Combating Bribery of Foreign Public Ofcials in International Business Transactions.
Following the enactment of the FCPA, US Congress became concerned that American companies would be disadvantaged in international trade by foreign companies who were prepared to pay bribes that in some countries were even allowable as business expenses for tax purposes. In 1988, negotiations began between the US authorities and the major trading partners of the US who were members of the OECD to obtain agreement to implement laws in their own countries similar to the FCPA. In 1997, the US and 33 other nations signed the OECD Convention on Combating Bribery of Foreign Public Ocials in International Business Transactions. By the end of 2002, all but one of those nations had implemented and were enforcing similar legislation to the FCPA. To judge the similarity of the OECD Convention to the FCPA, Article 1 of the Convention states:
1. Each party shall take such measures as may be necessary to establish that it is a criminal oence under its law for any person intentionally to oer, promise or give any undue pecuniary or other advantage, whether directly or through intermediaries, to a foreign public ocial, for that ocial or for a third party, in order that the ocial act or refrain from acting in relation to the performance of ocial duties, in order to obtain or retain business or other improper advantage in the conduct of international business.
Other conventions
Two other Conventions in the 1990s responded to the calls for legislation to curb corruption. These included articles of a similar nature to those in the FCPA, eg, deterrents to the bribery of domestic and foreign government ocials. On 29 March 1996, 34 of the member states of the Organization of American States (OAS) signed the Inter-American Convention against Corruption. Article VI 1 of the treaty describes in some detail acts of corruption involving the solicitation or acceptance by a government ocial and the oering and granting (directly or indirectly) to such an ocial of any article of monetary value or other benet in exchange for any act or omission in the performance of his public functions. This can quite clearly be compared to the FCPA. On 27 January 1999, 41 member states of the Council of Europe signed the Criminal Law Convention on Corruption. Chapter II, Article 2 of the convention requires each signatory to implement legislation to criminalize the promising or oering of any undue advantage to any of its public ocials for him or her to act or refrain from acting in the exercise of his or her functions. Article 3 of that chapter requires legislation to criminalise the request or receipt by any public ocial of any undue advantage for similar actions. Article 5 of the same chapter covers bribery of foreign ocials and states:
Each Party shall adopt such legislative and other measures as may be necessary to establish as criminal oences under its domestic law the conduct as referred to in Articles 2 and 3, when involving a public ocial of any other State.
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In December 2003, the United Nations General Assembly adopted the UN Convention Against Corruption and issued the following description of this new global instrument:
The Convention introduces a comprehensive set of standards, measures and rules that all countries can apply, in order to strengthen their legal and regulatory regimes to ght corruption. It calls for preventive measures and the criminalization of the most prevalent forms of corruption in both public and private sectors. And it makes a major breakthrough by requiring Member States to return assets obtained through corruption to the country from which they were stolen. These provisions the rst of their kind introduce a new fundamental principle, as well as a framework for stronger cooperation between States to prevent, detect, and return the proceeds of corruption. Corrupt ocials will in future nd fewer ways to hide their illicit gains. This is a particularly important issue for many developing countries where corrupt high ocials have plundered the national wealth, and where new governments badly need resources to reconstruct and rehabilitate their societies.
Stakeholders
Companies also face relentless pressure from the media, interest groups, NGOs, shareholders and employees to maintain ever-higher standards of probity and for executives to take personal responsibility for serious governance failings. Today, few corporate policy portfolios are complete without a document on business principles. The challenge for companies is to eectively practice what they preach. Addressing reputational risk is one important step towards achieving that objective.
Transparency International
Transparency International (TI) principles provide a framework for companies of all sizes to commit to a policy of no bribery and to the establishment of a programme to counter bribery. In addressing business relationships, TI underlines the necessity for due diligence. See http://www.transparency.org.
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III
Roles
Associates, intermediaries, partners, and employees all play important roles in helping companies to achieve success in environments where social, economic, cultural and political factors may present a maze of obstacles to those unfamiliar with the language, community and culture. However, the obligations owed to the company will depend upon the role being played: The most eective will help to navigate the company through this maze. They can identify opportunities and trends, open up local markets to company products and services, and provide access to decision-makers, while promoting the companys image and safeguarding its integrity. Generally speaking, joint venture associates and suppliers are independent businesses responsible for managing their own aairs even when providing services, supplies or resources to the company. A prudent company expects these independent entities to act in their own self interest and will take appropriate precautions to protect its own interests in those situations where conicts could arise. Where the company and associates are co-investors in another entity, the authority of any investor to act for or on behalf of the joint venture is usually negotiated and agreed upon in advance. Employees and intermediaries are generally considered to be within the control of the company or principal that employs them and anything they do within the course and scope of their employment or representation will generally be attributed to their employer/principal. Within the course and scope of their duties, employees and intermediaries are also expected to act primarily for the benet of their employer/principal. As a rule, the employer/principal places greater trust in its employees and intermediaries than it does in its business associates. Therefore, the reputational and legal risks arising out of the activities of employees and intermediaries are usually greater than those arising out of the activities of business associates. Employing local businesses and sta is highly desirable from the perspectives of management, business development, cost and knowledge. It also addresses corporate social responsibility by creating employment and helping to develop local economies.
Risks
In designing a due diligence process, one of the rst challenges is to assess the risk presented by association with a particular third party, ie whether that associate will be likely to create potential liability for the company as the relationship progresses. For those associates judged to present little risk, due diligence may not be necessary. For others, the level of risk may require signicant due diligence to assess whether to proceed with a business relationship. The level of due diligence necessary will vary with the particular circumstances and will require some judgement. The major risk areas in partnerships and joint ventures, especially those involving foreign partners, are disagreements over hidden dierences, misunderstandings, concealed information, ulterior motives, or failure to comply with applicable laws. Any of these may ultimately lead to a dicult and expensive termination of the agreement and potential liability for the company. Partnerships and joint ventures with oshore companies require particular caution (see Appendix 3) National laws sometimes require that a foreign principal operate in partnership with a local organisation or individual. It also makes practical sense to use a partner familiar with the language, culture and business environment. Many local entities that might be appropri-
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ate for this purpose will be unknown to the company and will require some due diligence eorts. Risks may arise for a variety of reasons. Vested interests may lead to unethical practice or breaches of the law. In some business environments corruption is endemic, and unethical activity is more likely to occur as a matter of course. Inappropriate activity by one partner may, under certain circumstances, expose the other to risk, if only through association. Furthermore, mutual ignorance of corporate policies and national legislation could result in a lack of recognition of unethical conduct by either party.
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IV
Purpose
The due diligence process is designed to assist decision-making by assessing the potential risk of conducting business with a particular associate or employee. The purpose of conducting due diligence prior to entering into a business relationship is to develop a reasonable objective basis upon which company management can proceed in good faith that the associate will not make improper payments to government ocials or commit other illegal or unethical acts in the performance of company business. It is particularly applicable when contemplating business relationships with previously unknown parties, or when considering mergers, acquisitions or business in new markets where dependence upon others is likely to be greater. The due diligence process should be completed before commencement of the business, whether that is in a newly merged company, a purchased company or opening up a new market.
Process
The process should include the following elements: Selection of associate or employee from among a eld of all reasonable alternatives through initial risk assessment and screening. (Section V). Development of research scope. This should be custom-built for each individual situation. (Section VI) Base information collection and verication. This should include the decision as to the parties chosen to carry out the tasks. (Sections VI, VII and VIII) Assessment and resolution,culminating in the recommendation report to management. (Section IX) Proper documentation and records. (Section X) Safeguards, including strong ethical provisions in the contract. (Section XI) Integrity management of the business relationship to ensure the maintenance of longerterm commitment to the required ethical policies and standards by the associate or employee. (Section XII)
Product
The process seeks to acquire all available, relevant information on the potential associate or employee and to ensure a basis of integrity for any subsequent relationship. The research and verication process should enable the following to be described in the recommendation report to management: Positive and negative aspects of the proposed solution. An assessment of the risks.
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VI
Once the initial screening has taken place and the business justication for the short-list has been approved, the next stage is to decide the extent of due diligence research required for each prospective associate. This will require the judgment of persons familiar with the due diligence process and the applicable laws. As discussed above in section 5, some prospective associates will require more scrutiny than others. For example, in the case of prospective associates judged to present potential risk, it would be wise to thoroughly research their reputations, qualications, background and past performance. The process should be explained fully to the parties in question in order to obtain their understanding and co-operation. The explanation should include the fact that independent external research will be carried out and a formal letter of authorisation, to be used when researching internally and externally, may be requested from the candidate (company or individual). Standard letters of authorisation are included in Appendix 1 as Document 1.1 in respect of potential associates and Document 1.2 in respect of potential employees. The process of collecting information begins with requesting the prospective associate or employee to provide basic information. This can be done by asking them to complete a questionnaire or by a personal interview. Sucient information should be obtained to allow for an informed decision. The information sought from candidates may cover some or all of the following:
Potential associate
Ownership information, corporate structure, place of incorporation and names of ocers and directors: Apart from the obvious contact names, locations, phone numbers, this should include CVs of ocers and key personnel, organisation charts, composition of boards and higher level committees, etc. If the organisation is a company, the place of incorporation and status of the company should be given (eg, publicly traded, limited liability, etc.). Ownership interests in the company should also be given with company registration details of the parent company and ultimate holding company (if any). A description of the company including a brief history should be sought. Ownership and interests in other organisations: This should indicate interests of the company, key management personnel and their immediate families, in other business organisations that might result in conicts of interest. Business, government and political aliations: The potential associate should provide details of business, government and political aliations of the company, key management personnel and their immediate families, including any relationship with a Government Ocial. Due consideration needs to be given to local laws protecting privacy. Sometimes in countries with unstable political regimes, a condentiality agreement may prove eective in aording comfort to a prospective associate providing details of political aliations. Business and nancial references: The company or individual associate should be asked to provide business and nancial references. Business references should be capable of verication and the candidate should be requested to notify referees of this fact. Obtaining audited nancial statements for the previous two years is advisable. In the absence of audited accounts for the current year, unaudited accounts certied by senior management may be accepted. The standard terms of business, if any, of the associate should be requested together with instructions that will be required for invoice payment. Legal disclosures: Information should be sought regarding any involvement by the company or key management personnel in previous insolvency proceedings, criminal convictions or investigations, or civil litigation (previous, pending or potential, in all cases). Compensation: Local market rates should be obtained for the goods or services to be supplied and compared with the quoted rates from the prospective associate.
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Potential employee
Personal data and that of immediate family: A current CV of the potential employee should be provided and this must include qualications, previous posts, home as well as oce address, date and place of birth, nationality, family details. Supporting documentation for qualications should be requested (originals, if possible), together with passport, visas, residency documents, work permits, etc., if the individual is not a native of the business location (originals). It is advisable to take photocopies of all this documentation, which may prove useful if legal disputes arise either in respect of employment diculties with the individual or with local employment authorities. Ownership and interests in organisations: Information concerning the ownership or interests in companies or other organisations by the individual or close family members is essential to assess the potential for conicts of interest. Business, government and political aliations: The nature and extent of all business, government and political aliations of the individual and close members of his family should be fully disclosed. The consequences of failure to disclose such details should be explained carefully to the potential employee at this stage. Due consideration needs to be given in countries with unstable political regimes where details of political aliations may be refused for security reasons. Employment and nancial references: References should be sought from at least the two latest employers (more, if there have been short-term posts in the two latest periods of employment), together with a bankers reference. Candidates should be asked to make referees aware that they are likely to be contacted for verication. Legal disclosures: Information should be sought regarding any involvement by the individual in bankruptcy or other insolvency arrangements, criminal convictions or civil litigation (current, pending or potential, in all cases). Convictions for driving oences should only be recorded if serious or if the services to be provided relate to driving. Compensation: The salary package will normally have been xed beforehand by the company and may be related to other similar posts. Enquiries should be made of the potential employee regarding last salary and benets earned. This will prevent embarrassment at a later stage if there is a signicant discrepancy between the package oered and the latest salary level. Many countries strictly regulate the kinds of personal information that may be acquired, processed or stored. As mentioned in the Introduction, companies should consult qualied legal counsel before proceeding with such due diligence. Personal details to be requested on an employment application form included in Appendix 1, document 1.4
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Local legal advice: If in-house advice is not available, a reputable local legal rm should be engaged to provide advice regarding the laws governing the relationship between the principal and the associate in the particular country concerned. Advice on local employment law may also be best obtained in this manner. Local attorneys can often assist in verication of local corporate registrations, or criminal or civil court records. Since this may result in considerable expense to the company, careful instructions and limitations of the scope of the work should be agreed in advance. Field work: Some information regarding associates or employees may only be discovered via discreet and sensitive research carried out by qualied professionals. Considerable caution needs to be exercised when using others to conduct this research since it must be carried out ethically and legally. This may also result in considerable expense to the company. Careful instructions and limitations of the scope of the work should be agreed in advance.
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VIII
In-house research
Member organisations may wish to carry out their research and verication process utilising internal or local resources in some or all of the areas quoted in Section VII above. Section VIII has been produced to assist those eorts and to suggest appropriate areas of research. This section may be updated as member organisations identify and provide additional resources.
Financial references
A qualied accountant should analyse accounting statements provided by an individual or a company and give an opinion as to nancial stability. Personal contact with a nancial referee may be needed in lieu of the presentation of accounting statements. The comments in the previous section on business and employment references apply.
Criminal records
In many countries this information is either not available or is only available in certain circumstances, (eg when the individual concerned may be applying for a post involving dealing with the vulnerable members of society). However, in a number of countries the information is available with the authority of the subject of enquiry. Local counsel may be useful in this regard. Criminal Records Bureau UK government organisation providing information regarding criminal convictions to potential employers via its Disclosure Service. Priority is given to those seeking employment in posts involving dealing with children or vulnerable adults. Limited information is available in other cases: http://www.disclosure.gov.uk
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Court judgments
As with the ocial registries of organisations, court judgments are normally available for public scrutiny, either by personal visits to the court involved, through websites or, if sufciently serious, in local or international media reports. Local counsel may be useful in this regard. Court Service details of judgments made in the UK High Courts: http://www.courtservice.gov.uk/judgments/judg_home.htm
Credit rating
There are a large number of international and local commercial organisations oering a credit rating service on individuals and organisations on a fee-paying basis. It is not for OGP to recommend one of these organisations in preference to any of the others. There are facilities available to check on bankruptcy or insolvency of individuals or companies. These will either be registers available to public scrutiny or listings made available on the Internet. UK bankruptcy and insolvency includes UK insolvency notices and databases, creditor meetings, liquidations, receiverships and administrations: http://www.insolvency.co.uk
Media searches
As with credit ratings, there are many large international commercial concerns that will carry out media searches on a fee-paying basis. There are also a number of free websites that act as search engines for multiple media sources. It may be dicult and certainly time consuming to use these sources to search for specic individuals or companies.
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IX
When all information from each stage has been collated, it needs to be analysed and assessed. Any adverse indicators or inconsistencies arising from the research, known as red ags (a term used in the U.S. Department of Justice brochure on the FCPA), should be identied, investigated and resolved prior to reaching a nal decision. (See Appendix 2 for examples of red ags). It is advisable to prepare a nal report documenting the scope of the investigation, summarising the ndings, discussing any remaining risks and drawing conclusions about the potential consequences for the company. If signicant remaining risks are forecast, management will need to decide whether to proceed with the business relationship. This decision should be based on awareness that once a company knows of risk and accepts it, this knowledge will likely be discovered during the prosecution of any subsequent violation. In some cases the management decision process may be assisted by a comparison between the research results for the individual associates or employees on the shortlist. Where appropriate, the report should also include specic recommendations designed to assist the business unit concerned in managing its ongoing relationship with the associate or employee.
Documentation
All stages of the work should be documented and securely retained. Original documents provided by the associate or employee to support nationality, qualications, etc, should be photocopied (with the permission of the holder) and the originals returned as soon as possible. Each member of OGP will have its own terms of employment and no recommendations are made on this subject.
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XI
Safeguards
There are a number of safeguards that can help reduce potential risk. The most important of these is to ensure that strong ethical provisions are included in the contract with the associate or employee. For example, the terms of the agreement with an associate should include:
Terms of agreement
The principle that no payments be made other than in strict accordance with the terms of the agreement. The requirement of both parties to comply with all applicable laws and regulations and specically anti-bribery laws except to the extent that such compliance would subject a party to liabilities or penalties under the law of its home country. Conrmation from the associate that he has been provided with a copy of the companys ethics policy, or equivalent document, by way of a clause added to the agreement to the eect that he has read and understood the policy and will comply with it. Members should consider a requirement for annual certication by the associate that he has complied with all laws and regulations and with the companys ethics policy. The associate should be required to maintain adequate internal management controls and to properly record and report all transactions in its books and records. The company should have audit rights concerning all income and expenditure managed by the associate on its behalf. The sanction of termination without compensation in the event of the associate violating applicable anti-bribery laws or breaching the companys ethics policy. The associate is prohibited from the assignment of rights to, or employment of, a third party without approval from the company. Commitment by the associate to avoid even the appearance of an unethical payment and to report any requests for such payments. The associate being prohibited from oering or giving anything of value to another in order to secure a business advantage. Conrmation from the associate that he has received any applicable guidelines on gifts, hospitality, entertainment and donations from the principal and that the associate will comply with these guidelines.
Outside counsel
Another safeguard to be considered when an associate appears to present a degree of risk might be to obtain an opinion from expert outside counsel that, after evaluation of all the facts and circumstances, it is reasonable for the company to enter into the particular business relationship with the prospective associate, and that such an action would not present signicant risk. In some jurisdictions, such as the US, such an opinion letter can often provide an eective defence to a later charge of wrongdoing and can serve to negate a nding of corrupt intent. A number of other safeguards are available and may be designed to t the particular situation with the help of counsel familiar with the antibribery laws and their interpretation and enforcement by the local authorities. It may be advisable to consult with expert counsel regarding any situation in which company personnel believe that there may be signicant risk in proceeding with a proposed business relationship.
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XIII
Training
A reputational due diligence training programme should include: Company policy on business conduct, corporate social responsibility and business ethics (including guidance on gifts, hospitality, entertaining and donations). Local laws and laws pertaining to the country of registration of the principal company particularly those regarding bribery and corruption Reputational due diligence (emphasising red ags). Members without an existing training programme, or those after additional educational tools, are encouraged to download the OGP training template: combatting corruption (report 352) from the publications section of the OGP website http://www.ogp.org.uk. This material has been published to serve as the basis for eective anti-corruption training.
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XIV Guidance
Every company should provide a contact name and telephone number or contact details for an advice-line to facilitate reporting of ethical concerns by associates or employees. It is also recommended that every company should make any Whistle-Blower policy available to every employee and associate.
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Application has been made to [Company] for work in connection with [Project]. Required information and documentation, as set out in the Associate Request for Information document, has been fully completed and compiled.
It is understood that [Company] will require verication of the details provided and specically with regard to our business reputation, qualications, background and past performance and I hereby authorise the Company to make whatever enquiries are considered necessary in carrying out this verication. I also understand that independent external research may be undertaken in making this verication.
I authorise the Company to make enquiries of the business and nancial reference provided.
OR
Due to the unavailability of audited accounts for the current year, I produce unaudited accounts certied by senior management for that year and an audited nancial statement for the previous year.
Delete as applicable
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Document 1.2:
I have made application to [Company] for employment as [Position]. I have fully completed the Application Form (and provided a copy of my C.V.).
I understand that [Company] will require verication of the details I have provided, specically with regard to my reputation, qualications, background and past performance. I hereby authorise the Company to make whatever enquiries are considered necessary in carrying out this verication. I also understand that independent external research may be undertaken in making this verication.
I authorise the Company to make enquiries of my previous employers (excluding my current employer*) and personal referees. I conrm I have made my previous employers and my personal referees aware that they are likely to be contacted.
[Signed]
[Date]
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Document 1.3:
1 Contact information and corporate structure To be supplied: Full name of organisation Contact Address E-Mail address of contact Name of contact The exact status of the organisation, eg limited company or similar, partnership, sole trader, etc. Country of registration Registration number or reference Phone number of contact Registered Address (if dierent to contact address)
Copies of the following documents, as appropriate: CVs of key ocers and personnel Composition of boards and high-level committees, etc. Organisation charts Any details of ownership interests in the Company in excess of 5. Parent company details: Full name of parent company Registered address Ultimate holding company details: Full name of ultimate holding company Registered address Country of registration Registration number or reference Country of registration Registration number or reference
A brief history of the applicant organisation and involvement in recent projects. 2 Ownership and interests in other organisations Details of interests of the organisation, key management personnel and their close family members with other business organisations. (See Note 1 regarding family members and Note 2 regarding failure to disclose all relevant details.) 3 Business, government and political afliations Details of business, government and political aliations of the organisation, its key management personnel and those of their close family members. (See Note 1 regarding family members and Note 2 regarding failure to disclose all relevant details.) 4 Business and nancial references Three business references; ensure potential associate knows that business sites should be notied of the possibility of requests for verication. Details of the organisations bankers.
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Copies of audited nancial statements for the previous two years; in the absence of audited accounts for the current year, unaudited accounts certied by senior management may be acceptable. Standard Terms of Business including invoice payment instructions. 5 Legal disclosure Details of the nature and extent of all previous, current or pending involvement of the organisation, its key management personnel and those of their close family members in: bankruptcy or other insolvency arrangements criminal convictions and criminal cases civil litigation Details of the nature and extent so far as they are known of previous, current or pending involvement of other employees of the organisation and those of their close family members in: bankruptcy or other insolvency arrangements criminal convictions and criminal cases civil litigation (See Note 1 regarding family members and Note 2 regarding failure to disclose all relevant details.) 6 Compensation Unless a separate bid process is to be carried out, quote the charge rates for the goods/services to be supplied. 7 Notes Note 1: Close family members include: wife/husband father/father-in-law brother(s)/brother(s)-in-law daughter(s)/daughter(s)-in-law co-habiting male or female partners to any of the foregoing mother/mother-in-law sister(s)/sister(s)-in-law son(s)/son(s)-in-law other dependants (if any)
Note 2: Failure to disclose all relevant details may jeopardise the application.
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Document 1.4: Potential employee: personal details for an employment application form
1 Personal information Name in full Nationality Place of birth Date of birth Address Usual residence Telephone Address Temporary residence (if applicable) Telephone Mobile Fax e-mail
Passport Issuing country Number Expiry date Current visas (including country details)
Residency documents/work permits (original documents may be checked) Qualication details: Full details of all qualications, including the period(s) attended, award dates and the issuing University/College/Institute. Personal references Names, address and telephone of two persons not related to the potential employee but known outside the workplace. 2 Ownership and interests in organisations Details of personal ownership in companies or other organisations together with those of close family members. (See Note 1 regarding family members and Note 2 regarding failure to disclose all relevant details.) 3 Business, government and political afliations Personal details, together with those of close family members, of the nature and extent of all business, government and political aliations. (See Note 1 regarding family members and Note 2 regarding failure to disclose all relevant details.) 4 Employment and nancial references Details of current employer and at least two previous employers (no contact should be made with the current employer without reference to the potential employee). Employment records to be collected: Company name Company address Company telephone number Dates of employment Position(s) held Projects worked on
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Bank references Contact details of personal bank (a contact name, the banks name, address & telephone). 5 Legal disclosure 5.1 Personal details of the nature and extent of all previous, current or pending involvement in: bankruptcy or other insolvency arrangements criminal convictions and criminal cases civil litigation (See Note 2 regarding failure to disclose all relevant details. Continue on separate sheets, if necessary) 5.2 Regarding close family members, details of the nature and extent of all previous, current or pending involvement in: bankruptcy or other insolvency arrangements criminal convictions and criminal cases civil litigation (See Note 1 regarding family members and Note 2 regarding failure to disclose all relevant details. Continue on separate sheets, if necessary) 6 Notes Note 1: Close family members include: wife/husband father/father-in-law brother(s)/brother(s)-in-law daughter(s)/daughter(s)-in-law co-habiting male or female partners to any of the foregoing mother/mother-in-law sister(s)/sister(s)-in-law son(s)/son(s)-in-law other dependants (if any)
Note 2: Failure to disclose all relevant details may jeopardise potential employment or, once employed, could lead to termination.
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Payments:
Payment instructions on incoming invoices are frequently amended. Payment on incoming invoices is requested in cash. Payment is requested to a third party, oshore or numbered bank account. Payments in advance are frequently requested. Amendments are requested to issued invoices over the telephone and with little explanation. Complex payment instructions are given, possibly including split payments. A signicant increase in remuneration is requested within the rst year of operation of the contract. Urgent requests are made for the payment of large unspecied expenses. Payment on inated invoices is requested with credit notes to follow.
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This list is not exhaustive; smaller regimes have been excluded. NB: Although shareholder and director details are ocially led in these countries or states, the shareholder details are frequently protected by the use of nominees and the director details by use of third party directors. There may, additionally, be a government requirement for at least one local director.
Transparency
Transparency is essential between the parties in the reputational due diligence process: transparency between a principal and a potential associate or employee when negotiating a new contract, and transparency in maintaining the relationship after a contract has been signed. Where a potential associate is a company registered oshore, transparency is often impaired. Even if the company declares it has made a full disclosure of all material information regarding the ownership, the ocers of the company and other details, it is dicult for this to be veried through ocial channels and the use of unocial channels sometimes can result in a breach of local laws. Local bank secrecy laws in the tax havens frequently compound the lack of transparency.
The problem
Companies incorporated in one of these tax havens have long been viewed with suspicion regarding money laundering, bribery and a variety of other illicit nancial activities. While these illicit activities are carried out in oshore locations, without a doubt there are also companies incorporated in these locations for legitimate reasons. Because of the reputation these oshore countries have gained over time, any company seeking to do business with an associate incorporated or headquartered in one of the countries should use extreme caution.
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While the simple remedy would be to exclude all oshore companies from the short list of recommended associates, this could result in the exclusion of legitimate, well-qualied companies from the list. It may be preferable to consider the risk after carefully evaluating all of the information gathered about a prospective associate. If incorporation in a tax haven is the only red ag, then a decision to proceed may be considered. In this case, a company might also consider the use of some safeguards such as obtaining an outside counsels opinion or requiring additional contractual certication from the associate. Development in the oil and gas industry is currently taking place in what might be called frontier areas. In many of these areas the nancial and commercial infrastructure is underdeveloped. This problem is likely to be compounded by political and nancial instability. For these reasons, the nancial and commercial services required by the large organisations involved in such developments are sometimes supplied from outside the national boundaries of the developing areas. Banking is one of the main services involved and it is quite usual to nd that local banks are merely used as sources of petty cash for disbursements, with all major transactions taking place at banks outside the country concerned. These services could therefore be described as oshore. The banking services used by the companies supporting the major developers are often teamed with oshore company registration. The principal seeking an associate registered onshore is likely to nd the choice severely restricted. In these circumstances it would be pointless in marking down the oshore companies on the short list. However, careful scrutiny of these banking arrangements is advised before making any payment into an oshore account.
Proposed remedy
In line with the OGP position on transparency in areas such as the nancial transparency of resource revenue streams, OGP recommends that a good faith attempt should be made to require prospective associates incorporated in these oshore locations and not well known or established by good reputation to disclose their corporate and ownership information and to provide their rationale for the formation of the company under the oshore regime. This could be achieved by requiring full disclosure of shareholders, directors and nancial statements by potential associates as part of the reputational due diligence process. A possible eect of this approach on companies which are not prepared to disclose such details and which lose contracts is the concern that non-disclosure has harmed their bid, whether this is true or not.
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What is OGP?
The International Association of Oil & Gas Producers encompasses the worlds leading private and state-owned oil & gas companies, their national and regional associations, and major upstream contractors and suppliers.
Vision
To work on behalf of all the worlds upstream companies to promote responsible and protable operations.
Mission
To represent the interests of the upstream industry to international regulatory and legislative bodies. To achieve continuous improvement in safety, health and environmental performance and in the engineering and operation of upstream ventures. To promote awareness of Corporate Social Responsibility issues within the industry and among stakeholders.
Objectives
To improve understanding of the upstream oil and gas industry, its achievements and challenges and its views on pertinent issues. To encourage international regulators and other parties to take account of the industrys views in developing proposals that are eective and workable. To become a more visible, accessible and eective source of information about the global industry both externally and within member organisations. To develop and disseminate best practices in safety, health and environmental performance and the engineering and operation of upstream ventures. To improve the collection, analysis and dissemination of safety, health and environmental performance data. To provide a forum for sharing experience and debating emerging issues. To enhance the industrys ability to inuence by increasing the size and diversity of the membership. To liaise with other industry associations to ensure consistent and eective approaches to common issues.
209-215 Blackfriars Road London SE1 8NL United Kingdom Telephone: +44 (0)20 7633 0272 Fax: +44 (0)20 7633 2350 165 Bd du Souverain 4th Floor B-1160 Brussels, Belgium Telephone: +32 (0)2 566 9150 Fax: +32 (0)2 566 9159 Internet site: www.ogp.org.uk e-mail: reception@ogp.org.uk