Another business bribery scandal – this one in the highly charged energy sector – has the business world wondering yet again how to improve due diligence practices.
Unaoil is a Monaco-based company, incorporated in the British Virgin Islands, run by members of the Ahsani family, that helps multinational corporations win contracts in jurisdictions known for corruption including Iraq, Kazakhstan, Libya, Syria, Tunisia and other African and Middle East countries, as well as the former Soviet Union.
Unaoil clients include U.S.-based Halliburton, KBR, Honeywell and FMC Technologies, UK-based Rolls-Royce, Germany-based Man Turbo, Korea-based Hyundai and Samsung, and Australia-based Leighton Holdings. Unaoil describes its business as providing “Industrial solutions to the energy sector in the Middle East, Central Asia and Africa.”
The Huffington Post and Fairfax Media reported that Unaoil and its subcontractors bribed foreign officials to help major multinational corporations win billions of dollars in government contracts. The articles allege that the resulting corruption contributed to political instability and fueled the rage that erupted during the Arab Spring, and which was exploited by terrorist groups such as al Qaeda and the Islamic State.
The media sourced its information from Unaoil internal documents, including emails primarily from 2003-2012. According to the referenced article, “Unaoil’s practice was to ask its partners for a percentage of the revenue from any contracts Unaoil helped them win. Once Unaoil made sure it had a stake in its client’s business, it would sometimes use a portion of its cut to bribe government officials and keep the rest for itself.”
According to the Sydney Morning Herald and Huffington Post, “Bankers in New York and London have facilitated Unaoil’s money laundering, while the Ahsanis have built a major property investment business in central London since 2007.”
The article stresses the need for due diligence and highlights the red flags that companies using Unaoil as an intermediary should have noticed: First, Unaoil was based in the tax haven of Monaco; second, the company is incorporated in the British Virgin Islands; third, the countries Unaoil operated within were known high-risk on number of fronts; and fourth, Unaoil’s business – the energy industry – is risky.
Significantly, since 2007 Unaoil has been certified by Trace International. The media noted that this “raises serious questions about the worth of such international accreditation.” According to the leaked files, reported by the media sources, some people believed they were hiring a genuine lobbyist, and others knew or suspected they were funding bribery and simply turned a blind eye.
Answering the call for greater depth of due diligence
So, how do you protect yourself when vetting business partners in higher risk situations? When conducting due diligence on global business partners, a “check the box” mentality can lead to serious trouble. Also, merely screening an individual or entity itself against sanctions and adverse media, or relying on third-party-supplied references, will not give you the insight to conduct meaningful due diligence, especially in higher-risk situations. If you are in a higher-risk industry, geography or business relationship, you may need to explore deeper.
Consider a depth of diligence that independently fully identifies and verifies third parties, and their parent companies and officers. This enables truly effective risk-based due diligence, ranging from very basic sanctions, politically exposed persons (PEPs) and media searches, to robust local “boots on the ground” investigation.
Companies should seek insight into legal name, tradestyle(s), organizational structure, parent companies, beneficial owners, names of all principals/officers and industry, often without any involvement of the partner/supplier/customer thereby limiting risk of relying of filtered-disclosure by subject entity . These insights help strengthen a company’s defensible position. How? By reducing reliance on self-disclosed information, effectively informing risk-based procedures, and enhancing the breadth and depth of due diligence performed.
Data is critical to doing this well. That means companies should consider:
- Expanding the screened population, searching for compliance relevant adverse data. This is not just the subject entity self-disclosed data but also known principals and relevant related entities, such as beneficial owners, shareholders and key executives
- Integration of compliance procedures and tools into business partner onboarding and master data systems to drive systematic enforcement of policy and controls
- Tracking organizations associated to PEPs and SOEs through global corporate legal linkage and consolidation of disparate but related records
- Screening entities and principals against a robust database of watchlists/sanctions, PEPs and adverse media as well as open-source and court litigation data as needed
- Continuously and proactively monitoring third parties after the initial screen for relevant changes to organization structure which may affect the risk profile; for example, merger and acquisition activity, severe financial distress, principal changes and primary location/headquarter moves
- Utilizing researchers trained specifically around corruption/bribery compliance germane research in addition to KYC/AML/BSA/OFAC only diligence
- Leveraging predictive scores which can greatly strengthen client controls, risk triggers and defensible position “pillars,” such as probability an entity is operating in a government intermediary fashion but not flagged as such internally
- Conducting a fraud analysis when there is a suspicion that a subject entity might be a shell company for illegal activity
- Conducting “boots on the ground” investigations of the subject for highest risks
As a result of this media investigation several governments have launched investigations into the alleged corrupt activity involving Unaoil. Some of the companies noted in the article have either undergone prosecutions or investigations for violations of anti-bribery laws. Moreover, their status may be further impacted by these new allegations.
The Sydney Morning Herald and Huffpost posted “The Bribery Factory Part 1…The Company that Bribed the World” noting that Unaoil systematically corrupted the global oil industry. They labeled it: “A sophisticated global web of bribery and graft.” Billions of dollars of government contracts were awarded as a direct result of the bribes. Part 2 of the series focuses on the former Russian states, and Part 3 delves into corrupt practices in Asia and Africa.
All involved companies have denied corrupt activity. Perhaps they wouldn’t have been in this position at all had they activated data to effectively, deeply evaluate the partners they are doing business with.