Petrofac has been banned from competing for new contracts in the United Arab Emirates months after a former executive pleaded guilty to bribery in the U.K. over past work in the UAE.

Abu Dhabi (ADNOC)

State-owned oil & gas giant ADNOC has suspended oilfield services firm Petrofac from competing for new ADNOC contracts “until further notice,” over a bribery case related to contracts awarded in 2013 and 2014.

Petrofac Ltd announces it has today been notified by ADNOC Group that it has been suspended from competing for new awards until further notice.  This follows the SFO’s announcement of additional pleas in January by a former Petrofac employee under the Bribery Act 2010 in relation to historic contract awards in the UAE in 2013 and 2014.

Petrofac will continue to execute two EPC projects for ADNOC currently under construction. ADNOC has stated that it recognises the long-standing nature of its relationship with Petrofac and has confirmed that its decision will be reviewed on a periodic basis. Petrofac said

“Petrofac is committed to operating at the highest standards of ethical business practice. No charges have been brought against any Petrofac Group company or any current officer or employee,” Petrofac added. The company did not go into details on the reported pleas in January.

It is unclear whether the UAE intends on bringing charges against Petrofac or its executives in this case. It is also unclear whether the UAE has brought charges against the local agents involved in this case.

Back in April 2020, ADNOC terminated $1.65B worth of contracts with Petrofac, for reasons not disclosed at the time. The two contracts had been awarded in February 2020, and entailed the delivery by Petrofac of offshore platforms and gas processing facilities for the Dalma Gas Development Project, only to be canceled two months later.

The SFO

Back in January 2021, the UK Serious Fraud Office (SFO) announced in a press statement, that David Lufkin, a British national and former Global Head of Sales at Petrofac, had pleaded guilty to 3 counts of bribery, in connection with SFO’s investigation into Petrofac Limited and its subsidiaries. According to the SFO, Lufkin allegedly made corrupt offers and payments during the period 2012 and 2018 to influence the award of contracts to Petrofac in the UAE, worth approximately $3.3 billion.

Specifically, Mr Lufkin pleaded guilty to his role in offering and making corrupt payments to agents to influence the award of an engineering, procurement and construction (EPC) contract to Petrofac in 2013 (and a variation to that contract awarded in 2014) on the Upper Zakum UZ750 Field Development Project, and a front-end engineering design (FEED) contract awarded to Petrofac in 2014 on the Bab Integrated Facilities Project, each located in Abu Dhabi.  Total payments of approximately $30 million were made, or were due to be made, by Petrofac to those agents in connection with these contracts.” the SFO said.

These charges are in addition to eleven charges of bribery already brought by the SFO, to which Mr Lufkin pleaded guilty in February 2019.  Those charges related to corrupt offers to influence the award of contracts to Petrofac in Iraq worth in excess of $730 million and in Saudi Arabia worth in excess of $3.5 billion.” the SFO added. Petrofac does not currently include Saudi Arabia and Iraq in its bidding pipeline.

Early Compliance Thoughts

It is still premature to extract the compliance lessons on this one, as the SFO’s investigation into the activities of Petrofac, its officers, employees and agents for suspected bribery, corruption and money laundering is still ongoing. The SFO did mention this was an ongoing case and could not provide further comments at this time.

With that said, we are reminded that as a consequence of being found guilty in corruption, fraud and some other offences, firms and individuals can be debarred from participating in future public tenders. Debarment from public tenders has gained significant momentum in the last decade, as a non-negligible tool in the fight against corruption. Debarment rules differ across jurisdictions and international organizations, and the specific grounds for debarment can also vary. For example, the World Bank debars suppliers found guilty in collusion, but this is not among the offences listed in the EU legislation.

Notwithstanding the different rules between jurisdictions, the measure itself, is an excellent way for governments to reduce their risk of entering into contracts with corrupt or in other ways dishonest suppliers. The measure also plays a preventive and deterrent role on a company’s propensity to be involved in certain offences in the first place.

Important to note also that as a result of ADNOC’s decision, London-listed Petrofac shares fell as much as 19 percent, or 25p, to 109½p this week. Additionally, the UAE accounted for roughly 10% of its contract revenue in 2019, and had been by far the biggest target market for new work for the oil services group, accounting for $14 billion or 31 per cent of its bidding pipeline as of last summer. Those are non-negligible commercial damages for the company.

Finally, the fact that Petrofac’s executives are being held accountable in their personal capacity in the U.K. (for bribery committed abroad), should serve as poignant reminder to those who think they may simply escape personal liability for corruption.

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The Compliance Lady Grand Corruption, Oil & Gas, SFO, UAE, UK, UK Bribery Act 2010, UKBA

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