Mining, Oil and Gas Whistleblowers More Essential Than Ever After SEC Rule Repeal
American companies are no strangers to the extractive industries in Africa. Exxon has operated on the continent for more than 100 years. Exxon is also well acquainted with rumors and scandal regarding corruption in the African oil industry, having been accused of paying bribes to the ruling family of Equatorial Guinea. Now, with the repeal of an SEC disclosure rule, whistleblowers are more necessary than ever to detect such activities.
Last week, the United States Congress killed an SEC disclosure rule aimed at preventing foreign bribery by large oil, gas, and mining companies. The rule required these companies to disclose all payments to foreign governments for things like licenses and permits. Industry experts say that bribes are often hidden in such payments. Similar rules still exist for extractive companies listed on stock exchanges in the EU, Norway, and Canada, however, these rules don’t touch over 400 additional companies the SEC rule would have covered, including oil and gas giant Exxon Mobil.
US companies that bribe foreign governments or their employees are in violation of the Foreign Corrupt Practices Act (“FCPA”). The FCPA, enacted in 1977, was intended to stop widespread bribery of foreign officials by U.S. companies, create a level playing field for honest business, and restore public confidence in marketplace integrity. Advocates have also noted that enforcing the FCPA can help make governments on the receiving end of bribes more transparent, especially in countries with weak freedom of information laws.
The repeal of the SEC disclosure rule does not change the anti-bribery provisions of the FCPA, but it will make violations harder to detect. Many natural resource deals involve foreign governments, many of which control their country’s resource deposits directly or via state-owned entities. Extractive companies often pay foreign governments for exploration rights, permits, licenses, and royalties based on what is extracted. Because of Congress’ action, companies will now no longer be obligated to disclose such payments to the SEC.
This makes whistleblowers more important than ever before. Given the lack of transparency associated with work in these industries and in countries far from direct oversight, insiders that witness bribery or corruption are now more essential to detecting fraud. Reporting violations of the FCPA to the SEC can garner whistleblowers awards of up to 30% of the government’s recovery. And under the statute, whistleblowers do not need to be American citizens or nationals. Recoveries in the FCPA arena have been enormous. Since 2008, the ten largest fines imposed for FCPA violations top $5 billion, with over $1.2 billion resulting from three 2016 settlements alone. The opportunity for FCPA whistleblowers has never been timelier.