TORONTO (miningweekly.com) – The threat of anticorruption investigation and possible prosecution by US authorities against extractive companies has continued to grow, with investigations becoming more transnational in scope, audience members at Norton Rose Fulbright’s Latin America mining breakfast heard on Tuesday.

The most compelling anticorruption case currently, revolved around the embattled Brazilian oil-giant Petrobras, which faced accusations of alleged corrupt practises, bribery and other illegalities. Norton Rose Fulbright Brazil practice cohead and partner Andrew Haynes suggested it could prove to be the largest corruption scandal in modern history.

“We also believe it might lead to the most significant US FCPA [Foreign Corrupt Practises Act] prosecution in history, with the risk that many corporates will be fined millions of dollars,” he said, adding that some individuals might also serve jail time.

Haynes warned mining corporates not to be complacent in thinking the US authorities were only targeting the oil and gas space. The attention of regulators was expanding, he said. “It’s no longer pharmaceuticals or oil and gas that are being picked on.”

As a result, auditors had become increasingly concerned about corruption risks or the absence of embedded anticorruption and bribery compliance programmes. In some instances, auditors had become nervous about signing-off a company’s accounts, which could threaten access to capital.

Norton Rose Fulbright senior associate Paul Sumilas reminded the audience that there were two focal points that spurred US anticorruption action. Firstly, a company or a person working for a company was targeted if corruption or bribery had been used to obtain or retain business, or to gain unfair business advantages. 

Secondly, investigation may occur if US-based issuers or companies listed on US public stock exchanges contravened or failed to comply with anticorruption accounting and control provisions. This also included companies that could have other reporting duties to the US Securities and Exchange Commission (SEC).

“[In addition], the FCPA is being applied extraterritorially pretty aggressively by the Department of Justice [DOJ] and the SEC,” Sumilas said. It covered all US citizens and all US-based businesses, and also included companies for which the US was the primary market. Its reach had also been extended to third parties and subsidiaries.

Non-US citizens or non-US businesses were included if they had any presence in the US, including the use of US mail or other forms of interstate commerce to engage in improper or corrupt practices. Even US bank transfers or holding a meeting in the US could bring a company within the US’s anticorruption sphere.

Such was the scale of the issue, that some companies now used due diligence to find noncompliance problems to reduce the price of a mergers and acquisitions (M&A) target. In part, this was because the companies making an acquisition took on the target’s liabilities, including the risk of being in contravention of US anticorruption legislation. 

In worst-case situations, the acquirer had asked the target to disclose its conduct to the DOJ and settle any outstanding matters before an M&A transaction was continued, Sumilas noted.

“If there has been misconduct, the DOJ or the SEC will find a way to tag you,” Haynes stressed. “And that’s why all of us in this modern environment need to think about compliance programmes and compliance with the FCPA and other anticorruption legislation.”