Alexandra Wrage, president and founder of Annapolis, Maryland-based TRACE International. (Courtesy photo) Alexandra Wrage, president and founder of Annapolis, Maryland-based TRACE International. (Courtesy photo)

Companies in the extractive industry faced the most bribery investigations in 2019, both by the U.S. and other global authorities, according to a new corruption report.

The 10th Annual Global Enforcement Report, released Thursday by TRACE International, shows these industries—which extract oil, diamonds, gold and other precious metals—were the target of 20% of all non-U.S. corruption investigations and 19% of all U.S. probes.

Alexandra Wrage, president and founder of Annapolis, Maryland-based TRACE, a nonprofit business association that works against bribery and corruption, called it the "resource curse."

Wrage told Corporate Counsel that extractive resources are by definition local, and access to them generally depends on a local government's authorization.

"At the same time, the potential for profit is enormous," Wrage said. "Combined with what is too commonly the political and institutional instability of resource-rich countries, these conditions create enormous incentives and opportunities for corruption."

For general counsel and compliance officers, she said the industry holds "some of the greatest corruption risks, [and it] demands a heightened vigilance" not just by the company but also on the part of governments, nongovernmental organizations and the media.

(Photo: Trace International) (Photo: Trace International)

The problem is not new. From 1977 through 2019, the extractive industry represented the highest number of bribery enforcement actions, garnering about 18% of all U.S. actions and 25% of all non-U.S. enforcement actions.

"Whether we label the industry as corrupt generally, it's important to note that a lot of extraction industry companies are working hard to get this issue right and are at the forefront of innovative compliance efforts," Wrage said.

Although she declined to name leading companies, she said, "Industry best practices groups are getting more organized and more sophisticated. A group of mining companies is working to design a shared hotline, and some oil and gas companies are working collaboratively on an industry-specific shared 'best practices' training module."

Scot Anderson, global head of the energy and natural resources group at the Denver office of Hogan Lovells, said he has been working with the industry for decades and he agrees it is trying to set higher standards.

"I don't dispute that there may be a lot of investigations," Anderson said, "but I know the industry is working diligently. Setting aside the legal requirements, this [work] is more just based on doing the right thing and providing structures to help keep corrupt behavior [out of] mineral development."

He pointed to the efforts of the Extractive Industries Transparency Initiative to bring more openness to the countries and the industries involved. One of the group's most recent efforts involves seeking more transparency and due diligence around third party services and subcontractors, which account for the bulk of corruption enforcement actions. The industry spends nearly $1 trillion a year or more on procuring these goods and services.

Other industries also face legal scrutiny. In the U.S., the extraction industry was followed by financial services, with 16% of all investigations, and then manufacturers/service providers with 12%.

Outside the U.S., engineering/construction took second place with 18% of all investigations, and then aerospace/defense/security with about 15%.

Overall, Wrage said the report shows an unexpected 45% decrease in the number of non-U.S. enforcement actions generally. She couldn't explain why.

"It was only in January that we saw the record-breaking multinational settlement in the Airbus case," she said, "and worldwide concern over the issue of transnational corruption has remained high."

The U.S. also showed a slight decrease of 19% in enforcement actions, though the numbers were not out of line with historical trends.

Wrage speculated on a "clustering effect as global enforcement actions become more coordinated across jurisdictions, perhaps making any given year's numbers a bit more volatile. We'll have to keep an eye on the longer-term trends."

For general counsel and compliance officers, Wrage said the most important takeaway from the report is that reducing corruption "is a long-term effort to which the international community has remained largely committed in spite of global political turmoil. Aligning corporate values and actions to this anti-corruption agenda will help reinforce our collective stand in support of the rule of law in transnational affairs."

In other findings, the report shows:

  • As of the end of 2019, Brazil was conducting the most investigations concerning alleged bribery of domestic officials by foreign companies, followed by India and China.
  • China has had the highest prevalence of alleged bribery by foreign companies with 110 enforcement events since 1977.
  • In total, there were 328 investigations concerning alleged bribery of foreign officials being conducted by authorities in 37 countries as of Dec. 31
  • Europe was conducting 165 of the probes, or more than half. The U.S. was conducting about 37%, and the Asia Pacific region about 8%.
  • Of companies based in the U.S. that were caught paying bribes, 34% of the payments went to Asian Pacific officials, 22% to the Americas, excluding the U.S., and 19% to Europe.