Petrofac fine fallout: Penalty too light for SFO to claim success?

Earlier this week, the oil company was ordered to pay a total of £77 million (U.S. $105 million) after pleading guilty to seven separate counts of failure to prevent bribery between 2011 and 2017. The case is the second corporate guilty plea secured by the SFO this year after former Airbus subsidiary GPT Special Project Management pleaded guilty to corruption over military contracts for Saudi Arabia in April.

Legal experts suggest Petrofac may have got off light after the £32 million (U.S. $44 million) senior executives paid in bribes resulted in oil and gas contracts worth £2.6 billion (U.S. $3.5 billion) in Iraq, Saudi Arabia, and the United Arab Emirates. Even Petrofac indicated it could have been penalized up to $240 million and that it had asked the court for a “substantial reduction.”

Further, David Lufkin—the sole former Petrofac executive to be convicted—only received a suspended two-year prison sentence for admitting 14 counts of bribery.

“The size of the fine compared to the size of the contracts is out of whack,” says one expert who asked not to be identified. “Although the full details of the plea agreement have not been released, these figures make it look like it’s worth companies taking a chance and fronting it out with the SFO. The company even managed to get a penalty reduction by pleading poverty.”

“What kind of message does it send when a company’s share price rockets after it admits multiple counts of bribery going on over years? If the markets don’t care about illegal corporate activity, why should an offending company? What does that say about the need for compliance? It is very worrying when breaking the law comes second to financial performance.”

Richard Cannon, Partner, Stokoe Partnership Solicitors

“The SFO is keen for companies concerned in wrongdoing to come forward, cooperate, and accept their guilt,” says Kyle Phillips, partner at law firm Howard Kennedy. “It could be argued the size of the fine and confiscation order in this case will encourage others to follow the lead of Petrofac. However, there is a risk this sends out the wrong message and might do little to deter companies from engaging in similar criminal activity.”

While Phillips believes the Petrofac fine is one of the most significant convictions the SFO has secured since the Bribery Act came into force 10 years ago, he adds there is still a problem in holding people to account. “As we have seen in the past, a company’s acceptance of guilt does not necessarily mean convictions of individuals will follow,” he says.

Legal experts also question why the SFO and Petrofac were not able to reach a deferred prosecution agreement (DPA), since the company pleaded guilty and appeared to have cooperated with the enforcement agency to get a reduction in its penalty. As part of the plea agreement, Petrofac is likely to assist the SFO in its pursuit of prosecuting other executives.

“On the face of it, this case looks as if it should have qualified for a DPA very easily, so it’s hard to work out why Petrofac missed out,” says Neil Williams, deputy head of complex crime at law firm Reeds Solicitors.

However, “it’s hard to tell whether Petrofac would have done any better with a DPA,” Williams adds. “The fine is relatively low, the company is not subject to any external monitoring or compliance requirements as it would be under a DPA, and there is no suggestion it has been debarred from pitching for public contracts. It is also far from clear, given the SFO’s track record, whether any other individuals will be successfully prosecuted. It looks like Petrofac has successfully drawn a line under it all.”

According to the SFO, Petrofac’s level of cooperation did not meet the threshold for it to consider the offer of a DPA. The agency said it was up to the court to decide how much the company should pay as a penalty, which took Petrofac’s ability to pay into account.

Petrofac’s agreement with the SFO saw the company’s share price rebound by 17 percent, which some believe makes a mockery of the conviction. “You know a corporate criminal conviction is too soft when investors treat it as they would any other positive corporate announcement,” says Richard Cannon, partner at law firm Stokoe Partnership Solicitors.

“What kind of message does it send when a company’s share price rockets after it admits multiple counts of bribery going on over years?” Cannon adds. “If the markets don’t care about illegal corporate activity, why should an offending company? What does that say about the need for compliance? It is very worrying when breaking the law comes second to financial performance.”