A few years ago, we highlighted bribery and corruption vulnerabilities in the Energy sector, noting that “Companies linked to energy industries, in particular, face elevated risks in order to reap the equally high rewards.” But more recent events highlight the need for companies in this sector to move beyond due diligence or monitoring for regulatory risk alone. What is lending to the rise in risk? 

The Energy Sector Keeps the World Running

The U.S. Department of Homeland Security notes that our Energy infrastructure “fuels the economy of the 21st century.” It goes on to say that “Without a stable energy supply, health and welfare and threatened, and the U.S. economy cannot function.” And the same could be said about energy infrastructures around the globe. Clearly, there’s a lot at stake. Beyond the energy sector’s crucial role keeping the lights on, transportation running and data transmitting (even if that data is the latest viral video on YouTube®), you also have to contend with other PESTLE risk factors—and headlines are ripe with examples:

• Political—In many countries, the government may even have a partial stake in energy businesses, elevating the risk of FCPA violations. But organizations also face volatility from other factors in the political landscape. Texas Oil & Gas trade association president Ed Longanecker notes, "The escalating trade disputes between the United States and China are putting the success of the American oil and gas sector at risk, and stand to deter investments of long-term energy projects, amongst other negative implications, if tensions continue.” In addition, the coming November deadline for U.S. sanctions on Iranian oil and gas exports could challenge global supply stability.
• Economic—As demand rises and falls, the value potential of energy shifts in response, as it has in the area of oil and gas in recent years. When the potential profits are high, you can be sure that some corrupt players will want to get in on the game. Moreover, questions around the role of Saudi Arabia in the death of journalist Jamal Khashoggi could lead to upward pressures on oil prices.
• Socio-cultural—Attitudes and customs vary by country. Particularly in countries with emerging economies, fees paid to cut through red tape may be par for the course, but such payments fall into bribery and corruption that expose companies to FCPA investigations.
• Technological—The rate of technological development—and the temptation to circumvent traditional channels to get the job done quicker—can also increase corruption risk.
• Legal—Energy industries must manage compliance globally, with different laws for each country in which they operate.
• Environmental—In addition to challenges of a particular region’s climate or topography, energy industries face an ever-increasing array of environmental protection regulations. Mother Nature can have a significant impact, as well. Take the recent effects of Hurricane Michael, which devastated the Gulf Coast area. In advance of the storm, workers were evacuated from production platforms, leading to 89 platforms being temporarily shuttered, which cut oil output by 32 percent. If you want to help your company stay out of the headlines, make sure your due diligence and ongoing risk monitoring process drills deep enough. Otherwise, you could find yourself facing an unforeseen risk—and face serious harm your reputation and your bottom line.