Examination of Witnesses (Questions 400
- 419)
TUESDAY 9 JANUARY 2001
MR DAVID
PHILLIPS, MR
IAN WHITE,
DR REG
HINKLEY, MR
MIKE WELTON,
MR STEPHEN
WILLIAMS AND
MR JOHN
BRAY
Ann Clwyd
400. The World Bank has a policy of debarring
companies found guilty of corruption from bidding for further
contracts and other donors are considering similar policies. How
can such lists be fairly and internationally drawn up? Do you
agree with that policy yourselves?
(Mr Welton) I think the instrumental words that you
use are "companies that are found guilty of bribery or corruption",
that is extremely important. We would support a list, if you call
it a blacklist or whatever, that made that public around the world.
The World Bank, rightly or wrongly, is a worldwide organisation
that might be instrumental in that. We would certainly support
that view. At no time, and I think it is necessary for me to emphasise
this, at no time has our company been found guilty of any act
of bribery or corruption and it is very important to make that
point. There are many, many allegations, as I said, the vast majority
of which are totally untrue and misleading and I welcome the opportunity
of refuting them.
401. Can the creation of such lists be an effective
deterrent, do you think?
(Mr Welton) I am not sure that it would be a deterrent.
I think it is a very useful mechanism for ensuring that such practices
by those companies are not perpetuated. I am not sure that necessarily
in its own right it is a deterrent but I believe it is a helpful
instrument.
(Mr Bray) If I can expand on the blacklists, or the
debarring. The World Bank is the main international organisation
which has a public blacklist. I understand the other multinational
development banks and the regional ones also have blacklists but
they do not publish them. In private discussions with them I gather
they are concerned about some of the legal implications of doing
so. There are also governments, and the case of Singapore has
been mentioned, that was a case some five years ago. I believe
that was a one-off case, I do not think the Government of Singapore
has done that since. The US Government operates a similar policy.
Is it a deterrent? Yes, I think it is. In my conversations with
companies, when they hear about blacklists they sit up and listen
to a greater degree than they do when discussing the OECD Convention.
Chairman
402. Mr Bray, there is a very serious problem
of doing very serious injustice if there are secret lists, is
there not?
(Mr Bray) It is a question for the people to discuss.
They are not secret to the company concerned. My understanding,
and this has to be a question for the institutions—
403. A company that is on the blacklist knows
it is on the blacklist and has an opportunity to clear its name?
(Mr Bray) This is an area which is under active discussion.
I understand that the multinational development banks have regular
meetings and this is a controversial area within the banks. The
World Bank has taken the strongest lead on it. There are, indeed,
areas of concern about the level of evidence which is required.
Perhaps I might mention another question which I believe is still
an open question and that is where a subsidiary of a large company
has been found to be involved in malpractice whether the ban should
apply to the whole company and all its international subsidiaries.
I think probably that would not be the case, but all this has
to be worked out in practice.
404. You see what I am saying is Mr Welton says
that many allegations are made which are totally untrue. If those
allegations are acted upon in the way you suggest that regional
developments banks are doing by putting Balfour Beatty on a blacklist
in this example, then this is thoroughly unjust if the company
has not had the opportunity to clear its name in any formal and
legal manner.
(Mr Bray) The way the World Bank does it, and again
I stress you really should talk to the World Bank itself—
405. We will do.
(Mr Bray) They make it quite clear on their website,
as I say this is a public discussion, that they do talk to the
companies before they put their names on the blacklist and they
give the companies a chance to defend themselves. They would not
resort to that without very detailed investigation.
Chairman: Can we go on to ask some questions
of BP.
Mr Worthington
406. Nigeria is the case that interests me particularly
and the extractive industries, such as oil. Here you have a situation
where a country becomes the fifth or the sixth largest oil producer
in the world and it plummets down the list of countries in terms
of standard of living and becomes one of the poorest countries
in the world. It becomes uncommonly difficult to get petrol in
Nigeria and the reason that is put forward for that most often
is corruption. The evidence is there that in Nigeria, but we could
mention other places as well, the system became fundamentally
corrupt. We are not talking about facilitating payments. How does
an oil company work in an environment like that and how does it
ensure that nothing that it does contributes to the poverty in
Nigeria or elsewhere?
(Dr Hinkley) I suppose there are a number of threads
to this issue. First and foremost I assume we are talking about
a situation in which one is already represented in a country and
we have got some form of changing environmental context. Clearly
as a matter of policy we keep these matters under review and one
of the issues that is constantly before us is our ability to operate
within our policies in that country. In extremis we can consider
various options to reduce the scale of our activity if we feel
we cannot operate there. It has to be said that is not a very
common situation, so it does really come down to thinking about
how we are going to work within the communities in which we are
involved. This operates at a number of levels. Clearly there are
relationships with governments and officials involved in this.
There are also, very importantly, I think, relationships with
local communities that we have got to be sensitive to. Lastly,
but not least, and something we have not placed a lot of weight
on so far today, we actually have our own workforce within these
countries who face their own issues in terms of their ability
to operate. So we have to address all of these questions. I have
said throughout my evidence here that certain forms of behaviour
are absolutely proscribed under our policy and, therefore, if
we were to find ourselves dealing with a senior official who sought
a bribe or some form of corruption we would absolutely deny that.
I have said that a number of times. On a more positive side, we
try also to ensure that our activities in these countries genuinely
impact local communities in a favourable way. There are matters
of judgment here and there are different experiences, but it is
a key part of our approach to being involved in a country that
we not only have regard to the commercialism of the transactions
themselves but we do evaluate our impact on local communities.
I think it has come out a number of times that we have regard
also to the ability of our own workforces to operate there and
that is partly a question of giving them the right training but
also providing the right security environment and so on.
407. Can we leave BP out of it and look at it
in a theoretical way. You get all those resources in a country
like Nigeria or Angola or in Russian states. How would an extractive
company, an oil company or other company, go about helping their
cause by feeding corruption?
(Dr Hinkley) Sorry?
408. It is very, very difficult to believe that
in the kind of country that I have named that the multinationals
would be absolutely clear of a system which had become endemically
corrupt. How would an oil company be involved in part of that
corruption? How could it be?
(Dr Hinkley) The question is a very difficult one
to answer in very general terms. Our specific experience, for
example, in many of these countries is in our upstream business
— in the extractive part — where there is usually
some form of bidding for the right to explore or the right to
develop in that country. In many cases the activities are very
highly localised to a particular province, sometimes they are
offshore. Here it is a case of bringing equipment and people to
that area, exploiting that opportunity and then creating the right
forms of management of the cash flows that arise from that activity
to see that they end up in legitimate places. We are very sensitive,
of course, given the sums of money involved to ensure that the
payment flows which are involved end up in official bank accounts,
so that, as far as we have control over events, these activities
are clean and above board. Now, of course, in some of these countries
it is alleged that when those payments pass into what we will
call government bank accounts, there may be things that go on
beyond that — but of course that is not within our control.
We are aware of it but we cannot control it.
409. Where would you point to an example in
the developing world of where they have discovered oil where corruption
has not been involved?
(Dr Hinkley) I find that really quite a difficult
question to answer. Maybe it is one that I can have notice of,
if I may.
410. That would be an indication of good practice,
would it not?
(Dr Hinkley) Yes, I think so. However we do not start
from an assumption that corruption is endemic in the oil industry
in the developing world.
411. It should be easy to say then there are
a lot of countries where it has worked well and it has been absolutely
clean.
(Dr Hinkley) We would be happy to give further input
to you on that question.[8]
I am the company's auditor and that lies a little bit beyond
my direct experience currently.
412. There are gaps in this. You will remember,
Chairman, we went to Bangladesh where there were rumoured large
amounts of gas discovered, it was thought there were, but it was
simply impossible in Bangladesh to get any kind of description
of what process they were going to go through in order to fairly
allocate the resources. It would be in the interests of all the
major players, would it not, to keep it obscure?
(Dr Hinkley) As far as we are concerned, we expect
to have a contract with the Government or an official agency of
the Government which is recognised in law. We often have partners,
involved in these operations, some of them may be locally based
partners and, again, we seek contractual transparency in terms
of our relationship with them so the cash flows that are running
through these operations, at least as far as these defined areas
are concerned, are clear, transparent and covered by appropriate
forms of contract.
Chairman
413. There must come a point when your knowledge
that money paid into the government agency or bank account is
being used corruptly by that government in which as a corporate
good citizen you are taking part and, indeed, unless you do not
you are complicit in the corruption that is going on at government
level. I wonder whether you agree there must come a point when
you can no longer tolerate the degree of corruption that is going
on and you need to take action. Is that not true?
(Dr Hinkley) There are clear boundaries and, again,
I can only refer back to our approach as defined in the policies.
I think one can look at this question at two levels, if you like.
There are the specifics of the particular contract we are talking
about.
414. Yes, that is fine, we have got that far.
(Dr Hinkley) And then there is the more general question
which is essentially one almost of hypothecation which is "okay,
money has flowed to the Government, what does the `Government'
then do with that money?" and that is where our ability to
control and influence is clearly limited. We can only make this
distinction between these two aspects.
Mr Worthington
415. We have seen in other instances that the
oil companies come together and act jointly. You are meeting the
same people in this country where they act jointly in terms of
policy. You are meeting the same firms, the same companies, all
the time, you can all name who is involved. Can you point to wherever
the oil companies have got together to use their collective force
to clean up a country?
(Dr Hinkley) Not in those terms because I do not think
we have the power frankly to "clean up the country".
What we can do is ensure in our operations that we behave according
to certain principles and insist, as far as those operations are
concerned, in our dealings with governments or government bodies
or whatever, that our contracts are managed in a certain way.
That does lie within our power and influence but we cannot "clean
up the country" because the country is a bigger entity.
416. It is a bit ambitious perhaps to use your
own very considerable power to insist that all of you together
will only operate in a way of which you can be proud.
(Dr Hinkley) Yes. I think you talked about the sharing
of information across companies. Obviously there are very real
commercial limitations on that and there are forces of competition
but, for example, many of our competitors also have Codes of Conduct
and they wish to operate to those standards. There is not a big
difference of principle when we are coming together with these
contracts. Normally all the companies involved are wanting to
work in a certain way.
417. Where have you succeeded? It would be interesting
to hear from you where you have succeeded.
(Dr Hinkley) I think we can talk a bit further about
some of our experiences of these large contracts in the developing
world and I would be happy to give more background on that.
Mr Worthington: Thank you.
Chairman: If you could, about your role
as corporate good citizens in terms of viewing adversely the Government's
corruption.
Mr Robathan
418. This is another one for BP but other people
might wish to come in. Mr Welton pointed out the problems in Lesotho
related to an agent working for a consortium and you talked about
your local workforce. Notwithstanding the problems of facilitating
payments I think this is not a bad document at all. I would take
that as praise. In a lot of countries, particularly where corruption
may be endemic, you work with joint ventures, you work with subsidiaries,
you work with agents, you work with whoever it might be. How do
you make sure that this ethical policy is transmitted to your
locally employed agents or subcontractors?
(Dr Hinkley) I think it starts with, in our language,
our business units and our business unit management. They have
an absolute responsibility to comply with this policy and as part
of that it is their responsibility to ensure that the people we
do business with work as far as is it is within our control within
the same standards. If we are appointing an agent of ours then
by definition we would expect our agents to work within our policies.
When we get into more joint venturing sort of arrangements it
depends really on the extent to which we have control over the
operation, the ability to define the outcome. In some joint ventures,
for example, we are clearly the operator and clearly we have the
initiative in terms of the policy framework within which that
joint venture is going to operate. In some cases, by virtue of
the nature of risk sharing that actually goes on in this industry,
we may not be the major player, we may not be the operator, somebody
else's policy framework would apply. In general we are talking
about other major oil companies here and they have similar policies.
If we felt that we could not operate in any way within the spirit
of our policy I do not think we would be in the joint venture.
If we then look beyond the things we directly control or have
voting rights over we, for example, would expect our management
to draw to the attention of major contractors our policy environment
and we expect our major contractors, as far as we can influence
and control them, to work within that policy framework as well.
Quite a lot would go on at the local level flowing from management
in terms of ensuring that the policy is applied certainly over
those areas where we have direct control and it is applied in
so far as we can influence others where we do not.
419. If you felt that subcontractors, agents,
joint venture people, whoever it might be, were not living up
to your ethical standards, would you then withdraw from the joint
venture, sack the subcontractor or the agent?
(Dr Hinkley) We would certainly consider all of those
options if they were appropriate. Again, one of the points here
is that from time to time these sorts of claims can be made. The
starting point would always be to investigate them independently
to verify the degree of significance, and then the action that
would be taken would be judged appropriately in the context of
what we actually discovered. We start with the investigation and
then move on to the reaction to the investigation. We would be
prepared to consider withdrawal in certain circumstances. We have
had instances where contractors did not comply with one of our
policies — and, as you know, the business conduct document
sits underneath another, which defines BP's broader policy environment,
covering things like our approach to staff and health and safety
issues and so on. That full policy context would apply to contractors
and, in principle, agents. If they do not comply with them, then
we would expect to take action.
8 See Evidence p. 199. Back
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