The Art of Conducting Third Party Due Diligence: The Unaoil Case

- Geert Vermeulen

Over the last year I have been writing a serie of articles in the magazine "De Compliance Officer", which is published by the Netherlands Compliance Institute (in the Dutch language).

I just arrived at the topic ‘red flags and how to address them’ when the Unaoil case was revealed. A case which shocked many anti-corruption professionals.

An internal whistleblower, or at least somebody with access to a whole lot of inside information, decided to hand over the internal documents of Unaoil to a journalist. After 9 months of research the Huffington Post and Fairfax Media published a 3-part article on the internet under the title ‘The World’s Biggest Bribe’. It looks like this is becoming the latest trend. After the Unaoil case and the Panama papers another bribery scandal was revealed recently as an internal whistleblower handed over documentation to a journalist. And if their findings are correct, they are not exaggerating.

Unaoil is a company headquartered in Monaco. According to their website their core business is to provide industrial services to the oil and energy industry. The company has been established by Ata Ahsani, a businessman who was born in Iran. Nowadays he leads the company together with his sons Cyrus and Samen Ahsani. The files reveal that Unaoil has assisted many of the big players in the oil and energy sector, like ENI, Saipem, Technip, Total, BP, Samsung, Hyundai, Sinopec, Keppel, Aker Kvaerner, Petrofac, Rolls Royce, MAN Turbo, Weatherford, Honeywell, Tecnicas Reunidas, FMC Technologies, Yokogawa, Leighton Holdings, Larsen & Toubru, KBR/Halliburton, etcetera. It is almost a ‘who is who in the oil and energy business’. The Dutch companies SBM Offshore and Core Laboratories are also mentioned in the files.

Unaoil assisted these companies to win tenders or obtain licenses in countries like Iraq, Iran, Libya, Syria, Kuwait, The United Arab Emirates, Angola, Algeria, Equatorial Guinea, Kazakhstan, Uzbekistan and Turkmenistan.

From the leaked files it becomes apparent that Unaoil assisted their clients by bribing government officials and managers of state-owned oil companies, up to the highest levels. Some officials were offered expensive gifts and holiday trips. Some were paid lump sum money amounts, on some occassions millions of dollars, or got paid on a monthly basis. One manager or the Iraqi South Oil Company for example was allegedly paid USD 6.000 per month, part of which was used to pay off a wider network of people. In return the government official would ensure that contracts were awarded to the clients of Unaoil at an increased price.

Sometimes the bribes were paid directly. The Malaysian company Ranhill for example had hoped to win a contract after the prime minister of Malaysia had a conversation with the former Libyan dictator Khadaffi, but failed. From the leaked files it can be deducted that Unaoil however was able to secure the contract for Ranhill by bribing the right people.

On other occassions Unaoil paid the decision makers at their client to ensure that Unaoil would be paid a higher commission.

According tot he journalists, Unaoil also paid a number of Italians working for ENI and employees of Tecnicas Reunidas and Petronas, to ensure that their clients would win a tender or to obtain secret tender information.

In their company emails the Unaoil employees usually used euphemisms to describe a bribe. The reporters were able to figure out that a one day holiday meant a one million USD payment. Codenames were used for the people who received the bribes, like ‘the lighthouse’, ‘the teacher’ or ‘M’. The reporters succeeded to reveal the identity of these people. ‘M’ for example appeared to be the Iraqi Minister of Oil, Kareem Luaibi. And ‘the teacher’ appeared to be the Iraqi vice-premier Al Shahristani, who is currently the Minister of Education. Unaoil allegedly paid some USD 20 million to ‘M’ and ‘the teacher’ through a third party in order to have Leighton Offshore win a tender of USD 2 billion.

Sometimes the code names were easier to decypher. Rolls Royce was called RR for example and ENI ‘the spaghettihouse’.

Now, suppose that you are a compliance officer at an oil & energy company and your business people propose to involve Unaoil in a deal as a local consultant in Iraq. You start the due diligence process. What kind of risks and red flags would you identify? Let’s first look at the risks:

Unaoil was mainly active in countries with a bad reputation for corruption (with the exception of Kuwait and the UAE perhaps).
Unaoil was active in the oil & energy sector, an industry with a high risk of corruption.
Unaoil was mainly involved in large contracts, with lots of money involved.
The services of Unaoil were probably described as consultancy services and the delivery of local knowledge. These type of consultancy services should be considered high risk.
The services usually involved contacts with government officials, which also increases the risk.

So the risk profile of Unaoil was very high. They don’t get much higher than that. What kind of red flags should have come up?

Unaoil is owned by business people from Iran. Iran is a high risk country.
Unaoil is headquartered in Monaco, which is a tax haven. Unaoil also has subsidiaries in other tax havens, like the British Virgin Islands, the British Channel Islands and the Marshall Islands. These tax havens are sometimes used to disguise the origin of money.
The Ahsani’s appear to be extremely rich. At a given moment their real estate portfolio in Germany, France, Monaco, the USA and Great Brittain had a value of EUR 130 million.
The Ahsani’s run a charity which organizes lavish fundraising events, which are attended by e.g. Prince Albert and Princess Caroline of Monaco, Arabian sheikhs and Richard Branson. How do they get all that money and these contacts?
Unaoil is used because of their local network at higher government levels. How have they built this network in countries like Iraq, Libya, Angola, Nigeria, Kazakhstan and Uzbekistan?
Unaoil had already been alleged of corruption in an article in 2013. Ata Ahsani had denied the corruption under oath in a British court. This by the way was the reason why the whistleblower turned to the journalists; (s)he indicated that they had not digged deep enough.

So there were a lot of risk factors and red flags. But there were also explanations and risk mitigating factors. Ata Ahsani had studied engineering in the UK and the US and worked in the oil sector in Iran until the company he had founded was nationalised during the Islamic revolution in 1979. Ata Ahsani left the country. This explains why he is no longer living in Iran, has a large network in the oil and energy sector and able to deliver technical services.

More importantly, Unaoil had been certified by TRACE as a trustworthy consultant since 2006. TRACE is a well respected not-for-profit organization which certifies consultants and agents who are active in countries with a reputation of corruption, especially in the marine and energy sector and the air and space industry. The research of TRACE is usually thorough; you need to deliver a whole lot of information and documentation before you get certified. Training sessions have to be completed, interviews are conducted and one has to give references, which will be checked. Because the due diligence process is thorough, companies derive comfort from a TRACE certificate. One may even wonder whether you can add much to this as a compliance officer; TRACE is usually in a better position to conduct due diligence than you are. However, that does not release you from the duty to do your own due diligence. I have in the past for example also interviewed consultants who were in possession of a TRACE certificate. It may also be worthwhile to request a copy of the due diligence report by TRACE, because they usually indicate where they have doubts.

From the leaked files we now know that Unaoil considered the TRACE consultants to be ‘box tickers’ and ‘wankers’. And we learned that Unaoil had bribed some of the people who had provided good references to TRACE. Immediately after the revelations TRACE published a statement where they humbly admit their mistake.

When conducting due diligence, in the end a decision needs to be taken, weighing the amount of money to be paid to the third party, the kind of services to be delivered in return, the identified risks and red flags versus the compensating factors and mitigating controls. With the benefit of hindsight it is easy to say that companies should not have done business with Unaoil. But on the other hand: Unaoil was certified by TRACE, they had excellent references and explanations can be provided on how the Ahsani’s obtained their network and expertise. From the outside the case may not have been so clear cut as it looks now.

My conclusion therefore is that conducting due diligence is more of an art than a science. Many times in the end you fall back to following your gut feeling. And you will be wrong from time to time. It does help though if you have gained a lot of experience in this field or if you are assisted by an experienced professional. Honestly, what would you have advised in this case?

Shortly after the publication of the story the authorities in Monaco raided the head office of Unaoil, instigated by the British and US authorities. KBR, FMC Technologies and Core Laboratories have indicated in their quarterly reports that they received questions from the US Department of Justice about their dealings with Unaoil. Unaoil denies everything and claims that they have been extorted for months before the stolen documents were published by the journalists. This story will be continued.

On the author

Geert Vermeulen recently started his own company, Ethics & Compliance Management & Consulting (ECMC). Through ECMC Geert provides interim compliance management, ethics and compliance consulting and compliance education and training. Geert also speaks and writes on compliance and ethics.

Before starting ECMC Geert worked as a Director of the Netherlands Compliance Institute (NCI). This institute is specialized in providing compliance education, training and compliance consultancy and recruitment services. As compliance officers now became Geert’s clients, he stepped down as the president of the Dutch Compliance Officer Association.

Geert obtained most of his experience in-house. As Global Head of Compliance for Damco, the freight forwarding arm of the AP Möller-Maersk Group, he was responsible for the compliance activities in 90 countries, focusing mainly on anti-bribery and trade restrictions. As Chief Compliance Officer Aon EMEA (Europe, Middle East and Africa) he coordinated compliance efforts in some 60 countries.

Following inquiries from regulators Aon started its anti-corruption program in 2007. Geert has coordinated this program in the EMEA region from the start. According to the US and UK authorities Aon developed a best practice model other firms may wish to adopt.

http://www.iffc.nl/blog/the-unaoil-case/

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