Select Committee on International Development Minutes of Evidence

Examination of Witnesses (Questions 400 - 419)



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 I understand the other multinational development banks and the regional ones also have blacklists but they do not publish them.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.


  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.


  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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