The Tide is Turning Against Corruption Across the Globe

Content from the Brookings Doha Center is now archived. In September 2021, after 14 years of impactful partnership, Brookings and the Brookings Doha Center announced that they were ending their affiliation. The Brookings Doha Center is now the Middle East Council on Global Affairs, a separate public policy institution based in Qatar.

In China, with tackling corruption at the top of the government agenda, Petro China’s operations have been put under the microscope. In Oman, the head of the nation’s gas company and several of his colleagues have been put in jail for taking kickbacks. In India, the anti-corruption outfit, the Aam Aadmi Party, is growing in stature, and is now the second-largest party in the Delhi state legislature. Even Iraq, near the top of Transparency International’s Corruption Index, has tasked its commission of integrity with investigating several deals and organizations.

Ever since the United States introduced the Federal Corrupt Practices Act (FCPA) in 1977, the oil and gas sector once notorious for the fraud and kickbacks it engendered has slowly come around to the notion that honesty is the best policy. US multinationals like Baker Hughes that were early victims of FCPA have strived to control or even buy up their supply chain to avoid the risks of working with third parties and agents in far-off countries.

Constant monitoring and extensive due diligence keeps such multinationals away from the clutches of state authorities who now levy fines in the billions of dollars for major companies such as Siemens. Companies that fail to secure their supply chain risk being dragged in to corruption cases. Such was the case with Saudi Aramco when it was dragged into department of justice bribery case against one of its suppliers, Tyco. To its credit, Aramco has responded by purging their organization of corrupt buyers and end users.

Middle Eastern governments and state-owned companies are waking up to the fact that many expatriate managers have long been working with unscrupulous expatriate agents to purchase goods and services at vastly inflated prices, pocketing the difference. This bonanza seems to be coming to an end now, as multinational corporations more closely monitor the actions of their employees.

Corruption trials in the oil-rich Middle East are becoming more prevalent as a result. Furthermore, local populations have benefited from generations of steadily improving education, and are now managing their own state-owned companies for the good of their country.

It is clear that many western multinationals have been overcharging and exploiting the regional market for many years. Now, though, price and cost competition are on the rise. Korean companies have entered the market, for example, securing major contracts in the energy sector. Likewise, major Chinese companies have played a significant role in Iraq and Iran and are rumored to be on the short list of potential partners for Abu Dhabi National Oil Company (ADNOC).

National oil companies in the Middle East now realize the need to scrutinize the costs of their conveyor belts, gas turbines and pipes. As market globalization develops, the opportunities for multinationals to charge vastly different prices across regions seem to be dwindling.

The recession in Europe has also brought numerous new small and medium size companies to the Middle East looking for business opportunities, thus increasing competition. Although the multinationals have swallowed up many such companies in recent takeovers and mergers, there are always plenty more fish in the sea, as the saying goes. So the days of the large multinationals buying up the vendor lists of national oil companies seem to be numbered as new competitors appear.

As the oil and gas sectors grow, the experience of management grows with it, and with an increasingly local management team – the result of various Arabization policies – management decisions will better account for local costs and benefits. The supply chain becomes more locally focused, diversifying the domestic economy and providing more opportunities for regional governments to employ and enforce their own anti-corruption policies.

Middle Eastern oil-rich nations are exercising more than ever before control over their own oil and gas reserves and, like Abu Dhabi, are taking hold of the reins, dictating policy to the multinationals for the first time rather than being wholly dependent upon them. Abu Dhabi Chamber of Commerce has been running corporate compliance training for the past two years and the ADNOC group companies are introducing whistleblowing procedures. It will be interesting to see who their new partners will be in up-and-coming joint ventures. Whoever they are, they had best make sure their books are in order and their hands are clean.