This week, the company was fined for failing to prevent bribes. The case shows just how the oil and gas industries really work – and who loses out
In July 2010, Cyrus Ahsani emailed his fellow executives at Unaoil, an agency that secured public contracts for oil and gas companies, about one of its clients on the London stock exchange called Petrofac.
“PF are very interested in Iraq,” he wrote. “They will be bidding Garraf [sic].”
Garraf oil field held over a billion barrels of oil. The consortium that owned its development rights, which included Iraqi officials, invited bids to build its production facilities.
Petrofac went in at $210 million. Weatherford International, the US-listed giant, put in a bid that was $50 million cheaper. To make Petrofac’s bid more attractive, Unaoil sought to bribe Iraqi officials in the consortium.
“We really need to get the the [sic] Iraqi side ASAP,” Ahsani told Unaoil’s representative in Iraq, Basil Al-Jarah.
Al-Jarah’s plan was to subcontract another agent to meet with the Iraqi officials and pass on the bribes. “We are prepared to include for your group $0.5m,” Al-Jarah wrote to him. “Please start with this amount.”
Around a week later, Al-Jarah began to grow anxious. He knew a meeting about the bids was to be held in a few days, and insisted with the subcontractor that “it MUST be stated by the Iraqis, they are concerned Weatherford has no background and experience”.
“We need to remove Weatherford from the list and clear the way and support for Petrofac to win this order,” Al-Jarah went on. “Petrofac must win so we have to follow it through and you get paid when we get paid.”
In one particularly chilling part of their exchange, Al-Jarah refers to another oilfield in Iraq that contained hydrogen sulphide, an extremely flammable and toxic gas. He wrote that a “fly by night” company was about to win the bid to treat the oilfield’s crude, and that “it will kill everyone in nearby villages”.
But the discussion in these previously unpublished emails quickly went back to the Garraf plot – and how, ultimately, it failed. Weatherford won the Garraf bid in 2011. As Al-Jarah wrote to Ahsani, “the price difference was just too big”.
Except this wasn’t Petrofac’s last rodeo. It continued operating in this way, and with more success, across the Middle East for years – until it got caught.
This week, the company pleaded guilty to seven counts of failing to prevent bribery by its employees. A UK court fined it £70 million. For Britain’s Serious Fraud Office, which has lost a number of recent high-profile cases, the prosecution of Petrofac was a notable success.
It’s true, there have been bigger bribery cases than Petrofac’s. Tortoise exposed the SFO investigation into Unaoil two years ago, showing how prosecutors used evidence from the agents to open cases against their multinational clients. Petrofac was the smallest among them.
But looked at closely, its story shows how global oil and gas deals really work. It’s about how prosecutors come under political pressure, how anti-bribery legislation allows them to secure corporate convictions over individual ones, and how justice – both at home and overseas – is neither done nor seen to be done.
Agents like Unaoil allow companies to claim that they don’t know about fraud that’s committed on their behalf. This layer of protection – in the case of Petrofac and Garraf, two layers of agents – is important.
English law on corporate liability for fraud is excessively restrictive. It requires that the person who committed the fraud is the company’s “directing mind and will” or “embodiment”.
The courts interpret this “identification principle” narrowly. Judges threw out a recent case brought by the SFO against Barclays because the three senior bankers whom prosecutors alleged had committed a fraud, including the chief executive, sat below the bank’s board.
Such a narrow interpretation provides companies with an incentive to decentralise risky decisions away from their most senior managers.
Legal reformers have campaigned to introduce vicarious liability, so that a company is responsible for any fraud committed by any agent or employee. They got it – but only for bribery.
The Bribery Act 2010 introduced a new company offence that applies even when someone who is associated with the organisation, like an agent, offers or pays a bribe, and even when the company itself wasn’t aware.
Petrofac was convicted under this law, but not for its Garraf plot. The Act came into force in July 2011, a year after Unaoil executives discussed corrupting the bid over email.
“I have been trying to find David Luftkin [former head of global sales of PF] for the last few days,” Ahsani had told his colleagues, “but he is on holiday.”
During his working hours at Petrofac, Lufkin organised the payment of bribes that totalled $80 million to influence $7.5 billion of public contracts – all through agents.
His name appeared all over Unaoil’s emails. Even when Ahsani sought advice from a more senior Petrofac employee, he was “guided” to speak to Lufkin. And so when the SFO received a leak of Unaoil’s internal emails in March 2016, which triggered its investigation, it was Lufkin whom it went after first.
He was taken to Charing Cross police station in early May 2017 and was presented with the considerable evidence prosecutors had accumulated against him. It amounted to 14 counts of bribery, but the investigators were after bigger fish.
For the months that followed, they tried persuading Lufkin to provide them with assistance in exchange for a heavily discounted sentence. He agreed in 2018, and it was on the strength of his evidence that Petrofac was sentenced this week.
Lufkin was given a two-year prison sentence, which was suspended on account of his cooperation with the SFO.
Ayman Asfari, who co-founded Petrofac in 1991, grew it to more than 9,000 employees across 31 countries, and became a billionaire and philanthropist.
In a personal capacity, Asfari and his wife donated almost £800,000 to the Conservative party between 2012 and 2015, the period during which Petrofac failed to prevent bribery and David Cameron was prime minister.
Cameron, in 2014, made Asfari, then Petrofac’s group chief executive and a major shareholder in the company, one of the government’s “business ambassadors”, and charged him with “promoting the UK’s excellence internationally”. When Cameron resigned two years later, the roles were switched.
In January 2017, Cameron promoted the firm during a two-day visit to Bahrain before being flown back to Britain on Asfari’s plane. The mission, which failed, was to persuade the Bahraini royal family to award Petrofac a $5 billion oil contract. Cameron’s office says he was “not paid anything” for the trip and that it had “nothing whatsoever to do with donations made to the Conservative Party”.
On 12 May 2017, the day the SFO announced its investigation, Asfari was arrested and taken to Charing Cross police station, where he was interviewed under caution as part of the SFO investigation into Petrofac.
Asfari was released without charge.
One of Cameron’s former cabinet ministers then approached a senior prosecutor, and described Asfari as exactly the kind of business leader Britain needs after Brexit. When the senior prosecutor asked him what he meant, the former cabinet minister shrugged and said nothing. The conversation ended.
Asfari has since resigned from Petrofac, but he retained a 19 per cent stake in the company, making him its largest shareholder.
Petrofac’s shares jumped by as much as 17 per cent on the day it was sentenced, adding millions to Asfari’s existing billions. The market had expected a larger fine given the seriousness of the company’s offences, but the court felt that Petrofac’s change in personnel and leadership merited a less punitive one.
Prosecutors are also disappointed with the fine. Lufkin, a source says, is disappointed that he remains the only former Petrofac employee to have been charged and sentenced.
But the biggest losers are Iraqis. Petrofac was just one of many multinationals that corrupted public officials in their country. It paid its fine and it moved on.
Those other multinationals, as well as the individuals and agents that they use to corrupt business deals, all have a case to answer. If the Bribery Act 2010 is enforced in full, rather than just loosely against some, then it could be a brilliant example to developing countries of what’s needed to deter bribery.