Green Energy and Technologies: Protecting Companies, Executives, Investors and Boards from Anti-Corruption Enforcement
Renewable energy and low-carbon technology investments are growing at unparalleled levels. Despite the pandemic, last year saw one of the world’s largest-ever annual increases in renewable power generation and green technology investments.
Much of this expansion occurred in higher-risk countries under global anti-corruption laws (e.g., the US FCPA and UK Bribery Act). Domestic companies are quickly moving into international markets with employees and processes that may not be equipped to manage the risks that these new locations pose. Meanwhile, local market participants better understand the opportunities at the intersection of capital, urgency and inexperience.
Similar international expansions have cost other industries billions of dollars in fines, providing valuable lessons for how renewable energy and technology companies can grow quickly while protecting themselves. This requires focusing on operational points that combine money, urgency and higher-risk participants, such as:
- Land acquisition, leasing and access transactions present corruption and fraud risks, including payments to officials, commercial bribery, and fraud and self-dealing by employees or agents who acquire land from related parties, hold undisclosed interests or are paid for confidential information.
- Local agents can help build a presence quickly in an unfamiliar market. However, companies are frequently held responsible for those agents’ conduct under anti-corruption laws.
- Local joint venture partners can also add value given their knowledge and connections. But they may be scrutinized by regulators, especially if their valid purpose is unclear, they do not share risk or contribute capital, experience or personnel, or they were recommended by a government official.
- Permitting, approvals and community engagement are often necessary at the national, provincial and/or local level. Moreover, securing the acquiescence of local communities requires careful management, particularly if a company might be donating money, goods or services for goodwill.
- Power purchase agreements (PPAs) and interconnection/infrastructure access are critical to a project’s success and may be negotiated with federal, provincial and local officials, and state-owned utilities, distribution companies or energy consumers.
- Supply chain requirements for renewable projects often include higher-risk goods and services (e.g., construction and subcontracting, freight forwarding, customs clearance, logistics, shipping). They also rely on local companies that may not appreciate the project’s anti-corruption requirements.
- Labor is another area where companies have run afoul of anti-corruption laws by providing improper benefits to union officials or more informal worker representatives.
- Sales may occur through business development representatives, distributors and salespeople for whose actions companies are responsible, including in sales to governments, state-owned companies and private enterprises.
Importantly, regulators often pursue a company for improper payments that benefit it and are made by third parties such as those above, even if it had no knowledge of their actions. Frequently, the best defense is that the company took risk-based steps to vet, instruct and monitor these parties; maintained robust controls over transactions, assets and money flows; and promptly sought legal advice regarding high-risk transactions, counterparties, and allegations of improper payments.
Thus, it is useful for boards and executives to ask: If a year from now a regulator alleged that improper payments were made for your company’s benefit, what would you wish you had done to prevent this, and what is the compelling story that you would want to be able to tell about the actions that you took to do so? Thinking now about how to answer these questions can allow companies to grow quickly while protecting their stakeholders from a costly investigation and potential criminal and civil liability.
© Arnold & Porter Kaye Scholer LLP 2021 All Rights Reserved. This blog post is intended to be a general summary of the law and does not constitute legal advice. You should consult with counsel to determine applicable legal requirements in a specific fact situation.