On 12 May 2017, the Serious Fraud Office (SFO) announced that it was investigating the oil and gas company Petrofac. Petrofac Limited is registered in Jersey and listed on the London Stock Exchange, and is the parent of a group of subsidiaries, the Petrofac Group, which design, build and operate oil and gas facilities across the Middle East. The SFO’s investigation stemmed from documents revealed during its investigation into the Monaco-based agency Unaoil.
In February 2019, Petrofac’s former Global Head of Sales, David Lufkin, pleaded guilty to 11 bribery offences relating to contracts in Iraq and Saudi Arabia; in January 2021, Mr Lufkin pleaded guilty to 3 more bribery offences relating to contracts in the United Arab Emirates (UAE). His offending took place between 2011 and 2018, with $81 million in bribes paid to secure contracts worth around $8.4 billion. On 1 October 2021, Petrofac Limited pleaded guilty to 7 offences of failing to prevent bribes of $44 million to secure contracts worth $3.67 billion between 2011 and 2017.
Judge Deborah Taylor described Petrofac’s corruption as “systemic, serious and grave” when she sentenced the company and Mr Lufkin on 4 October 2021. She handed Mr Lufkin a 2-year suspended sentence, reduced from a possible 7-year custodial sentence largely due to Mr Lufkin’s cooperation with the SFO, which had led to Petrofac being charged and convicted. Petrofac was ordered to pay a fine of $64 million (£47,197.640), had $31,399,945.63 (£22,837,985.04) confiscated, and will pay the SFO’s costs of £7 million. The fine was reduced due to factors which included Petrofac’s corporate reform programme and the funds that it said were available.
No other individuals at Petrofac have been charged, including those who were alleged to have directed Mr Lufkin’s bribery. After the sentences were handed down, however, the SFO confirmed that ”the investigation into the conduct of individual suspects continues”.
Why does this case matter?
The leniency of Petrofac’s plea agreement should invite scrutiny of whether prosecutors and the SFO are too willing to compromise in their efforts to ensure corporate accountability for criminal conduct. Because Petrofac’s guilty pleas reflected only 7 of the 14 offences that Mr Lufkin pleaded guilty to, the company was let off the hook for bribes paid to secure billions of dollars’ worth of contracts. By way of illustration, Mr Lufkin – but not Petrofac – pleaded guilty to bribes in relation to a project in Saudi Arabia that was won by Petrofac and worth approximately $1.56 billion; and a contract in UAE with a value to Petrofac of $2.9 billion. This will have reduced Petrofac’s culpability and the fine for which it was liable. Petrofac’s submission about the funds it had available then determined the upper level of the fine.
The absence of senior Petrofac officials from the courtroom highlights the persisting challenge of holding senior executives to account for corruption, and reinforces the urgent need for legal reform to ensure those who direct and benefit from corporate crime are held responsible for their wrongdoing. Mr Lufkin committed his offences under the instruction of more senior executives at Petrofac, but the individuals who directed his offending, and who had the most to gain from the corruption, have yet to face justice. One of those executives cannot be named as a result of a court order. The co-founder and Chief Executive of Petrofac from 2002 until the end of 2020, Ayman Asfari, who was questioned under caution by the SFO on 12 May 2017 and released without charge, was not mentioned throughout the proceedings. No findings of any kind have been made against Mr Asfari or any individual apart from Mr Lufkin.
The absence of a compensation order illustrates how the complexity of many overseas bribery cases can pose a significant barrier to identifying harm and quantifying loss even in the most egregious instances of corruption, and highlights the need for greater victim representation to identify and redress the harms of corruption. Neither the SFO nor Petrofac suggested that specific individuals or groups of individuals could be identified who had suffered a quantifiable loss requiring compensation, and there was no evidence that the contracts won by corrupt means had their contract prices artificially inflated, nor that Petrofac did not properly perform its contracted work. As a result, no order was made to pay compensation. The current position – that compensation is only suitable for “clear and simple cases” – means that harms suffered by victims of corruption are often not represented in court.
The case opens the door to greater cooperation from witnesses who might be incentivised to assist the SFO with its investigations in exchange for leniency in their sentences. Mr Lufkin’s reduced sentence (from a 7-year custodial sentence to a 2-year suspended sentence) is a victory for cooperation and a useful precedent for the SFO. The SFO’s Director, Lisa Osofsky, has expressed an interest in defendants cooperating and becoming witnesses in return for leniency but the SFO has previously made less extensive use of these powers than their US counterparts. The consequences of cooperating with an investigation are by no means guaranteed, but the successful outcome of Mr Lufkin’s cooperation – both for the SFO and Mr Lufkin – may see other executives doing the same.
The case raises significant questions about the UK government’s considerable support for a company that was subject to a corruption investigation, as detailed further below. Liam Fox, former International Trade Secretary, lobbied Bahrain on Petrofac’s behalf in 2017, months after the SFO had announced its investigation; In the same year, a member of Mr Cameron’s cabinet reportedly sought to interfere with the SFO’s investigation; UK Export Finance provided Petrofac with a £700 million loan guarantee for a project in Oman in 2019; and in February 2021, Petrofac received a £300 million loan from HM Treasury under the Covid Corporate Financing Facility. Mr Asfari was appointed a Business Ambassador by David Cameron and has donated around £800,000 to the Conservative party in a personal capacity.
The SFO’s investigation into Petrofac stemmed from its investigation into Unaoil, a Monaco-based agency which sought to bribe officials on behalf of Petrofac.
Petrofac’s Board provided strategic and governance oversight of Group subsidiaries from the company’s main offices in London. One such subsidiary, Petrofac International Limited (PIL), was responsible for bid proposals, securing tenders, and undertaking operating contracts in the Middle East. Petrofac’s Board had delegated the powers to appoint agents to the senior executives who instructed Mr Lufkin, and those powers were overseen by the Group Head of Compliance and the Agents and Consultants Committee. Petrofac accepted that its procedures for preventing bribery were inadequate up to 17 May 2017, when the system for overseeing agents was changed.
Mr Lufkin was based in Sharjah in the UAE during the indictment period as Group Head of Sales and Marketing, and later as Senior Vice President of Business Acquisition. Judge Taylor noted that, “acting on the instructions and directions of two more senior Petrofac personnel” Mr Lufkin was central to the use of corrupt agents, negotiation of bribes paid to them and the payment of bribes in Iraq, Saudi Arabia and UAE. No findings have been made against the Petrofac executives who instructed Mr Lufkin, one of whom has passed away. The methods used to conceal the bribery were complex and similar in Iraq, Saudi Arabia and the UAE, with payments made against false invoices or sub-contracts, or through companies that were already contracted to provide services to Petrofac. Some of the offending involved local or national government officials.
UK political context
The UK government has been a vocal supporter of both Petrofac and Ayman Asfari. David Cameron took Mr Asfari to Kazakhstan in 2013, and, as noted above, Mr Cameron appointed him a Business Ambassador in 2014 to promote trade for the UK government. Mr Asfari and other Petrofac representatives had 34 recorded meetings with UK Ministers between 2012 and 2021. In 2016 alone, Mr Asfari met Justine Greening (Development Secretary), Philip Hammond (Foreign Secretary), Boris Johnson (Foreign Secretary) and Priti Patel (Home Secretary). In 2017, both Theresa May and David Cameron lobbied Bahrain in support of Petrofac being awarded a $5 billion contract. In the same year, a member of David Cameron’s cabinet reportedly approached a senior prosecutor in relation to Mr Asfari’s role as a business leader. Liam Fox, then International Trade Secretary, lobbied Bahrain on Petrofac’s behalf, including 4 months after the SFO announced its investigation into the company. Whilst it was being investigated by the SFO, Petrofac received a £700 million loan guarantee from UK Export Finance in 2019, and a £300 million Covid-related loan from HM Treasury in February 2021.
Ayman Asfari and his wife, Sawsan, donated around £800,000 to the Conservative party between 2009 and 2017 in a personal capacity. Asfari has reportedly been a member of the ‘leader’s group’: individuals who are invited to join the Prime Minister and senior Conservatives for meetings in return for providing at least £50,000 each year to the Conservative party. Mr Asfari stepped down as Petrofac’s Chief Executive at the end of 2020 and was appointed a Non-Executive Director to Petrofac’s Board. Mr Asfari remains Petrofac’s largest shareholder.
The case in the UK
On 6 February 2019, David Lufkin pleaded guilty to 11 counts of bribery, contrary to section 1 of the Bribery Act 2010, relating to contracts in Iraq and Saudi Arabia. On 10 January 2021, Mr Lufkin pleaded guilty to 3 more counts of bribery relating to contracts in the UAE. When sentencing, Judge Taylor said these contracts were worth approximately $8.4 billion in total, with bribes of around $81 million paid to secure them. Mr Lufkin had been at the centre of the corrupt scheme and engaged in large-scale corrupt activities for 5 years: meeting agents, negotiating fees, and assisting with payment. However, Judge Taylor accepted that Mr Lufkin worked on the instructions of those senior to him and that complaining or refusing to comply would have been difficult.
Mr Lufkin’s offending fell into the most serious category for culpability and harm, which had a starting point of a 7-year custodial sentence. That was reduced to 3 years for reasons including Mr Lufkin’s cooperation with the SFO. Mr Lufkin had entered into an agreement with the SFO under section 73 of the Serious Organised Crime and Police Act 2005, under which he pleaded guilty to a wider range of offences than Petrofac and provided a “treasure trove” of information over 4 years. Judge Taylor noted that “It is undoubtedly the case that Petrofac would not have pleaded guilty to the seven offences it has, had you not provided the detailed co-operation you did.” She added that others should be encouraged to provide assistance. Mr Lufkin’s sentence was reduced from 3 to 2 years, because he pleaded guilty at the earliest opportunity, and suspended for 18 months.
At a confiscation hearing on 15 December 2021, the SFO secured an order for Mr Lufkin to pay around £140,000, reflecting the proportion of cash bonuses that he received between 2013 and 2017 in connection with his unlawful conduct.
On 24 September 2021, Petrofac Limited was charged with 7 offences of failing to prevent bribery, contrary to section 7 of the Bribery Act. The company was accused of failing to prevent senior executives from using agents to pay bribes in order to win contracts between October 2011 and May 2017. On 1 October 2021, Petrofac pleaded guilty to those counts, which mirrored 7 of the offences to which Mr Lufkin had pleaded guilty. However, while Mr Lufkin admitted paying bribes of $81 million for contracts worth $8.4 billion, Petrofac accepted responsibility for around half of the offending: failing to prevent bribes of $44 million to secure contracts worth $3.67 billion. It is not clear why Petrofac did not plead guilty to failing to prevent bribes in respect of one project in Saudi Arabia, for example, which was won by Petrofac and worth $1.56 billion.
The purpose of a confiscation order is to deprive an offender of the benefit of its offending, but in Petrofac’s case it was not straightforward. The contracts on Petrofac’s indictment – some of which were profitable, others loss-making – were taken as a representative sample of the full set of contracts entered into by the Petrofac Group subsidiaries, with a resulting benefit of $24.5 million to Petrofac. To the $24.5 million was added $6 million, which was the financial advantage to Petrofac by not having in place adequate procedures to prevent bribery, resulting in a confiscation figure of $31.4 million (£22.8 million).
After aggravating and mitigating factors were considered, the fine was initially determined as $323,479,209 (£213,779,729). That was adjusted to reflect Petrofac’s corporate reform, with its change of leadership and strengthened compliance team and due diligence; as well as the impact of a fine on the firm, Petrofac’s substantial short-term debt, its undertaking to HM Treasury to repay its Covid Corporate Financing Facility prior to paying any court-imposed penalty, and Petrofac’s claim that only $90-110m was available. Judge Taylor did not consider it necessary to put Petrofac out of business: the fine needed to be “painful” but payable. She decided on a fine of $96 million, with a one-third reduction for the guilty plea. Accordingly, Petrofac was ordered to pay a fine of $64 million (£47,197,640), confiscation of $31,399,945.63 (£22,837,985.04) and the SFO’s costs of £7 million. Petrofac’s share price increased significantly after the lower than expected fine was announced. The company has since issued shares to help pay its fines.