Economic Crimes and Oil and Gas Transactions

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Introduction

Money laundering has become a common phenomenon in nearly all the countries in the world. Money laundering is an action that involves moving money through a couple of nations with the objective of obscuring its origins (Hopton 27). Money laundering can be regarded as an act of making that comes from one source to look like it originated from another source (Kale 11). To understand the aspect of money laundering, it is important to know what necessitates it, the people behind that act and what their motives are, and the strategies put in place by the authorities concerned to try to stop this act (Bowden 26).

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The main aim of money laundering is to disguise the origins of money accrued from illegal contracts to look like it came from legal transactions (Hinterseer 13). Without money laundering, the criminals cannot use the money for fear that they will be connected to criminal acts, arrested and then taken to court. Money laundering has been complicated further by factors such as the technologies used in financial transactions which make it easier for the criminals to get away with money laundering acts (Kale 24).

According to WTO, money laundering act broadly consists of handling stolen products, handling proceeds from criminal activities such as robbery and tax evasion, helping in the laundering of terrorists’ belongings, and using the proceeds gained from criminal activities for legal purposes (Hinterseer 29). From this definition, it is evident that if money laundering is not wiped out or closely monitored, it can give the criminals a chance to find legal cover for the proceeds they obtain from crimes (Bowden 31).

Oil and Gas Contracts and Bribery Crime

Oil and gas contracts refer to agreements reached at by several companies with the aim of developing a prospect area. The agreement can be concealed with each company taking up the costs of production and other expenses in a given proportion as determined in the contract. In a case where the contract is limited to a single spacing unit, the member companies will share the cost in a ratio that is equal to their leasehold estate position within the spacing unit (Jennings 29).

Apart from the contract area that determines how costs and production expenses are shared among the companies involved, oil and gas contracts also consist of a working interest area. In the latter agreement, the sharing of the production cost is mainly based on the lease ownership and is spread throughout the contract (Jennings 32). This type of agreement is more important as it discourages the unfairness that is associated with the share ratio based on the ownership of the spacing unit where the site is situated (Jennings 36).

Unlike the oil and gas contracts, bribery in legal perspective refers to an act that includes offering or accepting valuable items such as money in exchange for a favor or an action. The money laundering laws regard both the person offering the bribe and the one receiving it as criminal suspects and they can both be charged with a criminal offence (Hall 178). There are numerous types of bribes, although all of them are designed to influence the deeds of influential persons. The main driving forces behind bribery are political and public corruption and money laundering (Kale 33).

A large number of bribery cases go unnoticed as they are normally given in form of gifts to induce exchange for certain favors. Some of the bribery related crimes for which a suspect may be charged before a court of law include kickbacks, fraud, extortion, and tax evasion. From this, the main reason that does drive individuals to bribe their way out of various contracts is to obtain illegal gains such as unlawful commissions. The kind of punishment accorded to the bribery cases depend on the degree of their severity (Hall 184).

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Tyco Caught in Saudi Aramco Bribery Probe

Tyco’s case study describes the way Swiss oil and gas equipment manufacturer Tyco involved itself in a shoddy deal worth US$26 million. The bribery incident also involved major oil and gas companies from the Middle East. According to a statement released by the US Department of justice last week, Tyco Valves & Controls Middle East Incorporated admitted the wrong it had committed in bribing the officials from Saudi Aramco (“Tyco Bribery Probe” 1).

According to the current facts, Tyco Valves & Controls Middle East Incorporated accepted that it bribed officials from state owned companies. The company’s main motive, which is also the driving factor behind the bribery incident, was to win lucrative petroleum contracts. The company, which is a wholly owned subsidiary of Tyco International, maintained that Tyco was willing to part with about $14 million should the deal fail to mature up (“Tyco Bribery Probe” 1).

According to some of the media houses including the Financial Times, Saudi Aramco was not the only company that received the bribe. The other companies that are said to have received the bribe between 2003 and 2006 include Vopak Horizon Fujairah, Emirates National Oil Company and the National Iranian Gas Company. For that reason, the bribery saga involves many companies making it difficult to follow it up (“Tyco Bribery Probe” 1).

Tyco Company and its executive staff managed to hide the incident of bribery for so many years by applying a number of dirty tactics. It has now been proved that for the last decade, Tyco’s entities bribed foreign officials, but they were able to hide the incident from the public by cooking the cashbooks and concealing payments. The application of dirty tricks in financial transactions is the most common method that companies use to hide payments (“Tyco Bribery Probe” 1).

In any case, the major companies that are involved in the saga agreed to settle it out of court. As a move of ensuring that all the victims of the incidents are fairly compensated, the Tyco International and Tyco Valves & Controls Middle East Incorporated agreed to work hand in hand with the US Department of Justice to ensure that the culprits are brought to face the law (Muller 47). Tyco’s entities will be reporting to the department on a regular basis to update the department on their compliance efforts. The compliance efforts comprise implementing an effective compliance program and other internal measures that will ensure that the FCPA (Foreign Corrupt Practices Act) are not violated anymore (“Tyco Bribery Probe” 1).

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Oil and Gas Transactions as a Channel for Economic Crimes

From the case study, it is evident that oil and gas transactions are one the major financial transactions that malicious individuals can use to their advantage (Masciandaro 61). The oil and gas transactions are easy to manipulate as they involve large sums of money, which someone can easily add or omit figures and an unsuspecting auditor may not realize. It is very difficult to see the few figures added or omitted as most of the internal control measures put in place cannot detect such type of fraud and money laundering (Masciandaro 67).

The case of Tyco Entities on one side and National Iranian Gas Co., Emirates National Oil Company and Vopak Horizon Fujairah is a typical example of how transactions of oil and gas can lead to money laundering. Tyco entities managed to bribe the foreign officials from the companies who were able to hide such transactions by cooking the cashbooks (Kale 47). The aim of the bribery, which was to enhance the chances of Tyco Company winning the valuable petroleum contract, would see the company climb the top in the industry. This was going to be an unfair gain by the company and would make it an influential player within the industry (Souza 89).

Tyco’s financial management team managed to hide the shoddy transactions by cooking the cashbooks. This is a common occurrence within financial records of most companies and it has been used for so many years to promote money laundering (Muller 49). Money laundering in the case of Tyco Entities would not only benefit the company alone but also the other firms that were on the receiving end. If the case of money laundering was undetected, the act would have unfairly enriched all the companies involved (Scott 14).

Vulnerability Factors of Oil and Gas Contracts under Free Trade Zones to Economic Crimes

Free trade zones have created a lot of through ways for money laundering. The studies that have been conducted on money laundering vulnerabilities of trade zones show that many unscrupulous individuals have turned the zones to their own advantage into places for money laundering and financing unlawful activities such as terrorist attacks (Souza 93). The main factors that have made it easy for the people to carry out the economic crimes are the failure by the domestic authorities to keep vigilant sight on the borders and the poor coordination between the customs personnel (Madinger 248).

The susceptibility of the zones to money laundering has also been detected by the Financial Action Task Force (FATF). The FATF, whose headquarters is based in Paris and which is mandated to coordinate and monitor how governments control money laundering, agrees that a lot should be done to stop the money laundering practices (Kale 77). The volume and frequency of money laundering practices can be seen in the crime statistics. According to the statistics, China is the leading country in trade of counterfeit goods and money laundering followed by the United Arab Emirates; the latter study was conducted by the European Union customs department (Souza 96).

Oil and Gas contracts together with other business transactions have created more than 2,700 free trade zones in about 130 state-owned nations. Most of the world’s free trade zones are concentrated in Asian countries such as Dubai. The free trade zones make it easy for companies like Tyco to make a fast deal with other countries on issues regarding oil and gas contracts (Madinger 251). It is through the free trade zones that money received illegally from one country can be passed through another country in an attempt to confuse individuals about its origin. With these zones, an individual can circulate proceeds received from unlawful contracts through many countries to make them legal (Souza 99).

The Effects of Economic Crimes Conducted in Oil and Gas Contracts

Economic crimes, especially money laundering, interfere greatly with the economy of the country where the act is done. First, the economic crime causes severe economic distortions as it impairs the growth of a legal private sector mainly through the supply of oil and gas products, which are excessively underpriced (Gallant 12). For that reason, it makes it difficult for oil and gas companies which deal in legitimate activities to prosper. Criminals of money laundering, if not monitored, can without difficulty cause productive companies to become sterile to launder their funds, which ultimately decreases the productivity of such companies. Severe money laundering practices can also result in unpredictable patterns in the demand for money (Gallant 17).

Apart from the distortion of the economy, laundering of money can also lead to erosion of the financial sector. Criminals wishing to launder money can turn to the financial sector, despite its essentiality in supporting a legitimate economy. The flows of huge amounts of laundered money ingested into or out of an economy can affect the stability of financial institutions and markets (Scott 17). If this happens, laundering of money can destroy the reputation of the oil and gas companies that are involved in the illegal transactions or contracts. Serious situations in which money laundering goes on for long without being noticed can lead to the total failure of financial institutions in a nation or region (Reuter and Truman 73).

Money laundering can also result in an acute reduction in the government’s revenues as it becomes difficult for government to collect revenue from related transactions; this is because most of the contracts are done in the underground economy. Once the laundered money is successfully turned into legitimate proceeds, it can be used to fund unlawful activities such as terrorist attacks (Gallant 36).

International and Domestic Strategies and Measures to Combat Economic Crimes

It is evident that most of the serious economic crimes that are carried out by transnational criminal groups and the crimes involve international contracts. The international standards defined in the 2000 UNTOC Convention should be redesigned to unveil the most effective strategies that can be used to combat the crimes (Sharman 15). A campaign to mobilize all countries to comply with this convention by amending their internal laws should be carried out to reflect what is contained in the act. In addition to the compliance to the TOC Convention, the recommendations that were adopted by FATF 2003 should be incorporated into every country’s legal system (Sharman 19).

All the countries should install effective anti-money laundering laws and regulations to check the practices of international criminals within their soil (Sharman 22). To make the money laundering laws effective, every country should ensure that its laws cover all the economic crimes as required by the TOC Convention Article 6. In addition, every nation should also enact other laws and regulations to constitute a strong regulatory and supervisory system to gourd and protect their financial institutions from money laundering (Reuter and Truman 37).

Conclusion

Money laundering is a fiscal felony and a practice in which criminals get hold of earnings gotten from illegal contracts after which they send them to other countries and smuggle it back so that it can appear like it has come from justifiable sources. Several oil and gas contracts have been identified as crucial sources from where the criminals make illegal proceeds, which give them unfair advantages over their colleagues. Money laundering can be combated by stringent international and domestic strategies. Most of the strategies are required to comply with the procedures of the TFT 2003 law and the 2000 UNTOC Convention.

Works Cited

Bowden, Stephen. Money Laundering: Key Issues and Possible Action. London: Commonwealth Secretariat, 2007. Print.

Gallant, Mary Michelle. Money Laundering and the Proceeds of Crime: Economic Crime and Civil Remedies. Northampton, MA: E. Elgar, 2005.

Hall, Daniel. Criminal Law and Procedure. Clifton Part, NY: Cengage Learning, 2009. Print.

Hinterseer, Kris. Criminal Finance: The Political Economy of Money Laundering in a Comparative Legal Context. The Hague: Kluwer Law International, 2002. Print.

Hopton, Doug. Money Laundering: A Concise Guide for all Business. Burlington: Ashgate, 2009. Print.

Kale, Ndiva Kofele. The International Law of Responsibility for Economic Crimes: Holding State Officials Individually Liable for Acts of Fraudulent Enrichment. Aldershot: Ashgate.

Muller, Wouter. Anti-money Laundering: International Law and Practice. Chichester: Wiley, 2007. Print.

Jennings, Anthony. Oil and Gas Exploration Contracts. London: Sweet and Maxwell, 2008. Print.

Madinger, John. Money Laundering: A Guide for Criminal Investigators. London: CRC Press, 2011. Print.

Masciandaro, Doanto. Global Financial Crime: Terrorism, Money Laundering, and Off Shore Centers. London: Ashgate, 2004. Print.

Reuter, Peter, and Edwin Truman. Chasing Dirty Money: The Fight Against Money Laundering. Washington, DC: Institute for International Economics, 2004. Print.

Scott, Paul Allan. Reference Guide to Anti-Money Laundering and Combating the Financing of Terrorism. Washington, DC: World Bank, 2006. Print.

Sharman, Jason Campbell. The Money Laundry: Regulating Criminal Finance in the Global Economy. Ithaca, NY: Cornell University Press, 2011. Print.

Souza, Jayesh. Terrorist Financing, Money Laundering and Tax Evasion: Examining the Performance of Financial Intelligence Units. New York, NY: CRC Press, 2011. Print.

“Tyco Caught in Saudi Aramco Bribery Probe.” Pipeline Magazine. 2012. Web.

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