RC: In your opinion, what is extent of fraud risk currently facing organisations operating in the energy & natural resources sector?

Clement: Whenever we are confronted with an economic downturn, companies are forced to look for savings and adjust their strategic plans from aggressive growth to survival. This results in cutbacks at all levels of the organisation, inclusive of personnel within audit departments, thereby requiring everyone to undertake more with less. The recent drop in oil & gas prices has had a direct impact on output and with the current market we are confronted with a situation of oversupply. All of this results in less information being available with which to ensure appropriate governance within the organisation. On top of this, most organisations still remain vulnerable to cyber crime and its associated fraud scheme risks.

Prado: In Brazil, we need to bear in mind that ‘energy & natural resources’ encompasses different sectors with very different levels of risk and legal frameworks. For instance, the water resources sector – which includes both water collection and wastewater disposal – seems to have a low level of risk, probably because it is not seen as a profitable area. However, the mining sector may face higher levels of risk, since the applicable legal framework is outdated, and lacks clear and transparent dispositions regarding the granting of mining rights. Furthermore, recent developments have exposed the involvement of Petrobras – the Brazilian oil & gas state owned company – in several cases of fraud, basically related to the downstream shipping industry and refining companies, but also regarding upstream oil & gas exploitation. Power generation, transmission and distribution is another sector that may be considered low risk, probably because most companies in the sector were privatised during the 1990s and also because the sector benefits from a modern, transparent, more efficient and independent regulatory regime, regardless of the fact that there are some specific cases under investigation.

Apr-Jun 2016 Issue

Clement Advisory Group

Koury Lopes Advogados

Ropes & Gray