The Dark Side of Power: The drivers of corporate corruption in the energy sector

As the Panama Papers, Bahamas Leaks and Paradise Papers scandals have recently demonstrated corruption is rife in our societies. Although corruption has always constituted a plague for human civilization and has also penetrated into unexpected sectors of our communities, such a criminal phenomenon has traditionally been wildly rampant in the energy sector, and its effects have proved to be extremely dramatic.

In the chapter entitled “The Dark Side of Power: Corruption and Bribery within the Energy Sector,” which has been recently published in the Research Handbook on EU Energy Law and Policy (Edward Elgar, 2017) Rafael Leal-Arcas and Jan Wouters (eds.), I offered a general introduction the topic of corruption and analysed the reasons behind the fact that, almost unexpectedly, over the course of the last decades, it has gradually moved from the margins to the centre of the international political stage.  In particular, I have stressed how the process of economic globalization, mainly consisting in capital and product market liberalization, has dramatically transformed the way in which companies organize their business activities and has had profound effects on the way in which corporations are governed.

Then, I tried to explain why corruption has proved to be particularly invasive in the energy sector. In particular, I have identified at least three key reasons that appear to lie behind the pervasiveness of corruption in the energy sector.

– The first one is the crucial geopolitical importance that energy resources have always had due to the asymmetric distribution of reserves, production, and consumption of natural resources among the globe.  The enormous difficulties that have constantly been experienced at the transnational level in regulating energy trade reflect the uniqueness of such a situation.  As a result, countries’ ability to meet their primary energy needs might well represent a relentless national drive to conclude a contract at any cost even secretly bribing foreign public officials. This is clearly connected with the enormous amount of money usually involved in energy transactions. The investments in the energy sector are usually massive and require a vast amount of funds. As a result, energy companies tend to become giant and enormously rich corporations, which in many cases are also backed by governments.

– The second reason is related to the inherent intrusiveness of the vast majority of energy investments with respect to a country’s environment and social fabric. It is well known that the explorations made to find crude oil and the construction of oil pipelines inevitably entail the causation of severe environmental damages as well as major risks for human health. Besides the potential environmental and health damages, which are extremely difficult to be restored, the construction of energy infrastructures necessitates massive deforestation and dispossession of land schemes. As a result, in order to obtain from the local governments the green light to construct such intrusive and damaging energy infrastructures, industrialized countries traditionally used imperialistic approaches,  then, after decolonization, they have systematically installed puppet regimes.  At the same time, the powerful energy corporations have methodically used corruption as an effective means of obtaining political support or controlling local rulers.

– The third one is that, for historical reasons, the vast majority of countries that are rich in terms of energy resources also appear more vulnerable to corruption. Although, as we have seen, every country, regardless of political tradition, culture or socio-economic status, has experienced bribery, misappropriation of funds and misuse of political position,  developing countries seem to be more exposed to corruption risks and that, in turn, such illicit activities exert adverse consequences on their development. Moreover, low public-sector wages, illiteracy, inadequate management controls and lack of adequate technology for monitoring, poor recruitment and selection procedures, poor working conditions and facilities, lack of public information, and the inadequate capacity to meet the demand for government services, are all factors frequently cited as a source of corruption in less-developed countries.

Finally, I offered the depiction of a recent tale of dishonesty, which is emblematic of the way in which corrupt practices are commonly perpetrated within the energy industry. It is related to the arrest of the Russian Economic Development Minister Alexei Ulyukayev on 15 November 2016, who was accused of corrupt practices because he allegedly received a $2,6 million cash bribe from the Kremlin-controlled Rosneft to facilitate the controversial acquisition of Bashneft. This scandal gave me the opportunity to investigate the reasons why corruption has become widespread in the Russian energy sector. As a matter of fact, since the adoption of the farcical privatization processes that followed the collapse of the Soviet Union, the energy sector has become the privileged hunting ground for the new class of emerging rich oligarchs. This phenomenon was consolidated during the ongoing Putin era. The President used his political influence to pursue a strategy aimed at gaining the complete control of the enormous amount of Russian energy resources and, once obtained the control of the vast majority of Russian energy resources, Putin began to exercise an immense power to benefit himself and his entourage. In order to pursue his political interests, the President used such a power to persuade key individuals, both domestically and abroad, to join his corrupt inner circle. For instance, in Italy, a journalistic inquiry has recently investigated the shady deals that Putin orchestrated to establish a close relationship between the Russian energy companies and Eni SpA, the Italian multinational oil and gas giant.

Within such a grim scenario, the circumstance that many governments, international organizations and NGOs are committed to fighting against corruption is surely admirable and has to be warmly welcomed. However, it is necessary to recognize that, especially in the energy sector, we are still very far away from defeating corruption or even curbing it…