Oil and gas is one of the world’s most valuable and strategically important industries. However, that value makes it an attractive target for corruption.

From securing exploration rights and production licenses to awarding contracts, moving crude across borders, selecting commodity buyers, and managing relationships with state-owned enterprises, the global oil and gas value chain presents numerous opportunities for bribery, kickbacks, favoritism, conflicts of interest, and other forms of corruption.

Corruption risks can arise throughout the lifecycle of an oil and gas transaction.

1. Licensing and Exploration

Before a single barrel is produced, companies may need government approval for exploration rights, production licenses, concessions, environmental permits, land access, or other regulatory authorizations.

Where substantial economic value depends on the discretion of public officials, the incentives for bribery can be significant.

An official may be offered money, gifts, employment opportunities, or other benefits in exchange for:

• awarding or accelerating a license;
• approving favorable contractual terms;
• overlooking regulatory deficiencies;
• providing confidential information about competing bids; or
• influencing the allocation of exploration or production rights.

The Organisation for Economic Co-operation and Development (OECD) identifies licensing as a particularly important corruption-risk point within the oil and gas sector, noting that companies seeking access to reserves may engage in bribery to secure favorable terms or expedite bureaucratic processes.

For financial institutions, transactions associated with newly formed energy companies, unusual government-related payments, or significant payments involving individuals connected to licensing decisions may warrant additional scrutiny.

For oil and gas companies, the question is broader: Who helped secure the right to operate, and why were they paid?

2. Procurement and Contracting

Oil and gas projects can involve enormous expenditures on drilling, engineering, transportation, construction, equipment, logistics, security, environmental services, consulting, and maintenance. That creates fertile ground for kickback arrangements.

A contractor may inflate an invoice and secretly return a percentage of the payment to an employee who helped award the contract. A procurement officer may steer business toward a company owned by a relative. A consultant may receive an unusually large “success fee” for facilitating a government contract.

The underlying transaction may appear legitimate on paper but corruption becomes apparent when the relationships and economics behind the transaction are examined.

Red flags may include:

• 🚩  Consultants receiving unusually high commissions
• 🚩  Success fees that are disproportionate to the work performed
• 🚩  Vague descriptions of services
• 🚩  Contracts awarded without meaningful competitive bidding
• 🚩  Vendors with unexplained relationships to government officials
• 🚩  Multiple vendors sharing addresses, ownership, directors, or contact information
• 🚩  Payments routed through unrelated jurisdictions
• 🚩  Requests for payments to accounts belonging to third parties
• 🚩  Unexplained changes to payment instructions shortly before settlement

For financial institutions, these indicators can intersect directly with transaction-monitoring and enhanced due diligence processes.

For oil and gas companies, they should also be considered during procurement, vendor onboarding, internal audit, and third-party risk management.

3. Third-Party Intermediaries

One of the most persistent corruption risks in international business is the intermediary. Agents, consultants, brokers, distributors, freight forwarders, customs representatives, local partners, and other third parties can provide legitimate and necessary services. But they can also create distance between the company making a payment and the ultimate recipient of an illicit benefit.

A company may be told that a local intermediary is “necessary” because of its government relationships or ability to navigate the local market. That relationship deserves scrutiny and critical questions to ask include:

• Who owns the intermediary?
• Who controls it?
• What services is it actually providing?
• How was it selected?
• Why is its compensation commercially reasonable?
• Where does the money ultimately go?

The risk is especially significant when an intermediary has a close relationship with a government official or employee of a state-owned enterprise. Due diligence should not stop at confirming that a company is legally incorporated. The objective should be to understand the real people, relationships, ownership interests, incentives, and purpose behind the relationship.

4. State-Owned Enterprises and Government Officials

Oil and gas is unusual in the extent to which commercial activity can intersect with the state. Governments may own exploration rights, regulate production, control national oil companies, determine export permissions, oversee infrastructure, or participate directly in commodity trading. State-owned enterprises (SOEs) can therefore occupy critical positions throughout the value chain.

An employee of an oil company may interact with a procurement officer at a national oil company. A trader may negotiate a crude purchase with a state-owned enterprise. A financial institution may provide banking services to the SOE and its subsidiaries. While these relationships are not inherently problematic, where government officials or SOE employees have significant discretion over contracts, licenses, pricing, procurement, or access to resources, corruption risks can increase.

The OECD has specifically highlighted the importance of transparent and competitive processes when state-owned enterprises select buyers for publicly owned oil, gas, and minerals, noting that weak processes can create opportunities for favoritism and corruption.

For compliance teams, this makes understanding who makes the decision, who benefits from the decision, and who is financially connected to the decision particularly important.

5. Commodity Trading

After oil is produced, commodity trading can introduce another layer of complexity. Large transactions may involve traders, brokers, state-owned entities, refineries, shipping companies, financial institutions, and multiple intermediaries across jurisdictions.

The DOJ’s enforcement history illustrates the risk. In March 2024, the U.S. Department of Justice announced that an investigation into international commodities trading companies’ foreign bribery schemes had resulted in six corporate resolutions, 20 individual convictions, and more than $1.7 billion in aggregate fines, forfeitures, and other penalties. The cases involved bribes paid to officials associated with state-owned and state-controlled oil companies in Latin America and Africa.

In another case, former oil trader Javier Aguilar was convicted in 2024 in connection with a scheme involving bribes to officials at Ecuador’s state-owned oil company Petroecuador. Prosecutors presented evidence involving alias email accounts, code words, sham contracts, fake invoices, and shell entities used to conceal the scheme.

These cases demonstrate an important point for financial institutions: The transaction that reaches the bank may look nothing like the underlying corrupt arrangement. The illicit payment may be disguised as a consulting fee, commission, loan repayment, trade expense, or other apparently legitimate commercial payment.