10 things that you can do to make sure your business manages offsets
1. Increase awareness and training
As offset agreements can be highly complex and involve several contracts related to different investments that the company has committed to, employees need to be trained on the risk exposure arising from these offset agreements. It is also essential that employees understand the entire offset-agreement process to prevent them from inadvertently promising bribes to government officials. We have a proven methodology for managing risks.
2. Implement a policy
Besides training, the nature of offset agreements and the company’s tolerance to anti-corruption in this area need to be addressed in a specific policy. This policy needs to outline when entering into an offset agreement is appropriate, any reporting requirements for entering into offset agreements with particular countries, and which steps the employee needs to follow if they wish to have an offset agreed upon as a part of a transaction.
3. Prepare an approval procedure
Offsets need full transparency in an organisation’s approval process. They should not be left at a local level and, depending on the amount of risk surrounding the offset, they should receive appropriate review at a senior level of the company. The procedures for approval may require disclosure of the offset as part of the bid-management process.
4. Conduct due diligence
A comprehensive due diligence process needs to be carried out for any recipient of funds under the offset agreement. For example, due diligence should be conducted on beneficiary companies and sub-contractors under an agreement, paying particular attention to whether there is any background of illicit conduct or conflicts of interest linking the companies to the foreign officials. The information that should be gathered on offset beneficiaries and partners includes their registration records, key principals, corporate structure and owners. High levels of due diligence will include on-the-ground queries with industry sources and customers. The focus is to determine the connections between the offset investments and the products and services that are being negotiated.
5. Oversee the financials
The offset agreement needs financial oversight from a revenue recognition perspective. The finance team need all information on the underlying deal as well as the offset agreement to understand the links between them. The finance team may suggest particular ways to negotiate the contracts to improve the ability to recognise revenue faster in accordance with the company’s policies and accounting practices.
6. Think about structure
The legal department needs to be engaged early to look at how to structure the underlying agreement and the offset obligations. This may require separation or restructuring to address issues in transparency, liability or revenue recognition, or so that due diligence can be a condition of the agreement.
7. Create transparency
Transparency is important in offsets, and it may be necessary to report the agreement and its associated steps on a website or other public document. Transparency initiatives may require offset contracts, payment information or due diligence files to be published, or follow-up reports on the offset and how the work is being completed.
8. Understand reporting obligations
The company needs to understand which reporting obligations it has with respect to the offset agreements. Your home government may require disclosure similar to the defence contracts on page 60. It is also possible that some of the obligations under transparency laws may require payments to be disclosed (for example, certain United States–listed companies in the extractive industries have obligations to disclose payments made to governments).
In terms of transparency, both the contractor and the purchasing government (or company) should have a monitoring system in place to ensure that the company is meeting its offset obligations as they are outlined in the offset agreement. Monitoring should also be done on offset partners, with renewal due diligence over the course of the partnership.
10. Create a public relations plan
Build a plan for addressing media enquiries around the offset and how the company has managed the risks associated with the offset agreement. It is very easy to equate an offset agreement with an award of a large services or product transaction and it is important to get ahead of the curve when it comes to dealing with the media and public opinion on the transparency with the transaction as a whole.
The main concern with offset agreements is the lack of transparency and the secrecy in their content. Of course, offset arrangements can serve legitimate and beneficial purposes, such as encouraging growth and development in emerging markets. However, internal controls need to be strengthened by government bodies and by companies themselves.
There needs to be close monitoring to ensure that offset agreements remain legitimate and are not used as façades for bribes, and that the obligations within those agreements (for example, to enhance a country’s economic progress) are being met. Controls such as due diligence should also be implemented to detect and remediate any conflicts of interest. Offset agreements need to be highlighted through codes of conduct, and warrant a dedicated policy.