Regulatory and compliance issues in the energy sector are more important, and wide ranging, than ever

In 2024, investigations will continue to increase, as will global enforcement by regulators.

The past decade has seen an exponential rise in regulatory and compliance investigations. This, in turn, has led to significantly more enforcement action by regulators in the energy sector. 

As well as long-standing issues such as bribery and corruption, non-compliance with sanctions is the latest area to be targeted by global regulators.  

There is of course a considerable delay between sanctions being imposed, investigations being completed and enforcement action being taken. But we are beginning to see more and more regulatory intervention, as well as contractual disputes relating to termination and non-compliance. 

Companies who are active in the energy sector are particularly exposed to regulatory and compliance issues because they often: operate in “red flag” jurisdictions; work with Government officials on very high value contracts; have complex contracting structures which frequently involve a wide range of companies up and down the contractual chain (making it harder to ensure compliance); use agents or other third parties. 

The penalties, fines and disgorgements of profits following a successful regulatory prosecution can, depending on the size of the defendant company, be huge – amounting to hundreds of millions, even billions, of dollars/pounds.  

At the same time, regulators are now more sophisticated and co-ordinated than ever. Joint investigations are being conducted on a global basis, sharing information and knowledge and using IT and AI advancements to the full. 

As we have seen recently with the UK Covid-19 Inquiry, it is now commonplace for data from sources such as WhatsApp to be fully recovered by regulators and used in investigations and subsequent legal proceedings. 

We anticipate that the steep rise in regulatory enforcement will continue, on a global basis. Breach of sanctions, in particular, will be a key focus area for regulators and we expect to see a significant rise in enforcement activity. 

We will also see a rise in contractual disputes as a result of terminations for alleged breaches of sanctions and other regulatory non-compliance. The energy and construction sectors remain very high risk and all those operating in these sectors need to redouble their efforts to ensure full compliance with the complex and ever-changing regulatory regime.