Oil exploration and production is a dirty business in more ways than one. Much of the world’s oil and gas reserves are in countries that have notorious reputations for corruption. Everything is for sale including faster permitting. Want a jump on your competition? For a few million bucks its yours.
Paying bribes to foreign officials is illegal in most countries. What many folks don’t know is that foreign bribery and corruption can result in huge whistleblower awards if the company paying or offering the bribe is a U.S. company or offers securities on a U.S. stock exchange.
Recently, Royal Dutch Shell admitted it had dealings with a convicted money launderer when negotiating a lease for a large Nigerian oil field.
New emails suggest that Shell and Italian oil company ENI paid $1.3 billion to access an offshore oil field in the Niger Delta. Almost all that money, $1.1 billion, was passed through a company called Malabu. That company is controlled by Dan Etete, a convicted money launderer.
Italian prosecutors claim that $465 million of the money was laundered and given to former Nigerian President Goodluck Jonathan and his friends.
Shell has steadfastly denied any wrongdoing and says it investigated both Etete and his company Malabu before engaging their assistance. They say that the Nigerian government supported the transaction.
Shell’s position at first seems entirely plausible. That all changed when the BBC and several anti-corruption activists disclosed several emails documenting the transactions. Now Shell admits that instead of paying the Nigerian government as claimed, much of the money went to Etete.
Shell’s admission is critical because the company was already subject to a deferred prosecution agreement at the time of the questionable transactions due to another Foreign Corrupt Practices Act (FCPA) case.
Even after the emails surfaced, all parties including former Nigerian president Goodluck Jonathan have denied any wrongdoing.
Shell Oil’s Involvement with Dan Etete and President Jonathan
Lest you think that Shell is innocent and had no reason to suspect that bribes were being paid, just look at some of the emails uncovered by the activist group, Global Witness. One email from Shell representative John Copleston said, “He spoke to Mrs E this morning. She says E claims he will only get 300m we offering—rest goes in paying people off.” (The letter “E” refers to Dan Etete.)
Another email said, “Etete can smell the money. If at nearly 70 years old he does turn his nose up at nearly $1.2 bill he is completely certifiable. But I think he knows it’s his for the taking.” That email chain included Shell CEO Peter Voser.
A third email sent to a senior Shell manager claimed, “the President is motivated to see 245 closed quickly – driven by expectations about the proceeds that Malabu will receive and political contributions that will flow as a consequence.” (“245” refers to the name of the oil field.)
Even after Dutch and Italian police raided Shell’s headquarters, the company continued to stonewall. Dutch authorities intercepted a phone conversation between Shell’s CFO and new CEO discussing the raid. During the conversation, the two agreed to not disclose the raid to stockholders.
Oil Lease Intended to Benefit Nigerian People, not Politicians
Shell was bidding on access to an oil filed called OPL 245. It is reported to be one of the richest fields in the world. On paper, the payments by Shell and its Italian partner ENI would have infused poverty stricken Nigeria with over a billion dollars. If Global Witness is correct, however, only a few hundred million made it to the government’s coffers. The rest was taken by greedy and corrupt politicians. (Dan Etete is the country’s former oil minister.)
The amount of money stolen represents more than the Nigerian government spends on healthcare each year and was more than enough to eliminate food shortages for a year or more. Instead, the money was spent on private jets and luxury for a select few. (Dan Etete reportedly used some of the money to buy an armored car to protect the rest of his money.)
2010 Nigerian Bribery Probe and Royal Dutch Shell
The current investigation by Italian and Dutch prosecutors has now been expanded to 6 countries including the United States. Shell’s exposure in the United States could be huge since it was already subject to a deferred prosecution agreement for an earlier incident involving illegal payments to Nigerian officials.
Between 1999 and 2005, Shell was developing another oil field in Nigeria. Called Bonga, the deepwater water oil and gas project was the first in Nigeria. In the hopes of expediting development of the project, Shell allegedly bribed Nigerian customs officials millions of dollars. Instead of paying the bribes directly, Shell reportedly used an agent and characterized the bribes as “local processing fees” or “administration/transport charges.”
According to the SEC, Shell’s agents paid $3.5 million in suspicious payments to local officials.
The Justice Department and SEC ultimately fined Royal Dutch Shell and its affiliates for violating the Foreign Corrupt Practices Act. The companies had to disgorge $14,153, 536 and an additional $4 million in interest. In 2010, Shell Nigerian Exploration and Production Company paid a $30 million fine in the related criminal case. The company also entered into a three year deferred prosecution agreement. It now appears that the new allegations against Shell took place while the deferred prosecution agreement was still in place.
Oil Industry Plagued by Foreign Bribery
We have long written about corruption in the oil and mining industries. In the words of Global Witness, “The oil, gas and mining sector is the most corrupt on the planet, according to a study of hundreds of bribery cases by the Organisation for Economic Cooperation and Development (OECD). Half of these cases implicated senior management. With so much money at stake, it is easy for both companies and government officials to get greedy.”
Most of the world’s wealthiest countries now have robust public anti-corruption laws. These laws help protect both the public and the business community.
As is evident in this case, the public loses when money flows into the hands of corrupt politicians instead of public coffers. This case involves allegations of diverting public funds. Sometimes, however, politicians take bribes in exchange for allowing companies to pay less in fees or taxes. Either way, the public loses.
Legitimate companies that play by the rules also lose. Honest businesses that won’t pay bribes are often frozen out of bidding or have their bids ignored. They can also see their permits and projects delayed.
While the world moves to strengthen anti-corruption initiatives, the United States took a small step backwards this year when Congress and the new administration repealed an SEC Rule that required certain “resource extraction” businesses to disclose all payments of $100,000 or more to a “foreign government.” The measure (called Rule 13q-1) was designed to insure more transparency in the industry.
Foreign Corrupt Practices Act (FCPA)
Congress passed the Foreign Corrupt Practices Act (FCPA) to combat government bribery. The law extends to all companies that are based in the US, sell their securities in the US or register with the SEC. Under the law, it is illegal to bribe or offer a bribe to a foreign government official. Although more difficult to prosecute in the US, foreign officials that accept bribes or even solicit them can also be prosecuted.
Whistleblowers Are Essential for Successful FCPA Prosecutions
Dutch police got lucky with Shell. They were able to tap phone calls and use search warrants to obtain emails. Most foreign bribery prosecutions come to light because of whistleblowers. These are usually present or former employees with inside information about foreign bribery.
Was there a whistleblower involved in any of the Shell cases? The SEC won’t say because it is very protective of the identity of whistleblowers.
Whistleblower Awards and the FCPA
Unlike the foreign bribery laws of most other countries, the United States offers cash awards for information. If you have information about companies paying bribes or giving anything of value to a government official in exchange for a business advantage, you may be eligible for a cash award.
We believe that bribery and “pay for play” schemes remain the norm in the mining and energy industries. Unfortunately, these schemes are not victimless crimes.
If you have information about foreign bribery schemes, call us. We have helped our whistleblower clients receive over $100 million in awards. We will help you determine if your information qualifies, help you collect your award, protect your identity and if necessary, protect you against retaliation.
For more information, contact attorney Brian Mahany at or by phone at (414) 704-6731 (direct). Not quite ready to call? Visit our FCPA information page for commonly asked questions.
Not a US citizen? Don’t worry, US citizenship or residency is not required to receive award.
Whatever you decide to do, don’t delay. Rewards are generally only given to the first person to file. Wait too long and you may get nothing.