Friday, 29 December 2017

The Oil and Gas Industry as the Latest to Become Embroiled in Corruption Allegations

On quite a few occasions here in Financial Regulation Matters, we have looked at the issue of corruption; that subject has taken across a number of industries, ranging from automobiles, tobacco, aerospace, and technology. In today’s post, the focus turns to the Oil and Gas Industry with news coming earlier in the month from Italy that one of the ‘biggest corporate bribery trials in history’ will start in 2019. So, we shall look at some of the details of the forthcoming case and assess it against a backdrop of legal action which is, on a global scale, looking to take the fight to corporate corruption.

It was announced on the 20th of December that industry-leading corporate giants Royal Dutch Shell and Eni would have to face trial in 2019, in Milan, to face allegations of corporate bribery in relation to a Nigerian oil-field. The trial is to focus on payments made by the companies in 2011, with the allegation being that the payments constituted bribes to secure a Nigerian offshore exploration contract, as well as a particular production block. The legal filings, which initiate proceedings against the two companies and key personnel like Eni’s Chief Executive, allege that, in the words of anti-corruption campaigners, ‘the Nigerian people lost out on over $1 billion, equivalent to the country’s entire health budget’; Reuters reports that the actual figure is closer to $1.3 billion, and concerns the former Oil Minister specifically. Mr Etete, the former Oil Minister, is said to have personally profited from the large payment, and thus deprived the Nigerian people from funds that should have entered the public fisc; Reuters continue by confirming that Etete, in 2007, was convicted by a French court for money laundering related to the same area.

Quite rightly, anti-corruption campaigners have been particularly vocal regarding these developments, with some suggesting that this may prove to be a ‘landmark case’ which should be ‘something of massive concern for the companies involved’. That may well be the case, with simultaneous investigations underway in Nigeria, Italy, and the Netherlands. However, the companies are adamant that the payments were legal and they do not know, and are not expected to know, what happened to the money once it was paid – the inference being that this case is an embezzlement case against Etete. Yet, anti-corruption group Global Witness and Finance Uncovered argue that, in what is really the crux of the case, the two companies’ executives knew the payments were going to Etete’s front-companies, with the reason being to allow Etete to bribe the relevant officials. Nevertheless, the real question is whether the suggestion that ‘this case heralds the dawning of the age of accountability’ represents reality.

Ultimately, there have been a number of positive developments in relation to the fight against corruption. Using the U.K. as just one example, the recent successes of the Serious Fraud Office in securing a £800 million + ‘deferred prosecution agreement’ with Rolls-Royce seemed to be the heralding of that new era in the U.K., which will have to play a central role in developing that new era owing to the centrality of London within the financial landscape. However, whilst on the surface it may look like developments are being made, there are worrying signs that Rolls-Royce have been designated as the scapegoat in this regard (although that should not detract from their transgressions) and that their penalty represents a veneer. We spoke recently about the political posturing that is currently surrounding the Serious Fraud Office on the personal whim of Theresa May and Amber Rudd, and recent news concerning the tobacco industry makes for worrying reading. It was reported today that senior MPs for the Conservative and DUP party, the ruling parties in the U.K. by way of their enforced alliance, have been hosting a string of receptions, lunches and dinners with senior members of leading tobacco companies like British American Tobacco and Philip Morris International. Whilst the news stories focus more upon the health effects of the companies’ products, the reality is that large international firms who have been proven to be partaking in bribery and corruption are not only courting senior political figures (as one would expect) but are having those advances reciprocated. Whilst the hope in relation to Shell and Eni is that the case will herald a new era, we know by now here in Financial Regulation Matters that one needs to focus on action rather than words, and in that regard there appears to be very little difference. The case will be an interesting legal event in that it pits exceptionally large multinational corporations against a country that is heavily dependent upon their business, but can one really foresee Executives being imprisoned? No. Can one expect to see the Nigerian people have their $1.3 billion returned to them? Perhaps in some limited form. The obvious result of this case is that Etete takes the fall, and whilst that may be justified if certain events are proven to have taken place, the underlying structure and processes will remain.

Keywords – Corruption, Nigeria, Royal Dutch Shell, Eni, Oil and Gas, Business, Politics, Law, @finregmatters

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