Inside the Bribery Scandal That's Sweeping Through the Oil Industry

Date : 02/13/2018 @ 1:10PM
Source : Dow Jones News

Inside the Bribery Scandal That's Sweeping Through the Oil Industry

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By Sarah Kent in Abuja, Nigeria, and Eric Sylvers in Milan 

A top oil executive walked into the marble lobby of an exclusive Milan hotel on a chilly winter night. His dinner date was a former Nigerian oil minister offering to sell one of Africa's biggest untapped oil discoveries.

Eight years later, the question of whether the $1.3 billion paid for the license to that prized oil field was mostly a bribe is at the heart of one of the biggest bribery scandals the oil industry has ever seen.

Part of a broader crackdown, the case has reached into the highest levels of the executive ranks of Royal Dutch Shell PLC, the second-largest Western oil company -- including wiretaps on its chief executive -- and into Eni SpA, Italy's state-backed oil company.

Italian prosecutors say Claudio Descalzi, the senior Eni executive at the Milan dinner, and high-level Shell officials approved an arrangement that allowed them to pay the government while knowing most of the money would be transferred to a company controlled by Dan Etete -- the ex-oil minister Mr. Descalzi met that night, according to court documents. The prosecutors say executives knew Mr. Etete would pay off Nigerian officials and send kickbacks to Eni executives. A criminal trial begins in Milan on March 5.

The scheme went as high as former Nigerian President Goodluck Jonathan, who received pay outs during his presidency, the prosecutors say. Mr. Jonathan has denied involvement.

The case is a rare example of top executives from giant Western oil companies facing accountability for corruption. Scrutiny of foreign bribery is growing. More than 500 ongoing investigations were taking place in member countries of the Organization for Economic Cooperation and Development in 2016, up about 25% from 2015, according to the 35-nation group's latest analysis.

British authorities are investigating alleged oil-industry bribes in Iraq, and the U.S. has sought to recover more than $100 million as part of a wide-ranging investigation into oil-industry corruption in Nigeria.

The amount of money that allegedly changed hands in the Eni-Shell case could prove to be one of the oil industry's largest ever bribes, said Global Witness, a London nonprofit that investigates allegations of wrongdoing in the resources industry.

Mr. Descalzi, now Eni's chief executive, will face criminal charges of international corruption and bribery in the Milan trial, along with the company's CEO at the time of the Nigerian deal, Paolo Scaroni. Shell executives, including Malcolm Brinded, Shell's global exploration and production chief at the time of the deal, will also be tried on those charges, as well as both companies.

Eni and Shell both deny wrongdoing, saying they simply paid the government and didn't know the money would be used for bribes.

"Eni and Shell paid the consideration for this license to the Nigerian government," Eni wrote in emailed responses to questions from The Wall Street Journal. "It was the prerogative, right and at the discretion of the Nigerian government to decide...how to use the price received from Eni and Shell."

"The board has said clearly that it has full confidence in the company and in Claudio Descalzi," Eni Chairwoman Emma Marcegaglia said in an interview.

A Shell spokesman said the company didn't believe there was a basis to prosecute Shell. "If the evidence ultimately proves that improper payments were made...it is Shell's position that none of those payments were made with its knowledge, authorization or on its behalf," he said.

Eni's Mr. Descalzi, who was appointed by the Italian government for a second three-year term as CEO in April, Mr. Scaroni, who left Eni in 2014, and Shell's Mr. Brinded, who left the company in 2012, denied wrongdoing.

Shell and Eni also face prosecution in Nigeria, one of Africa's biggest oil producers. The country's financial crimes watchdog has threatened to strip the companies of their claim to the oil field.

Shell and Eni in 2011 jointly acquired the license to the area known as OPL 245 in the waters off Nigeria's coast, but so far development has been stalled amid the investigations.

This account of the deal is based on interviews with more than a dozen people with knowledge of the case, internal company emails and documents, and hundreds of pages of court documents from cases in Britain, Italy and Nigeria reviewed by the Journal.

The deal pulled in top executives for Shell and Eni, who were required to approve and in some cases negotiate the transaction, bringing them into contact with a host of now discredited figures in Nigeria.

Chief among them is Mr. Etete, a Nigerian politician who was an oil minister in the mid-1990s during the reign of military dictator Sani Abacha, and who personally claimed ownership of OPL 245. Mr. Etete's career has been dogged by corruption allegations. In 2007 he was convicted of money laundering in France and was pardoned in 2014. A lawyer for Mr. Etete, whose whereabouts is unknown, didn't respond to requests for comment. He faces corruption charges in both Milan and Nigeria.

"It smacks of a Hollywood movie," said Razak Atunwa, a Nigerian member of parliament investigating the case for the government. "You've got nefarious characters mixing with ministers, nefarious characters mixing with the presidency."

The struggle over OPL 245 dates back to 1998, when the Abacha government awarded the oil rights to a newly minted Nigerian firm called Malabu Oil and Gas. According to court documents, the company was ultimately owned by figures close to Mr. Abacha's regime, including his son and Mr. Etete, then the country's oil minister.

The company was meant to pay the government $20 million for the license, but paid only a little over $2 million, according to the court documents.

In 2001, Shell agreed to acquire a 40% interest from Malabu in the oil field. Shell, already a dominant producer in Nigeria, hoped the move would expand its footprint in the oil-rich waters off the coast. But within months, Malabu's ownership was revoked by the new, democratically elected president, Olusegun Obasanjo.

Shell won a new tender in 2002 that gave it exclusive rights to operate the field as a contractor for the state oil company, pledging to pay the government $210 million. But Mr. Etete, who was no longer in office, and later Mr. Abacha's son separately maintained their claims to the site. Successive Nigerian governments flip-flopped on the decision to rescind Malabu's license, helping tie up the ownership question in court.

In an attempt to resolve the dispute, Shell executives spent years alternately wooing Mr. Etete and threatening him with legal action. They negotiated over lunches accompanied by Champagne and discussed taking him on a stag hunting trip to Scotland, according to internal company emails reviewed by the Journal.

In the emails -- some with the subject line "Loony Tunes" -- Shell executives openly speculated that any settlement they reached with Mr. Etete would be used to pay off his political sponsors and fretted over the risk he might seek to strike a deal with another company.

In early 2009, John Copleston, a former British intelligence officer working for Shell in Nigeria, sent an email to colleagues that reported Mr. Etete was claiming he would keep $40 million of the $300 million Shell was offering at the time. "Rest goes in paying people off," Mr. Copleston wrote. Mr. Copleston couldn't be reached for comment.

Eni became involved in 2010. After discussions with Mr. Etete, the Italian firm, which already had major oil holdings in Nigeria, proposed to buy out Malabu's disputed stake. The company aimed to end Malabu's legal claims and join Shell in a 50-50 partnership to develop the offshore field.

Shell executives were pleased. According to internal emails, they were impressed by Mr. Descalzi's personal, "privileged" relationship with Mr. Jonathan, who was serving as acting president and would soon fully succeed the Nigerian president at the time. According to the emails, the two men met in southern Nigeria in the 1990s and had stayed close.

"Let's hope Eni can succeed where we have struggled to close on this," Shell's then-chief financial officer, Simon Henry, wrote in an email in October 2010.

Beginning that year, Mr. Descalzi for a period met twice a month with a middleman who claimed to be working on behalf of Mr. Etete, sometimes at a luxury hotel in London's Belgravia neighborhood, according to court documents. The Eni executive, a 36-year veteran and longtime Africa hand who led Eni's operations in Congo and in Nigeria, also oversaw months of talks with the Nigerian government and with Shell, according to internal Shell emails.

Meanwhile, two external risk reports commissioned by Eni in 2007 and 2010 had raised red flags about Mr. Etete. The documents, reviewed by the Journal, warned of past corruption allegations against the former oil minister and questioned aspects of his ownership of the oil license.

Pressure was mounting to settle the deal. Shell feared other companies such as Total SA of France and China's Cnooc were also negotiating with Mr. Etete. Cnooc didn't respond to requests for comment. Total declined to comment.

"We need to move fast as the wolves are indeed circling," wrote Mr. Brinded, the global exploration and production chief, in an October 2010 email to colleagues.

Eni and Shell soon hammered out a complicated deal with the Nigerian government, according to emails and court documents. In a deal that included Shell's previous promise to pay around $210 million, the company agreed to pay a total of just under $320 million for a 50% stake. Eni would pay a little more than $980 million for the other 50%.

The deal was made on the basis that $200 million would be kept by the Nigerian government and that $1.1 billion would be passed on to Malabu in exchange for its dropping all claims to the oil field, court documents say.

The two sides completed the deal in April 2011, but within months, it began to unravel. Initial efforts to transfer the $1.1 billion from a Nigerian government bank account at JPMorgan Chase & Co. in London to an account in Switzerland was blocked by bank authorities for reasons of "compliance," marking an early red flag. A second attempt to transfer money to a bank in Lebanon was also blocked. The transfer was eventually completed to two Malabu accounts in Nigeria, according to nonpublic Italian court documents.

In the U.S., the Federal Bureau of Investigation traced the flow of dollars from the deal, millions of which made it to the U.S., court documents show. Mr. Etete splashed out nearly $57 million to buy a private jet in Oklahoma in 2011 and another $670,000 for three armored cars in the U.S., according to court documents. He even was able to pay off $7.4 million in fines for the money-laundering conviction in France.

The FBI turned over much of its evidence to authorities in Italy, where Fabio De Pasquale, a high-profile prosecutor in Milan, had begun probing the deal in 2014. Mr. De Pasquale had made a name for himself in the 1990s as a dogged investigator willing to take on powerful forces in Italy, including former Italian Prime Minister Silvio Berlusconi. He presided over separate corruption investigations against Eni that have forced it to overhaul its compliance practices and restructure its former oil services subsidiary.

Italian investigators turned up the heat on executives who might provide useful evidence. One was Vincenzo Armanna, a senior executive in Eni's sub-Saharan Africa business at the time of the deal. Prosecutors allege he received a kickback of more than $1 million when the deal closed, according to Italian court documents.

Mr. Armanna acknowledged he discussed the final destination of Eni's money with his bosses. "We were aware that most of it would go to the political sponsors of the deal," he told prosecutors in 2014, according to the court documents. Mr. Armanna didn't respond to requests for comment.

Another Eni executive received a delivery of $50 million in cash to his house in Abuja, according to Italian prosecutors. By that time, the Italian investigation was zeroing in on the top levels of Eni's management.

"It's believed that Scaroni and Descalzi organized and managed the illegal activities," Milan prosecutors wrote in a 2014 document saying they had put the two under investigation.

In 2016, Shell's offices in The Hague were raided by Dutch police, who spent hours combing top executives' rooms for information on the deal. A cache of internal emails widely leaked to the media revealed details about the company's yearslong negotiation for the oil field.

Dutch investigators also tapped the phone of the company's current CEO, Ben van Beurden, even though he wasn't running the company when the Nigeria deal was struck and faces no charges.

"There was apparently some loose chatter between people from the team," said Mr. Van Beurden on a wiretapped call to his chief financial officer at the time of the raid. He said on the call that discussions of the deal included comments such as, "I wonder who gets a payoff here."

Mr. Van Beurden declined to comment. A Shell spokesman said the company was cooperating fully with regulatory authorities.

The executive was on vacation in France with his children when police were rummaging through his office. "I don't think they have found anything that was clearly incriminating or that sort of suggested that we were colluding or doing anything inappropriate," he said on the tapped call. But referring to the chatter, he said, "Nevertheless, it's there."

--Gbenga Akingbule and Aruna Viswanatha contributed to this article.

Write to Sarah Kent at sarah.kent@wsj.com and Eric Sylvers at eric.sylvers@wsj.com

 

(END) Dow Jones Newswires

February 13, 2018 12:55 ET (17:55 GMT)

Copyright (c) 2018 Dow Jones & Company, Inc.

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