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Shell sponsored conflict and corruption in Nigeria

From pages 12, 13, 14 & 15 of “Royal Dutch Shell and its sustainability troubles” – Background report to the Erratum of Shell’s Annual Report 2010

The report is made on behalf of Milieudefensie (Friends of the Earth Netherlands)
Author: Albert ten Kate: May 2011.

SHELL IN NIGERIA

Shell assesses its contribution to conflict

With regard to conflict in the Niger Delta, Shell often profiles itself as one of the main victims. In July 2009, the company wrote: “We hope people recognise that the employees and contractor staff of [SPDC]…have to carry out their work against a backdrop of crime, violence, threats of kidnap and community actions.” Indeed, the Niger Delta is an extremely difficult environment for any company to operate.

However, one could also assess how Shell’s activities might contribute to conflict. In 2002 and 2003, Shell commissioned such research. The resulting report, released in December 2003, was written by three external conflict resolution experts. The insights in the report drew “heavily on the experiences of more than 200 individuals consulted during its preparation.” Shell had declined to publish the independent report, but it was leaked in June 2004. The report states that “after operating in the Niger Delta for over 50 years, SCIN [Shell company in Nigeria] is an integral part of the regional conflict environment (….) and the manner in which the SCIN operates and its staff behave creates, feeds into, or exacerbates conflict.”

Examples of fuelling conflict

The report listed several examples of how oil companies fuel underlying factors causing conflict in the Niger Delta:

? The role of the oil companies in fuelling corruption is significant. Numerous examples can be found in how companies seek to maintain their license to operate through short-term cash payments, giving in to monetary demands following facility closures, exorbitant homage payments, use of ghost workers, surveillance contract implementation, contracting procedures, employment processes, and kick-back schemes in community development projects.

? The role of the oil companies in fuelling perceived or actual discrimination is largely related to unclear communications, poor transparency, the non-fulfilment of obligations, as well as corporate arrogance.

? The role of the oil companies in fuelling inequitable distribution of revenue and infrastructure is largely related to the non-fulfilment of obligations.

? The role of the oil companies in fuelling social disintegration largely comprises the design of the benefit distribution process that allows groups to fight over access to cash, jobs, contracts and power.

? It is important to note that accusations abound of “divide and rule” tactics and an active role of oil company officials in fuelling specific communal conflicts. Whereas this is likely to be the case where individuals or small groups of oil company staff are engaged in criminal activities, there is no evidence to suggest a company-wide “conspiracy” or manipulation of conflicts in the Niger Delta.

? The role of the oil companies in fuelling crime and criminal cartels is largely related to corruption in the contracting process and the payment of ransoms that make crime lucrative.

? Beyond the impact of the oil industry on the economy (“Dutch disease”) oil companies do not directly fuel youth unemployment. However, the interaction between companies and youth groups who control employment at a community level is important. Contracts that routinely contain inflated and imaginary elements, excessive numbers of workers and payment, kick- backs, etc. serves to corrupt youth.

The report was published in 2003, and it was meant to assess how SCIN can contribute to conflict resolution and sustainable peace in the Niger Delta. For this report, due to lack of available information it is not examined to what extent Shell has altered the practices described above presently.

Co-opting militants

In 2006, it became clear that some of the militant leaders linked to the attacks on oil facilities in the Niger Delta earn tens of thousands of dollars from contracts with Shell. Leaders of the Federated Niger Delta Ijaw Communities (FNDIC), involved with violent activities in Delta State in 2003, later ran contracting companies working with the oil majors. The payments included “incident free” bonuses. Officials told the Financial Times that subcontracting work to local strongmen is one method some oil companies have used to buy off militants threatening attacks on oil facilities in the Delta. In September 2008, the Shell Executive Vice President (EVP) for Shell Companies in Africa, Ms. Ann Pickard, said that Rivers State Governor Rotimi Amaechi lacked the connections among Rivers State militant leaders to successfully co-opt them as the governors in Delta and Bayelsa states have done with militants in their states. Co-opting militants seems to be one of the tactics to (temporary) reduce conflict. However, it can also be seen as a measure that serves conflict and corruption.

Corruption

On paper, Shell’s stance against corruption is clear. Its Code of Conduct gives employees detailed instructions on the behaviour Shell’s Business Principles require. With regard to bribery and corruption the Code of Conduct contains the following principles:

? Never offer, pay, make, seek or accept a personal payment, gift or favour in return for favourable treatment, to influence a business outcome or to gain any business advantage.

? Ensure people you work with understand bribery and corruption is unacceptable.

? Tell Shell if you suspect or know of corruption in Shell or in any party (company or individual) Shell does business with.

Relevant staff must undergo specific training in areas such as combating bribery and corruption. Shell’s global helpline and supporting website allow staff and business partners to report concerns confidentially. In 2009, 165 violations of the Code of Conduct were reported (204 in 2008). As a result, Shell stated that it has ended its relationships with 126 staff and contractors (138 in 2008).

Corruption is rife in the Niger Delta. On 27 January 2009, Shell’s regional executive vice president for Africa, Ann Pickard, met with the U.S. ambassador in Nigeria in Abuja, Nigeria. During the meeting, she stated that corruption in the Nigerian oil sector was worsening by the day. Pickard said that Nigerian entities control the lifting of many oil cargoes and there are some “very interesting” people lifting oil (People, she said that were not even in the industry). As an example she said that oil buyers would pay Nigerian National Petroleum Corporation (NNPC) General Managing Director Yar’Adua, (Note: not related to President Yar’Adua. End Note), Chief Economic Advisor Yakubu, and the First Lady Turai Yar’Adua large bribes, millions of dollars per tanker, to lift oil. Pickard also said that a former associate of hers had told her that he had been present when Attorney General Aondoakaa had told a visitor that he would sign a document only if the visitor paid USD 2 million immediately and another USD 18 million the next day.

Shell fined USD 58 million

The extent of Shell’s involvement and practices with regard to corruption in the Niger Delta is not known. Late 2010, Shell paid a total of USD 58 million to U.S. and Nigerian authorities to head off the threat of legal action for corruption. SNEPCO, a 100% Nigerian subsidiary of Royal Dutch Shell, had paid approximately USD 2 million in the period 2004-2006 to its subcontractors with the knowledge that some or all of the money would be paid as bribes to Nigerian customs officials to import materials and equipment into Nigeria in relation to the offshore Bonga project. SNEPCO and the U.S. based Shell International Exploration and Production Inc. employees were aware that as a result of the payment of the bribes, official Nigerian duties, taxes, and penalties were not paid when the items were imported.

In November 2010, the U.S. Department of Justice and the U.S. Securities and Exchange Commission (SEC) announced that Shell had agreed to pay USD 48 million to settle investigations on violation of the U.S. Foreign Corrupt Practices Act (FCPA). The Deferred Prosecution Agreement Shell signed with the U.S. Department of Justice (DOJ) still requires Shell to report to the DOJ, promptly, any credible evidence of questionable or corrupt payments. Separately, Shell also agreed to pay

USD 10 million to the Nigerian authorities.

Shell started an internal research in 2007, and found that a small number of its employees knew or should have known of the incorrect payments. These employees have been subject to disciplinary sanctions or were fired, according to the company.

The Ibori case

In November 2007, it became publicly known that the UK Metropolitan police was investigating alleged money laundering by James Ibori, a former governor who ran the oil-rich Delta state until May 2007. According to a witness statement, the former governor had used banks in Britain to stash GBP 20 million in stolen funds during 2005-06. Since 2005 funds from Nigeria, intended for education and engineering projects, “[were] allegedly stolen by James Ibori [and] have been laundered through the UK banking system”. Over three years, Shell, Chevron and the Nigerian National Petroleum Company paid GBP 3.6 million into a Barclays account controlled by Ibori for renting out houseboats to foreign employees. Nuhu Ribadu, chairman of Nigeria’s Economic and Financial Crimes Commission (EFCC), which worked closely with the British investigators, told the Financial Times that he was “investigating huge payments made by Shell and Chevron to MER Engineering” over the hiring of the houseboats. Shell admitted that MER was on its register of approved contractors. It declined to elaborate on the amount and type of work done by MER.

A leaked report from the Nigerian Army Intelligence Corps, dated November 2007, linked James Ibori also to thousands of arms stolen from governmental storage depots for onward transfer to Niger Delta militants from the year 2000 to 2007.

Mr. Ibori had close ties to Umaru Yar’Adua, the former president of Nigeria. Mr. Yar’Adua sacked Nuhu Ribadu, the head of the EFCC, after 170 charges were brought against Mr. Ibori. In a very questionable Nigerian court case, in December 2009, a judge dismissed all cases. A Wikileaks cable sent from the UK embassy in London in May 2009 stated that Attorney General Aondoakaa had directly told the UK that the Nigerian Government would not begin negotiations on a prisoners transfer agreement, unless the UK would drop its case against James Ibori and his associates.

Mr. Ibori denies all charges against him. He was arrested in Dubai in May 2010 after the intervention of the global police agency Interpol. Dubai’s highest court ruled in December 2010 that he could be extradited to Britain to face corruption charges. Mr. Ibori’s sister and his alleged mistress are already convicted of money laundering and sentenced to five years in UK prison in June 2010. Mr. Ibori’s wife and his UK lawyer face similar charges.

Further extracts from this section of the report will be published in the coming days.

THE COMPLETE 73 PAGE REPORT (with reference sources)

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