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How Shell, Eni Got Enmeshed in $1 Billion Scandal

Royal Dutch Shell Plc and Eni SpA have become entangled in a $1.1 billion bribery scandal involving a field in Nigeria that could potentially hold enough crude to meet three months of the world’s demand. At least three countries are probing the companies, and Italian prosecutors have named Eni’s Chief Executive Officer Claudio Descalzi and Shell’s former head of exploration and production, Malcolm Brinded, among people who could be prosecuted. Nigeria’s anti-graft agency also filed charges against the companies in March.

1. How did this begin?

In 1998, Nigeria’s military dictator Sani Abacha awarded Oil Prospecting License 245 in deep waters off Nigeria’s southern coast to Malabu Oil and Gas Ltd., a Lagos-based company connected to then-Petroleum Minister Dan Etete. Under successive governments, the license was canceled, awarded to Shell, and then awarded to Malabu again. Finally, in 2011, Shell and Eni paid the government $1.3 billion, including about $200 million as a signature bonus — a onetime fee charged by some oil-producing nations — to nail down the contract once and for all.

2. Was that improper?

Not on the face of it. The problem arose, according to prosecutors, when it became clear that most of the money paid by Shell and Eni had been passed on, rather than kept, by Nigeria’s government.

3. Where did the money go?

Prosecutors in Milan allege that Shell and Eni paid almost $1.1 billion — everything but the $200 million “signature bonus” — into an escrow account for the Nigerian government, from which about $800 million was later transferred to the Nigerian accounts of Malabu to be distributed as payoffs. Almost half a billion dollars was transferred to money changers around the Nigerian capital to convert into cash to be divvied up among officials, including then-President Goodluck Jonathan (who has denied wrongdoing), according to the court papers. They include more than $50 million withdrawn by a single local businessman and another $50 million in cash delivered to the Nigerian home of Eni executive, Roberto Casula, the prosecutors allege.

4. What does Shell say?

For years Shell maintained it hadn’t known that any of the money would go to Malabu. In April it made an about-turn, conceding it had known that Nigeria “would compensate Malabu to settle its claim on the block” and that “the only way to resolve the impasse through a negotiated settlement was to engage with Etete and Malabu, whether we liked it or not.” The admission followed the publication by Buzzfeed and Italian newspaper Il Sole 24 Ore of leaked internal emails showing Shell staff discussing the risk that the money could ultimately be used for payoffs. Still, Shell maintains its 2011 purchase was “fully legal”; its legal director Donny Ching said the company believes there was “no inappropriate conduct by any Shell company or its staff.”

5. And Eni?

Eni too denies any wrongdoing. The company said in February that an independent investigation found no credible evidence of the involvement of Eni staff in corrupt activities.

6. Which executives might face charges?

Italian prosecutors are targeting 11 people. They include five Eni executives, among them Descalzi and Paolo Scaroni, the former Eni CEO who is now vice chairman of NM Rothschild & Sons. Four Shell employees including Brinded, Nigerian officials including Etete, and various others who acted as intermediaries are also identified in the court papers. Eni shareholders re-elected Descalzi as CEO in April. Scaroni didn’t immediately return a call to his mobile phone, and Brinded didn’t return a call to his office. Etete’s lawyer, Antonio Secci, said by phone: “We believe Malabu’s business is lawful and transparent.”

7. What’s the status of the investigations?

Judge Giuseppina Barbara in Milan is hearing arguments to decide whether the case against Eni, Shell, Descalzi and 10 others should go ahead, with a final decision due as soon as June. Prosecutors are bringing separate proceedings against Shell employees including two former members of British intelligence who acted as advisers and Brinded, now chairman of the Shell Foundation, its charitable arm, according to the Milan court papers. In March, Nigeria’s anti-graft agency filed new charges against Shell and Eni alleging they “corruptly” paid the $800 million, according to court papers. Officials from the Dutch Financial Intelligence & Investigation Service and public prosecutor have also been investigating the matter, visiting Shell offices in The Hague last year.

8. What’s at stake?

The 9 billion barrels of potential resources in OPL 245 could be worth $450 billion at a $50-a-barrel oil price. Though some of that will go to the Nigerian government, the companies still stand to make a lot of money. If found guilty, they face fines and revocation of licenses to do business. Descalzi, Brinded and others could go to prison. There’s also the damage to the corporate reputations. The Shell Foundation has poured millions into local development to project an image of a good corporate citizen acting responsibly in the developing countries where it does business. Violation of “anti-bribery and corruption legislation or anti-money laundering legislation could harm our reputation and have a material adverse effect on our earnings, cash flows and, financial condition,” Shell said in its last annual report.

9. How important is Nigeria to Shell?

Shell, which first exported crude from Nigeria almost 60 years ago, has been selling its leases in the country after militant attacks forced it to shut some operations. Still, Shell remains Nigeria’s biggest producer, and it gets about 7 percent of its global output from the country, according to the annual report. Its biggest liquefied natural gas project is in Nigeria and is fed by gas from its fields in the area.

The Reference Shelf

  • Shell’s legal director Donny Ching gives an account of how the case unfolded.
  • London-based corruption watchdog Global Witness’s report on the deal.
  • Buzzfeed and Il Sole 24 Ore reported leaked Shell emails.
  • Consultant Wood Mackenzie Ltd. says the OPL 245 block “holds significant discovered hydrocarbon reserves and is thought to be very prospective.”
  • QuickTake report on Nigeria.
  • QuickTake Q&A on Nigeria’s oil industry.

1 Comment on “How Shell, Eni Got Enmeshed in $1 Billion Scandal”

  1. #1 Bill Campbell
    on May 11th, 2017 at 13:35

    Loose Chatter, Just you know Pub Talk

    It is apparent from reading the transcript of the taped conversation between BVB and the CFO that they have (from preliminary feedback from their own internal investigation) adopted and will continue to adopt the defensive posture to dissasociate RDS Directors from the unhelpful emails from their highly skilled employees.

    But are people who had previous gainful employment as MI6 agents the type of people who would commit themselves to loose chatter, gossip etc, in writing. You would suspect the latter, they were just reporting what they had dug up.

    These MI6 people had years of experience, hours of training in tradecraft as spies, spies charged with the defence of this realm, Top professionals at what they were tasked by RDS to do. They were actually hired by RDS to dig up the dirt and expose the details of what was going on. So RDS it seems will expect a court to accept that 3 emails in particular from the MI6 guys which highlight how much monies was going to individuals, and that politicians were on the take, and that significant revenue would go to the then Nigerian president is to quote Ben van Burden ” just loose chatter between people in the team particularly the people we hired from MI6 who must have said things Like well, yeah, you know, I wonder who gets pay-off here and whatever, so its UNHELPFUL email exchanges, I haven’t seen them but apparently they were judged by our investigators to be, you know, just PUB TALK in emails which was stupid, but nevertheless it’s there”

    Bottom line is RDS employed these expert snoopers to determine what was going on, so that at arms length they could negotiate through this complicated acquisition. Their snoopers did their job very much well, the problem for RDS is that the ex MI6 folks should have given their findings undercover to their sponsor, but they did the not. Just think, If you were the CEO or CFO of RDS would you fork out thousands of pounds a day for expert advice that amounted now you say to rumour, conjecture just PUB Talk. I don’t think so but what do you think?

    Bill

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