An ocean of difference across the Atlantic

FT: An ocean of difference across the Atlantic

“It still faces a regulatory inquiry in the Netherlands, potential criminal investigation by the US Justice Department and myriad class action suits. They form a pretty powerful deterrent against following Shell’s abuse of the markets.”

By Martin Dickson

Published: July 30 2004 5:00 | Last Updated: July 30 2004 5:00

Gas guzzling cars; meal portions that would quell a giant’s hunger; tough fines by financial regulators. Is everything bigger and better in the US than the UK?

You might think so on the basis of yesterday’s news that Royal Dutch/ Shell is to pay a £17m penalty in the UK for its reserves accounting scandal, while it will pay $120m (£66m) in the US to settle with the Securities and Exchange Commission. Are the different punishments on the two sides of the Atlantic explicable and appropriate to the offence?

You could argue that Shell sinned more against the SEC’s rulebook because the US regulator has a remit over oil reserve accounting rules that the FSA does not. But that was not a line pursued by John Tiner, the FSA’s chief executive, yesterday. He told the FT: “The fact there is a reporting requirement there, and had been a failure to address that properly, means that – because they are a listed company here – there is an equal breach here.”

The difference seems due more to the history of fines in the two countries – with the SEC generally imposing higher penalties – and the uses to which penalties are put: in the UK, Shell’s £17m will be set against the FSA budget and reduce the costs of financial industry regulation; in the US, it will evidently go to a fund that acts as a potential compensation pool for class action claims. So Mr Tiner has a point when he says you are not necessarily comparing like with like.

The Shell fine is certainly large in comparison with any penalty the FSA has imposed before – four times greater than the next biggest.

But it and even the SEC penalty are flea bites for Shell, which yesterday reported £2bn of net profit in the second quarter alone. As so often with the FSA’s penalties – or, more precisely, those of its Regulatory Decisions Committee, with its external membership – the punishment does not seem particularly painful, deterrent retribution. The FSA could have been tougher in this case, and should be more generally in cases of serious wrongdoing.

That said, yesterday’s settlements have hardly resolved Shell’s legal problems. It still faces a regulatory inquiry in the Netherlands, potential criminal investigation by the US Justice Department and myriad class action suits. They form a pretty powerful deterrent against following Shell’s abuse of the markets.

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