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The Guardian (UK): US drops Shell criminal action

The Guardian (UK): US drops Shell criminal action

Mark Milner and David Teather in New York

Friday July 1, 2005

Shell will not face criminal prosecution by federal authorities in the United States for overstating its oil and gas reserves, the company said yesterday.

It said the US department of justice had concluded its investigation and David Kelley, the attorney for the Southern District of New York, had announced that no further action would be taken.

Jeroen van der Veer, Shell’s chief executive, said the company appreciated Mr Kelley’s decision. “The conclusion of this investigation is a most important step towards putting the matter of reserves recategorisations behind us.”

Mr Kelley acknowledged Shell’s cooperation with his investigation into how the company overbooked its reserves by 4.47bn barrels between 1997 and 2002. He said he had concluded “a criminal prosecution of Shell would not serve the public interest.”

His statement added: “Because Shell has cooperated fully with the government’s investigation, has implemented substantial remedial efforts to enhance its reserves reporting and compliance and has paid $120m (£66m) civil penalty to the SEC [securities and exchange commission], the public interest has been sufficiently vindicated.”

Shell has also been fined a record £17m by Britain’s Financial Services Authority over the reserves fiasco.

Noting the financial sanctions already handed out, Mr Kelley said further penalties “would likely have a severe and unintended disproportionate economic impact upon thousands of innocent Shell employees”.

The reserves scandal broke in January last year with a low-key announcement that the company was cutting its level of proven reserves by 20% to bring it into line with US requirements. Four further revisions followed during 2004.

Reserves are seen as important information by investors because they reflect likely future income and can affect the share price.

The January announcement provoked outrage among investors and sent the share price plunging. As the tide of anger grew, the chairman, Sir Philip Watts, resigned in March along with exploration chief Walter van de Vijver. Finance director Judy Boynton followed later.

In a move to calm investor anger the two parts of Shell, Royal Dutch and Shell Transport and Trading, announced plans to end their 100-year-old duality and to create a single company with a more transparent and less unwieldy management structure.

The changes, which include the new company having its headquarters in Holland but with the shares listed in London, were approved by shareholders this week.

The justice department’s decision closes another chapter in the oil and gas reserves affair, but Shell is facing class actions in the US and ongoing inquiries by stock market operator Euronext and the Dutch financial markets regulator.

A Shell spokesman said it was awaiting a court decision on whether the class action by shareholders should be struck out. It was in discussion with representatives of two other class actions, one of which represents Shell pension funds, over possible settlements.

http://www.guardian.co.uk/business/story/0,,1518650,00.html

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