With corruption investigations widening, oil companies face reckoning
Investigations increase scrutiny on agreements
By James OsborneJanuary 26, 2018 Updated: January 27, 2018 6:00pm
Photo: YASUYOSHI CHIBA, AFP/Getty Images
An oil platform is temporaly stationed at Guanabara bay in Rio de Janeiro, Brazil, on June 8, 2017. / AFP PHOTO / YASUYOSHI CHIBAYASUYOSHI CHIBA/AFP/Getty Images
WASHINGTON – It started with Brazil’s national oil company, then the clients of a consulting firm in Monaco and two of Europe’s largest oil companies, and with each revelation came new investigations involving new companies.
Big names in Houston’s energy world, like KBR, Shell and SBM Offshore, were suddenly having to explain how they came to win drilling rights and contracts worth billions of dollars in countries like Nigeria, Angola and Brazil.
For close to a century oil fortunes have been made and lost in the developing world, but a series of sprawling corruption investigations has thrown a wrench into that paradigm, ensnaring oil and gas corporations around the world, while putting a microscope on how countries come to sign over rights to their oil and mineral deposits.
Breaking down the scandals
A small consulting firm in Monaco is accused of bribing government officials around the globe to help clients win drilling rights.
Some of the companies implicated: FMC Technologies, Weatherford International and KBR.
Status: Investigation by U.K. and U.S. authorities ongoing.
Executives at Brazil’s national oil company are accused of taking bribes for contracts and then funneling that money to politicians.
Some of the companies implicated: TransOcean, Keppel Offshore & Marine, SBM Offshore.
Status: Investigation by Brazilian and U.S. authorities continues.
Two European oil majors are accused of knowingly paying $1.1 billion in bribes to a former oil minister and his associates to win offshore drilling rights.
Companies involved: Shell and Eni.
Status: Trial scheduled for March in Milan.
Nations – developed and developing alike – are taking a harder line on bribes and self-dealing long swept under the rug. At the same time, digital leaks such as the Panama Papers are making public vast troves of incriminating corporate and government documents that in an earlier age might never seen the light of day.
Such investigations have touched a multitude of industries – from telecom to technology and health care. But considering its long history operating in the developing world, none are as exposed as the oil and gas industry, which is centered in Houston and drives the Texas economy.
“I don’t want to say this is the new normal, but this should not be viewed as a high water mark,” said Jason Varnado, a former U.S. prosecutor in Houston and now an attorney with international law firm Jones Day. “No industry operates in more high risk markets than the energy industry.”
In the span of less than a month last year, the Houston-based subsidiaries of oil equipment giants Keppel Offshore & Marine and SBM Offshore both pleaded guilty to bribery charges stemming from a long-running Brazilian corruption investigation. The companies agreed to pay the U.S. Justice Department a combined $660 million in penalties.
British and American prosecutors, meanwhile, are moving ahead on an investigation into how a Monaco firm came to arrange contracts across the Middle East, Africa and Central Asia. The case has drawn in players from across the global oil industry, including the Houston firms FMC Technologies, Weatherford International and KBR, a former subsidiary of Haliburton.
In March, top executives from Royal Dutch Shell and the Italian oil major Eni will go on trial in Milan in what is billed as the largest corporate bribery case in history. Among the accused are Shell’s former head of international oil development, Malcolm Brinded, and Eni’s CEO Claudio Descalzi, who are alleged to have paid $1.1 billion to a former Nigerian oil minister to gain access to a lucrative oil field off the West African coast.
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Driving the trials and plea deals are two scandals. In Brazil, an ongoing corruption investigation has uncovered that executives at the state-owned oil company Petrobras took billions of dollars in bribes in exchange for awarding lucrative oil field contracts, part of a sweeping network of graft that has led to charges against numerous Brazilian government officials, including former president Luiz Inácio Lula da Silva.
In 2016, the Australian newspaper The Age and the Huffington Post published a damning report that an obscure family-owned company in Monaco, named Unaoil, had paid millions of dollars in bribes Iraq, Iran, Angola, Lybia and other countries. In exchange, billions of dollars in oil field contracts went to some of the world’s largest corporations, including the British manufacturer Rolls Royce and the Korean conglomerate Samsung, in addition to a laundry list oil and gas companies.
The publications cited a “a vast cache of leaked emails and documents,” setting off multiple investigations around the globe.
None of the companies cited in this story would discuss the investigations. But many have expressed concern over the role of corruption in their industry.
“KBR is committed to conducting its business honestly, with integrity, and in compliance with all applicable laws,” a company spokeswoman said. “We do not tolerate illegal or unethical practices by our employees or others working on behalf of the company.”
Of the more than 28 oil and gas companies that have disclosed active investigations for violations of the Foreign Corrupt Practices Act, 20 of those are related to Brazil and Unaoil, according to Richard Cassin, an attorney who publishes the corruption-focused website FCPA Blog.
“It’s a snowball effect, where once the initial corruption was exposed, all the other actors caught up in it started to get in trouble,” said Alexandra Gillies, an advisor to Natural Resource Governance Institute, a New York nonprofit.
13 years of bribes
In the case of Keppel, the world’s largest builder of offshore rigs and a major employer in Houston, Brazilian prosecutors traced the bribery scheme to around 2001, when the company won a contract to construct a floating oil platform for Petrobras.
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Over the next 13 years Keppel, which is headquartered in Singapore, spent $55 million on bribes in exchange for inside information and favorable treatment that allowed them to win a series of offshore contracts, according to court filings by the Justice Department.
At one point Keppel’s string of Petrobras contracts was threatened when it partnered with an unnamed company, whose corporate rules forbid bribes to foreign officials. An unnamed executive at Keppel complained in a 2007 email that the company might need to stop using a consultant through whom it paid the bribes, lamenting that the partner was “so hand-tied to the U.S. Code of Business Conduct” that it put the chances of winning projects at risk.
The scheme came crashing down in 2015, when Brazilian law enforcement arrested a former Petrobras executive at a Rio De Janeiro airport and then enlisted his son to wear a wiretap in a meeting with a top official in Brazil’s legislature. In the years since, a number companies have been accused of paying bribes to Petrobras, including TransOcean, the Swiss offshore contracting giant which maintains major operations in Houston.
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In a filing in October, Transocean said it investigated the accusation and had not “identified any wrongdoing by any of our employees or agents.”
“There is global attention being paid to this sort of conduct. People are alert to it and care about it, and governments are harnessing that,” said Phil Bezanson, an attorney at the law firm Bracewell. “The U.S. government is working much more closely with law enforcement in other countries. There’s much more coordination going on.”
The United States enacted the Foreign Corrupt Practices Act in 1977 following a series of high profile scandals, but it’s only in the last two decades enforcement has picked up. More recently, countries including Italy, the United Kingdom and the Netherlands have joined the United States in chasing bribery cases abroad.
In the developing world, citizens are increasing pressure on governments to take action against corruption after decades of acceptance, said Olanrewaju Suraju, an activist with Human and Environmental Development Agenda Resource Center, a Nigerian nonprofit. Nigeria and some 50 other resource-rich countries are pledging to disclose to the public how much revenue they’re taking in through oil and gas production and mining, through an international consortium called the Extractive Industries Transparency Initiative.
“Corruption touches every aspect of the Nigerian life: the astronomical death rate of children under the age of five, the high accident rate on the roads because money meant to maintain the road was taken by other people and the level of recruitment by Boka Haram, because youth meant to find gainful employment and education were not given the opportunity,” Suraju said. “I think it is not going to be business as usual anymore.”
The impact of international cooperation is already visible. In 2016, the Justice Department and U.S. Securities and Exchange Commission, aided by investigators abroad, resolved a record 25 foreign bribery cases, collecting $2.4 billion in penalties, according to a report last year by the international law firm Jones Day, which maintains offices across 18 countries.
At the same time, a new age of digital sleuthing, through which whistleblowers, hackers or both have exposed government and corporate secrets through releases such as the Panama and Paradise papers, which made public millions of documents revealing how some of the world’s most powerful politicians and business leaders used offshore accounts to avoid paying taxes and cover up unsavory business practices.
Corporate emails obtained by the international nonprofit Global Witness, which focuses on corruption and the exploitation of natural resources, have aided Italy’s investigation into how Shell and Eni won an offshore block in Nigeria.
The case began after the two consultants that set up the deal filed lawsuits in the United Kingdom claiming they had not been paid their cut of the alleged bribes. At issue was the $1.1 billion Shell and Eni paid to the Nigerian government for rights to the offshore block.
That money was then to be passed to Malabu Oil and Gas, a company controlled by the former Nigerian oil minister and convicted money launderer Dan Etete. For years, Shell said it was unaware of what happened to the money, but emails obtained by Global Witness indicated that the company knew the money was going to Malabu.
“He spoke to Mrs E this morning. She says E claims he will only get 300m we offering-rest goes in paying people off,” a Shell employee wrote to executives in 2009, according to a report published by Global Witness last year.
Barnaby Pace, the lead investigator on the Nigeria case for Global Witness, wouldn’t say how he got access to those emails, but noted that digitization was making possible the transfer of large quantities of documents that once would have required a fleet of trucks.
“The Panama Papers was 2.6 terabytes of data,” Pace said. It’s incredible the ease and amount of material we can get access to if people are stupid enough to put it in emails and text messages.”
Do the right thing
Whether the rush of scandals will change how companies behave abroad is something activists will watch in the years ahead. But demands for bribes in countries where corruption is ingrained are unlikely to go away all together.
“I see companies trying to be good actors in this space,” said Varnado, the former federal prosecutor, “but particularly in energy there’s some inherent challenges that make that difficult.”
Before stepping into the White House, President Donald Trump had criticized the Foreign Corrupts Practices Act in a 2012 interview, calling it a “horrible law” that makes it hard for U.S. companies operating overseas. That has raised questions about how diligently his administration would enforce the law.
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So far, the Justice Department has urged companies to come forward when they discover wrongdoing within their ranks. Under a policy announced by Deputy Attorney General Rod Rosenstein last year, companies that self-report bribing foreign officials are likely to receive reduced financial penalties and might avoid criminal charges altogether.
And after watching SBM Offshore pay out more than $230 million in penalties in November, that could be an enticing offer.
“A penalty that size, it does act as an actual deterrent,” said Gillies, from the Natural Resource Governance Institute, said. “It’s enough to hurt the company.”
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