The inside story of Royal Dutch Shell and the cost of integrity

Damning new evidence published last week by Global Witness and Finance Uncovered, revealing a vast trove of leaked e-mails, shows that oil giant Royal Dutch Shell knowingly engaged in a widespread bribery scheme to acquire oil exploration rights in Nigeria.

“This is one of the worst corruption scandals the oil industry has ever seen, and this is the biggest development so far,” Simon Taylor, director and co-founder of Global Witness, said in a statement.

The investigation itself is not new. In 2011, Shell and Italian oil company Eni paid $1.1 billion to secure rights to one of Africa’s most valuable oil blocks, known as OPL 245—a murky deal that Global Witness has been investigating ever since. The heart of the report, “Shell Knew,” shows that the money for the deal went directly into the pockets of Dan Etete, former Nigerian Minister of Petroleum and a convicted money launderer, who had awarded himself ownership of the block in 1998 through a company he secretly owned called, “Malabu Oil and Gas.”

For six years, Shell continuously denied that it had done anything wrong. In one recent statement, issued April 8, Shell claimed it was “not aware of any evidence to support a case against any former or current Shell employee.” The company further said that, if the evidence ultimately proves that improper payments were made, its position is that “none of those payments were made with its knowledge, authorization, or on its behalf.”

The newly leaked e-mails reveal, however, that Shell executives, in fact, knew the money would be diverted to Etete and his company, Malabu, and went ahead with the deal anyway. One e-mail forwarded to Shell’s then-CEO Peter Voser stated, “Etete can smell the money. If, at nearly 70 years old, he does turn his nose up at nearly $1.2 bill [sic] he is completely certifiable. But I think he knows it’s his for the taking.”

Since knowledge of the e-mails has been released, Shell has done an about-face. “Over time, it became clear to us that Etete was involved in Malabu and that the only way to resolve the impasse (over disputed ownership claims) through a negotiated settlement was to engage with Etete and Malabu, whether we liked it or not,” Andy Norman, Shell’s vice president for global media relations, told The New York Times.

Eni, on the other hand, continues to deny any wrongdoing. In a letter to Global Witness, Eni noted a “number of inaccurate statements and mischaracterizations of the record, including, for example, your description of the structure of the acquisition OPL 245.”

“This is one of the worst corruption scandals the oil industry has ever seen, and this is the biggest development so far.”
Simon Taylor, Co-founder, Global Witness

Eni explained that one of its subsidiaries signed a commercial agreement for a new license for OPL 245 with the Nigerian federal government and a subsidiary of Shell: “Eni and Shell paid the consideration for this license to the Nigerian government into a federal government bank account. The government in parallel signed different agreements with Shell and Malabu to settle longstanding international litigation over OPL 245.”

“Eni did not sign these additional agreements,” the company added. “None of the contracts relating to the 2011 transaction was executed secretly or designed to ‘hide’ any party’s transaction.”

A culture of corruption. Shell is no stranger to bribery and corrupt acts. Five months before striking the OPL 245 deal, the company had entered into a deferred prosecution agreement with the U.S. Department of Justice for paying bribes—again, in Nigeria. Disclosure of the leaked e-mails suggests Shell may have been in violation of the DPA.

Worried about drawing further attention to the company, Shell CEO Ben van Beurden (who was not CEO at the time the OPL 245 deal was struck) tried to cover-up the wrongdoing. In February 2016, 50 Dutch and Italian police raided Shell’s headquarters seeking information on the OPL 245 deal. In a previously undisclosed phone call tapped by Dutch police, van Beurden told Simon Henry, Shell’s CFO at the time, “Don’t volunteer any information that is not requested.”

van Beurden and Henry further agreed that it was best not to disclose the raid to shareholders. “The last thing you want, of course, is some sort of request to issue a stock exchange release,” van Beurden said. “There is nothing to be said other than that we are being asked to provide information.”

The behavior demonstrated by Shell’s senior leadership demonstrate that the company’s stated Business Principles are nothing more than a paper tiger. “Our shared core values of honesty, integrity, and respect for people underpin all the work we do and are the foundation of our Business Principles,” the document states. “The Business Principles apply to all transactions, large or small, and drive the behaviour expected of every employee in every Shell company in the conduct of its business at all times.”

SHELL'S GENERAL BUSINESS PRINCIPLES

Below is an exerpt from Shell's General Business Principles.
Living By Our Principles
The objectives of the Shell group are to engage efficiently, responsibly, and profitably in oil, gas, chemicals, and other selected businesses and to participate in the search for and development of other sources of energy to meet evolving customer needs and the world's growing demand for energy.
Our shared core values of honesty, integrity, and respect for people underpin all the work we do and are the foundation of our Business Principles.
The Business Principles apply to all transactions, large or small, and drive the behaviour expected of every employee in every Shell company in the conduct of its business at all times.
We are judged by how we act. Our reputation will be upheld if we act in accordance with the law and Business Principles. We encourage our business partners to live by them or by equivalent principles.
It is the responsibility of management to lead by example, to ensure that all employees are aware of these principles, and behave in accordance with the spirit as well as with the letter of this statement.
The application of these principles is underpinned by a comprehensive set of assurance procedures, which are designed to make sure that our employees understand the principles and confirm that they act in accordance with them.
As part of the assurance system, it is also the responsibility of management to provide employees with safe and confidential channels to raise concerns and report instances of non-compliance. In turn, it is the responsibility of Shell employees to report suspected breaches of the Business Principles to Shell.
The Business Principles for many years have been fundamental to how we conduct our business, and living by them is crucial to our continued success.
Ben van Beurden, Chief Executive Officer
Source: Shell General Business Principles

Shell’s Business Principles, which are signed by van Beurden himself, continue on: “It is the responsibility of management to lead by example, to ensure that all employees are aware of these principles, and behave in accordance with the spirit as well as with the letter of this statement.”

The web of lies and secrecy demonstrated by Shell bring with it a litany of lessons for ethics and compliance officers in the extractives industry: “If a company’s executives choose to do something questionable, eventually it will catch up with them,” says Zorka Milin, senior legal advisor at Global Witness. One way or another, corrupt acts will be brought to light—whether by groups like Global Witness, investigative journalists, whistleblowers, or regulators, she says.

Legislative efforts.  Disclosure of the leaked e-mails in the Shell case come as the global push for greater transparency in the extractives industry gathers momentum.  Thirty major economies—including the United Kingdom, Canada, Norway, and all 27 members of the European Union—have laws requiring oil companies to disclose their payments to governments on a project-level basis.

The United States, on the other hand, has taken a major step back. In February, President Donald Trump signed legislation repealing Section 1504 of the Dodd-Frank Act. Section 1504 would have instructed the Securities and Exchange Commission to create a rule requiring domestic and foreign oil, gas, and mineral companies trading on U.S. stock exchanges to publish the payments they make to foreign governments to operate in those countries.

Passage of Section 1504 was a “groundbreaking transparency and anti-corruption development” that inspired other major economies to follow suit, Milin says. “The United States went from being a leader in this area to being a laggard,” she says.

Re-implementation of the rule has gone back to the drawing board. On April 4, Senate Democrats sent a letter to the SEC, urging the Commission to “promptly re-issue a new anti-corruption rule … that is consistent with both Congressional intent and the extractive industry transparency laws in effect in thirty other countries.”

Additionally, efforts are being made on a global scale to tackle hidden ownership. In February 2016, the Extractive Industries Transparency Initiative (EITI)—a transparency body consisting of 51 EITI countries—implemented a standard requiring that oil, gas, and mining companies operating in their countries disclose their beneficial owners. Under the EITI standard, the government must also publish this data.

Beginning in January 2020, all EITI countries will publish the identity of oil, gas, and mining companies that bid for, operate, or invest in extractive projects in their country. Politically Exposed Persons must be transparent about their ownership in oil, gas, and mining companies to help prevent conflicts of interest. This information will be publicly available and will be published in EITI reports and/or public registries. EITI requirements have sparked reform in 20 countries now working on establishing public registers.

“If we have consistent laws that are implemented within all the major jurisdictions, including the United States,” Milin says, “that will go a very long way toward leveling the playing field and making all the major players in this industry subject to the same rules.”