COLUMN | SBM, Sonangol and Unaoil: oil industry corruption goes on and on and on [Offshore Accounts]
Last week saw another big win in the Serious Fraud Office’s efforts to bring yet another perpetrator to justice in the UK as part of the prosecutions in the Unaoil scandal, where a Monaco-based brokerage paid large bribes on behalf of Leighton Offshore and SBM to Iraqi officials to win US$1.7 billion in contracts to rebuild the export terminal at Basra. Iraqi-born British citizen Basil Al Jarah was sentenced to three years and four months in jail for his part in the US$17 million bribery scheme. He is the third conspirator to go to jail, whilst a fourth accused in the case, Paul Bond, will face a retrial in January 2021 in London.
Ominously, at his sentencing hearing on October 8, Al Jarah asked for further offences to be taken into consideration in relation to two other projects: one to install an oil platform and one to install a third oil pipeline. The SFO’s press release is here.
What is it with the oil industry and corruption? I wish the Unaoil scandal could be written off as a single bad apple in the barrel, but the recent year has shown a welter of cases where big names in the industry have been prosecuted for malfeasance, all the while protesting – like wife beaters, conmen and philanderers everywhere – that they’ve changed and made a new start.
SBM as serial offender
To lose one CEO to corruption charges is misfortune, but to lose two indicates “a professional environment where corruption seems to have been a business model for many years” to use the words of a Swiss federal prosecutor about Dutch floating production contractor SBM. SBM’s dirty laundry in Iraq was once again aired in the Unaoil case, but in August its former CEO Didier Keller was also fined €430,000 (US$508,000) and given a two-year suspended prison sentence by a Swiss court in Bellinzona for US$6.8 million of corrupt payments made 15 years previously to Angolan officials at the state oil company Sonangol to win contracts for five FPSOs there.
The 74-year-old French national was spared jail on account of his age, the fact that the bribery was a long time ago, and because he was co-operating with the authorities on other, current investigations (basically the full Sepp Blatter defence). The full 42-page indictment was published by the Dutch newspaper De Telegraaf and can be downloaded here in French. It makes fascinating reading. I urge you to read it as it sets out how and why bribery happens in oil and gas.
Angolan state oil company as a bribe collecting machine
Why was SBM paying bribes? Because Sonangol as oil industry regulator had the power to veto the award of contracts in Angola. This is the same situation which exists today in Malaysia, Indonesia, Nigeria, Ghana, Azerbaijan, Algeria, Egypt and a host of other major oil-producing countries, where the selection of contracts is still subject to approval by the government. This creates circumstances ripe for corruption on a massive scale.
The Swiss indictment states that the bribes were paid from a Swiss bank account in the name of the innocent sounding Marine Global Services Corporation (MGSC). Keller had signed what was described as “a sales consultancy agreement” with MGSC in October 2002 and it became the conduit for cash paid by SBM to Sonangol executives.
To ensure the award of the contracts to SBM for the FPSOs for Chevron’s Kuito and Sanha FPSOs and for ExxonMobil’s Xikomba contracts, MGSC paid out US$4.7 million to a Panamanian-registered company called Mardrill. Who was the beneficial owner of Mardrill? Surprise! A senior Sonangol manager. The Swiss prosecution stated that “the sales consultancy agreement was established as a legal wrapping intended to hide the corrupt destination of the funds paid”.
Basic Luanda shake down
However, it is easy to see how and why SBM ended up paying its Angolan bribes, since it was in a joint venture with Sonangol. The Swiss indictment claims that at a joint venture board meeting in 2001, two Sonangol executives approached Keller to request that SBM pay commissions to Mardrill in order to ensure that its existing FPSO lease contracts in Angola were renewed and extended, and to guarantee that new contracts awarded to the contract. Give us money, or we shut down your lucrative business in our country, was the message.
So, commissions were agreed between Keller and the Angolans, at US$2,000 per day for each of the ExxonMobil FPSO contracts for Xikomba and Kizomba C fields, US$1,500 per day for the Kuito FPSO contract with Chevron, and US$1,600 per day for Chevron’s Sanha FPSO lease. A simple one per cent cream off was confirmed.
When the bribes stop, the contract awards stop too
The threat was clear. Don’t pay Mardrill, and SBM will never win another contract in the country. This was state sponsored extortion, the mafia visit to the small shopkeeper in Sicily, but on a corporate scale with billions of dollars of contracts involved. Keller paid the bribes, and ultimately paid a much bigger personal price: the massive fine, considerable stress, and the complete destruction of his reputation. However, when the bribes stopped, following the blow up of SBM’s global corruption scandal blew up in 2012, new contracts in Angola mysteriously dried up too. Forced to change its bribe paying ways after the proverbial hit the fan amid hundreds of millions of dollars of fines for Foreign Corrupt Practices Act (FCPA) violations in the US and other fines in the Netherlands and Brazil, the company has won no new contracts in Angola. Please don’t draw any conclusions about those FPSO players which did win contracts there after SBM ended its bribe paying to Sonangol! None of them have been busted for compliance violations, but none of them are based in Western Europe or North America. Strange that.
Nor have any of the Angolan officials whom the Swiss indictment so scrupulously lists on pages 11 and 12 as receiving the bribes been prosecuted for their involvement in the skimming, to my knowledge. Everywhere bribes payers seem suffer more than those who take the cash, as we’ll see below.
Brazilian car wash corruption case continues
The even larger Brazilian corruption scandal in Brazil involving the state oil company Petrobras continues to grind on (previous coverage here). Incredibly, there have now been more than 75 separate investigations, implicating everyone from former Brazilian presidents and ministers to dozens of directors and managers at the conglomerate Odebrecht, which paid out US$2.6 billion in fines (here), to shipyard bosses and the usual Rolex-wearing hustlers (sorry, brokers), and middlemen.
In November, Samsung Heavy Industries agreed to pay more than US$75 million in fines penalties to settle its FCPA violations over bribes paid to Brazilian officials in order to win new build contracts for deep-water drillships.
Seadrill and Sapura JV investigated, Golar LNG suffers, Hygo CEO… gone
Then, last month, one of Samsung’s own customers, drilling contractor Seadrill, found itself caught up in the car wash. The embattled drilling contractor saw its former country manager in Brazil, Eduardo Antonello, accused of bribery by Brazilian federal prosecutors in court (here) as Brazilian and Dutch law enforcement officials carried out more than two dozen search warrants. This was unfortunate, as Antonello had left Seadrill and was now the CEO of a Golar LNG joint venture called Hygo Energy, which was about to have a stock market floatation in New York to raise US$485 million.
News of the charges against its CEO led to Hygo suspending its IPO, whilst shares in Golar LNG fell 25 per cent, and Hygo’s board decided that Antonello needed a leave of absence with immediate effect. On the first of October his former boss, Anton Dibowitz, who had been chief commercial officer at Seadrill during the period in question, stepped down as Seadrill CEO, although it was not clear whether this was connected to the company’s desperate financial position, rather than the car wash investigation.
Big contracts have a big price
The investigation is centred on a long-term Petrobras contract worth US$2.7 billion for three newbuild DP3 deepwater pipelay vessels (Sapura Diamante and sisters) awarded to Sapura Navegacao Maritima, a joint venture between Malaysia’s Sapura Energy and Seadrill. This was the first of two contracts for six vessels in total, which delivered between 2014 and 2016, and had a combined value of US$4.1 billion, as announced here.
Both Seadrill and Sapura have been at pains to explain that nothing has been proved, that the people under investigation don’t work for them, that last time they checked they had done no wrong, and that they have strong internal policies against bribery. Of course, the investigation is centred on the joint venture only, and this could all be true.
The Malaysian press has been very faithful at printing Sapura’s statements of defence verbatim (here), with nary a word from the courtroom on the actual charges. We’ll see.
TechnipFMC provides the template
Despite the denials, the Brazilian prosecutors have been very effective at getting convictions and levying massive fines for malfeasance, as SBM, Odebrecht, Keppel, Samsung and TechnipFMC can testify. Sapura and Seadrill have reason to be anxious over their joint venture. In 2019 TechnipFMC ended up paying US$296 million in criminal fines for bribery, in, you will never guess, Brazil and Iraq, in violation of the FCPA (here), with the legacy Technip company being the perp in Brazil, whilst the legacy FMC company was the wrong-doer in Iraq.
The US Department of Justice alleged that Technip had conspired to make more than US$70 million in corrupt payments to win contracts with Petrobras between 2003 to 2013. This was despite the fact that Technip had agreed a US$240 million settlement with the US government in 2010 over bribes paid in Nigeria, and had promised to reform itself. In Iraq, FMC paid bribes to at least seven local officials, including at the country’s ministry of oil, from 2008 to 2013, according to the American prosecutors.
The company entered into a US$214 million settlement with Brazilian authorities and the US authorities graciously agreed to offset the Brazilian penalty against the fine they had imposed.
CEO says it’s all in the past
Doug Pferdehirt, TechnipFMC’s chairman and CEO, wheeled out all the classic platitudes when the settlement was announced. “This conduct dating back over a decade ago, taken by former employees, does not reflect the core values of our company today.”
I presume his predecessor had said the same when Technip paid the settlement in 2010 over the Nigerian bribes.
Since both legacy companies were convicted, one can see that corruption is perhaps a core value they shared when they merged in 2017, Pferdehirt’s professions notwithstanding. His pious statements might also have had greater meaning if the company had not also admitted to setting aside a further US$70 million as a provision for fines it anticipated it might receive for corruption from the authorities in France, where an investigation is still ongoing.
Toxic interaction with state oil companies
I could go on. Other recent industry corruption cases involve a former manager at Vitol, the world’s largest independent oil trader, who was accused last month of paying US$870,000 in bribes to help Vitol win a US$300m deal in 2016 with Petroecuador, Ecuador’s state oil company. ENI and Shell continue to face investigation over the purchase of the OPL 245 offshore block in Nigeria. Italian prosecutors allege that the companies paid over US$1 billion in 2011 to various “businessmen”, middlemen and Nigerian government officials, particularly Dan Etete, the oil minister at the time, who conveniently owned the block. Our take on Nigeria here.
Pemex boss blabs against former presidents in court
Meanwhile, in July the former boss of Mexican state oil company Pemex, Emilio Lozoya, faced a hearing over alleged US$10 billion in kickbacks from the prolifically corrupt Brazilian construction group Odebrecht. Lozoya has claimed three former Mexican presidents were involved in receiving bribes, and that he has sixteen hours of videos of him bribing politicians with Louis Vuitton bags full of bank notes to buy their support for a 2013 energy reform law that ended Pemex’s monopoly on oil and gas exploration and production.
At the end crooked politicians benefit
What’s clear is that the creation of over powerful state oil companies in the name of “local content” and “national champions” has created the perfect storm for extracting bribes. Don’t pay bribes and you won’t win work in some of the largest offshore oil and gas markets in the world, as SBM discovered. Do pay bribes and you face criminal conviction, massive fines and huge legal costs, as well as reputational damage and years of distracting litigation.
Corruption in the oil industry is not a bug; it is a feature, created by crooked politicians to benefit themselves. Sometimes they get caught, as in Brazil and Mexico. But often, they are sitting back with impunity, raking in the cash overseas and putting executives like Mr Keller into ethical and moral quandaries, and legal jeopardy, if they decide to offer the commission and win business by illegal means. Expect to see more of these depressing cases so long as state officials have control over oil and gas contract awards. The system is rotten.