COLUMN | Pandora’s Box opens up more corruption in the oil industry [Offshore Accounts]

Petrobras' semi-submersible drilling rig Amazonia (Photo: CIMC Raffles)

Another year, another wave of allegations of corruption in the oil and gas industry, as the leaks in the Pandora Papers come to light. A year ago we wrote about the first three convictions by the Serious Fraud Office in the UK in the Unaoil scandal (here), where the Monaco-based brokerage paid large bribes on behalf of Leighton Offshore and SBM Offshore to Iraqi officials to win US$1.7 billion in contracts to rebuild the export terminal at Basra. The fourth accused in the case, Paul Bond, was sentenced to three and a half years in prison in the UK after a retrial in London this February (SFO statement here).

In the same piece we highlighted how SBM had also been found guilty of paying massive bribes to various Sonangol officials in Angola for historic FPSO contracts through a Panamanian company called Mardrill, and how the former boss of Mexico’s state oil company Pemex, Emilio Lozoya, testified that he had channelled bribes to three former presidents of his country. Mr Lozoya recently caused scandal in Mexico by dining with friends at one of the country’s finest restaurants, at a time when the attorney general has signally failed to secure any jail time for the leading politicians accused of using Pemex as a cash cow for corruption (here).

His impunity and the failure of the Mexican authorities to hold to account those receiving bribes and embezzling cash from Pemex is not surprising. Everywhere there is corruption, there are delays and excuses.

For example, the private secretary to the former president of Mozambique has insisted there was no link between her arranging meetings with shipbuilding group Privinvest and her receiving over US$800,000 from Privinvest via an intermediary (here).

So much corruption, so much oil

One of the hardest parts writing this column is which corruption stories to cover. There are so many. They are all complicated and they are all contested. They all take forever to get to court. Bribes paid today will probably come to court in 2028, if at all.

In March, we featured (here) the lengthy and tortuous case of former Nigerian oil minister Dan Ete and the case of offshore deepwater block OPL 245, which led to Shell and ENI being accused, then acquitted, of wrongdoing over the payment of over one billion US dollars to the Nigerian government, which was then misappropriated under the watchful eye of President Goodluck Jonathan. Last year we were covering the explosive Petrobras corruption scandal in Brazil, which drew in several rig building companies, including SembMarine and Keppel (here and here).

In 2019, we were writing about the corruption allegations against ENI CEO Claudio Descalzi (here), and the claims that a McDermott subsidiary had paid US$16 million to sex workers in Colombia as part of a concerted campaign to corruptly win construction contracts on a refinery there (here). That McDermott case is still unresolved as far as we know.

Petrofac guilty, pays US$105 million in penalties

The latest company to plead guilty of corruption is Petrofac, the British-listed oilfield services company, which admitted seven counts of failing to prevent its former employees from offering or making payments to agents in relation to projects awarded between 2012 and 2015 in Iraq, the Kingdom of Saudi Arabia and the UAE. The company admitted it had violated the UK Bribery Act 2010 between 2011 and 2017, but reassured investors that “all employees involved in the charges have left the business.” (here). They always say that. The prosecution claimed that Petrofac paid US$44 million in bribes to secure the Middle Eastern contracts worth over US$3 billion.

Chairman Renè Midori published a lengthy statement saying that Petrofac was now a completely different company.

“This was a deeply regrettable period of Petrofac’s history,” wrote Mr Midori. “We are committed to ensuring it will never happen again. We have fundamentally overhauled our compliance regime, as well as the people, and the culture that supports it.”

Mr Afsari remains on board

This claim that everything at Petrofac is new and different might be plausible. We note the fact that the company’s founder, and the CEO at the time the corruption was taking place, Ayman Afsari, remains a director of the company, and is the company’s largest shareholder, with 19 per cent of the company’s shares held by him and his family.

Mr Afsari stepped down as CEO last year but kept his board seat. The SFO had interviewed Mr Afsari in May 2017 about the corruption, just days after he made a large donation to the ruling Conservative Party in the UK. It is a matter of public record that in total Ayman Afsari and his wife Sawsan donated over a million US dollars to Boris Johnson’s Conservative party between 2009 and 2017 (here). The timing of the donation could be a complete co-incidence, of course. The thread of co-incidence runs strongly through this piece.

On October 4, Petrofac was fined US$64 million, hit with a US$31 million confiscation order, and was ordered to pay US$10 million of the SFO’s costs in the case. David Lufkin, Petrofac’s former Head of Sales, was also sentenced that day, and received a two-year custodial sentence, which was suspended for 18 months, for committing 14 acts of bribery. Lufkin had co-operated with SFO investigators and assisted with the investigation.

The SFO’s statement on the fines and sentencing is here.

Judge says Petrofac should remain a viable business

The Financial Times reported that Judge Deborah Taylor commented the corruption in Petrofac had been “systemic, serious and grave,” but she took into account Petrofac’s co-operation and its precarious financial situation. Petrofac required UK government support during the pandemic and still has loans to the British state to repay.

Heaven knows why a company that had been paying massive bribes for six years should be allowed to go bust. If Brazilian prosecutors had taken such a lenient position, Odebracht, the company at the heart of the Operation Car Wash scandal, would not have gone into bankruptcy protection in 2019 (Reuters report here). If corruption is to be combated, the penalties should be severe.

In fact, stock market investors were so relieved that the sentence on Petrofac was so lenient, and that the company could continue bidding new contracts, that the shares shot up. In the last month, Petrofac shares have risen from 98 pence (US$1.34) to 168 pence (US$2.31) apiece at close on Friday, October 15, increasing the value of the Afsari family’s stake by over US$60 million. Nice!

SFO also takes down Amec Foster Wheeler Energy

The SFO also scored a major success when it secured a Deferred Prosecution Agreement (known as a DPA – but as far away from the other DPA under shipping’s ISM code as can be imagined) with Amec Foster Wheeler Energy (AFWEL) on July 1. This DPA related to the company’s use of corrupt agents in the oil and gas sector (see here). Corrupt agents in the oil and gas sector. Well, who would guess that?

Under the terms of the DPA, AFWEL will pay a financial penalty and costs amounting to £103 million (US$141 million) in the UK to form part of a US$177 million global settlement with the British, American, and Brazilian authorities. The amounts to be paid by AFWEL in the UK include payment of the SFO’s costs of around US$5 million and payment of compensation to the people of Nigeria of just under US$300,000. Quite what the people of Nigeria will do with this rather paltry windfall is not known. But we have some idea (see below).

In entering into the DPA, AFWEL took responsibility for ten offences of corruption that spanned from 1996 to 2014 and took place across the world, in Nigeria, Saudi Arabia, Malaysia, India and Brazil.

In October 2017, the Wood Group purchased Amec Foster Wheeler, including its corrupt subsidiary AFWEL, in an all-share, no-cash deal, which valued its rival at US$2.7 billion (Reuters report here). The SFO was at pains to emphasise that the Wood Group was not involved in the indicted conduct, and has co-operated fully with the SFO’s investigation. Today the Wood Group as a whole is worth less than the price it paid for Amec Foster Wheeler.

Deferred prosecution is deferred justice?

As part of the DPA, the Wood Group agrees to ongoing co-operation with the SFO and other law enforcement and regulatory authorities. The Wood Group will report annually to the SFO on its group-wide ethics and compliance programme.

In return for this co-operation and the payment of the costs and penalties, no criminal prosecution of AFWEL will occur. And no findings of any kind were made against any individual, not even those who negotiated and paid the bribes for which the penalties applied.

“Over a period of 18 years,” said Lisa Osofsky, the Director of the Serious Fraud Office, “Foster Wheeler Energy brazenly and calculatedly paid bribes to officials around the world to cut corners and secure contracts, going to great lengths to conceal its corrupt conduct.”

People paid the bribes, but who exactly?

However, when approving the DPA, the court did not make findings of fact. The SFO admits that “no process took place by which the culpability of individual people was determined or assessed.”

So, millions in bribes were paid in many countries over many years by AFWEL, but nobody, not one individual, has been charged, let alone found guilty of corruption, in the case. Instead, the parent company pays a fine, agrees to be good in future, and everyone is happy. Well, certainly the SFO is happy because the fine paid for more than twice its annual operating costs, so the DPA was an excellent return on investment.

Those looking for answers over what went on can wait, because without the disclosure of a trial, what exactly happened in AFWEL over two decades remains veiled in secrecy.

It gets worse for Isabel Dos Santos, better for Angola

Now further allegations have emerged of corruption in yet more oil-producing nations, and of brazen money laundering in several European countries.

For many years, Angola has been at the centre of allegations that the state oil company Sonangol has acted as a piggy bank for the country’s elite who have embezzled money from it with impunity and used it as a mechanism to extort bribes from its business partners and contractors. SBM Offshore’s commission payments to offshore companies connected to senior Angolan officials were among the reasons the firm was fined hundreds of millions and its former CEO jailed.

When he took over in 2017, Angolan President João Lourenço said that no one was too powerful to jail for corruption. His administration claims that at least US$24 billion had been stolen under the previous regime led by his predecessor, José Eduardo dos Santos. That’s billion with a “b”.

In August, the International Consortium of Investigative Journalists reported that the former Angolan president’s daughter, Isabel Dos Santos, has been ordered by an international tribunal to hand back to the government of Angola a US$500 million shareholding in the Portuguese energy company Galp (here). Ms Dos Santos had claimed to be Africa’s richest woman, and a self-made entrepreneur, despite her father’s convenient job as head of state (her hilarious defence here).

Instead, the ICIJ revealed in its Luanda Leaks study that Ms Dos Santos and her husband, the Congolese art collector Sindika Dokolo, had obtained the stake in Galp for just a US$15 million initial deposit, in a controversial deal made with Sonangol. Strange, since she had told the Financial Times in 2013, “Yes, the oil industry is ‘politically driven'”, but she insisted to her interviewer that she steers well clear of it. In her sectors, “politics don’t come into it”, she said.

Unfortunately, the deal to buy the Galp stake “cannot be explained but for grand corruption by the daughter of a head of state and her husband,” the tribunal ruled, and declared it “null and void.”

The ruling was made public last week by Dutch newspaper and ICIJ partner Het Financieele Dagblad.

Tragedy strikes

Ms Dos Santos has been having rather a bad run of luck recently, and was bereaved in 2020 when her husband, and co-accused embezzler, Sindika Dokolo died. He drowned in a mysterious free diving accident off the coast of Dubai. Fortunately, the Emirati police have found no signs that the death of a man wanted for stealing millions of dollars of Angolan government money was anything other than an accident (here).

Accidents happen when people try to hold their breath underwater for long periods.

Vicente also holds his breath

Last month three non-governmental groups filed an official criminal complaint in Portugal against Manuel Domingos Vicente, then chairman of the Board of Directors of Sonangol (and vice president of Angola under President Dos Santos) and three former Sonangol executives, Baptista Sumbe, José Benge, and Fernando Osvaldo dos Santos. The claim relates to payments totaling almost US$54 million between 2005 and 2012 to various companies created in Panama by the accused.

Voa Portugues reported here that the plaintiffs’ spokesperson, attorney Salvador Freire, said the complaint was filed in Portugal because “the transaction bank is based in Portugal, and the organisations have sufficient evidence.”

“Portugal was the laundry room of corruption in Angola,” Freire continued. “It has been like that, in fact, for several years. This type of crime transcends national borders, so we want to hold the beneficiaries and facilitators accountable.”

Cobalt crashes, lawyers win class action

In 2014, Mr Vicente was caught up in a nasty corruption allegation involving Cobalt International Energy when it turned out that he himself and two senior Angolan generals had held previously concealed stakes in Nazaki Oil and Gás, Cobalt’s local partner in Angola (here).

At the time the venture was launched in 2010, Mr Vicente was running Sonangol, which awarded Cobalt its concession. In 2017, Cobalt filed for bankruptcy in the US after an abortive attempt to sell its Angolan assets to… Sonangol. In 2019, a Texas federal judge approved US$173.8 million in settlements of investor class action claims stemming from the bribery allegations against Cobalt, plus US$43.45 million in fees for the lawyers leading the action, including Bernstein, Litowitz, Berger and Grossmann, Entwistle and Cappucci, and others.

US District Court Judge Nancy Atlas said the request for 25 per cent of the settlement funds plus just under US$2 million in expenses was reasonable, considering the work the lawyers had put into the case and the outcome they achieved for the plaintiffs (here). That’s a legal win in so many ways.

“The government is really serious”

Mr Vicente has always denied wrongdoing, as he told the Financial Times in 2014 (here).

“The government is really serious, engaged in combating poverty,” he said. “I’m a Christian guy. It doesn’t work if you are OK and the people around have nothing to eat. You don’t feel comfortable.”

Unfortunately, despite his godly ethics, court filings in Switzerland have shown that Mr Vicente has amassed a personal fortune of over US$1 billion, demonstrating how President Dos Santos’ government was very effective at combating the poverty of its cronies, rather than the population as a whole. In Angola, GDP per capita is just US$2,000 according to the World Bank (here). However, income is highly unequal, and four out of ten Angolans have a consumption level below the poverty line of 12,181 kwanzas (US$21) per month, according to the 2020 Poverty Report for Angola (here).

It transpired that Mr Vicente ran an insurance company called AAA International, which sold hundreds of millions of dollars of cover to Sonangol, the same company he was tasked with running (here). He has been jailed on suspicion of corruption in Angola since late in 2020, but has described the transfers between 2012 to 2019 to his Swiss bank accounts, which have now been frozen, as “legitimate reimbursement for loans he had made earlier.”

London, the great money laundry

The fact that NGOs are now forcing the Portuguese government to take responsibility for the massive money laundering that went on by the Angolan elite under its nose should compel other European states to look hard at transactions that have occurred in their jurisdictions.

Particularly the UK. The great flood of information about offshore companies contained in the recent Pandora Papers leak of the confidential records of various Caribbean professional services firms, which set up Cayman Island, Panamanian, and British Virgin Island shell companies, have exposed just how much tainted cash of dubious provenance from the elite of various oil and gas producers has flooded into London.

The Aliyev family’s properties in London

The Pandora Papers revealed (here) that President Aliyev of Azerbaijan’s “two daughters, his son, his father-in-law, and two of the family’s close business associates have held US$694 million worth of London real estate” through secretive offshore shell companies set up in the Caribbean. The portfolio includes prominent historical buildings, commercial developments, and luxury apartments in prestigious neighbourhoods close to Harrods supermarket, OCCRP reported. These kids might look at the example of disgraced Isabel Dos Santos and ask a few questions. But probably not.

But where did the funds come from to pay for it? Surely not from the state budget or from state companies? Who knows? And the British authorities don’t seem too keen to ask, given that BP operates Azerbaijan’s largest oil and gas fields, ACG and Shah Deniz.

Unexplained wealth orders for the small fry

Strangely, Britain’s National Crime Agency was quite keen to slap an Unexplained Wealth Order on the wife of the former chairman of Azerbaijan’s biggest bank, the state-owned International Bank of Azerbaijan, after he was jailed on fraud and embezzlement charges. Zamira Haciyeva had spent more than US$21 million over a decade in London’s Harrods department store and lost her final appeal at the UK supreme court earlier this year against the order to reveal that the source of her money is legitimate.

Since her husband is in prison in Baku for stealing from the government-controlled bank, this may prove difficult. As a result, Mrs Haciyeva may now lose her home in London’s exclusive Knightsbridge district, and a separate golf course in the county of Berkshire that she owns, if she can’t explain the source of the funds that paid for them.

I’m eager to hear her explanation. Surely, she won a lottery, completely unrelated to her husband’s former role at the bank? Or perhaps she was lucky on the horses at Royal Ascot, the racecourse near her own golf course?

Nigerians own big, too

If the National Crime Agency starts to dig into how much crooked oil and gas money has washed back into London in the past few years, it may perhaps be handing out dozens of Unexplained Wealth Orders.

The Pandora Papers showed (here) that in the last three decades, at least 233 properties were bought in the UK by 166 offshore companies with a combined worth today of over US$500 million. The Premium Times reported that behind these companies were 137 influential Nigerians.

Strangely, the bulk of the purchases happened between 2010 and 2015 when Goodluck Jonathan was president of Nigeria, the same time that the mysterious billion dollars got lost out of the Nigerian treasury from the payment by Shell and ENI for the OPL 246 block.

Why are the British authorities permitting so much cash of unknown provenance to be “invested” (or laundered, if you are cynical) through Caribbean shell companies into London property?

You’d have to ask them. But since major donors of the Conservative Party were also found in the Pandora Papers to be advising on deals where US$200 million bribes were paid (see here), you might spend a long time waiting for the answer.

Jonathan Taylor – whistleblower returns to Monaco

Finally, we were delighted and relieved when the man who exposed the pervasive bribery in SBM, Jonathan Taylor, was released this July from Croatia. He had been held there for fifty weeks under an Interpol Red Notice from the Monaco authorities, who wanted to question him relating to claims that he had tried to blackmail SBM after discovering the corruption. Finally, the Croatian Justice Minister overturned the extradition request from Monaco and Mr Taylor could leave the country to go home to England, after a traumatic and stressful legal battle, and an involuntary night in a psychiatric facility.

Last week, Mr Taylor voluntarily returned to Monaco, and met with the authorities there to answer over five hours of questions about the allegations that he had sought to extort money from the oilfield services company that employed him. His French lawyer had negotiated that Taylor would be free to leave if he attended the cross-examination with investigating judge Ludovic Leclerk.

Mr Taylor has now received confirmation that both the international arrest warrant and the Monaco national arrest warrant against him have both been rescinded. He is also submitting a formal request that the case against him is dropped, and is confident that the Monaco authorities will have closed the matter by the end of this year. That’s great news.

Protection for whistleblowers in needed

Mr Taylor will now be devoting time on efforts to reform whistleblowing laws to provide further protection for those who discover and expose corruption, bribery, and corporate malfeasance. His own case exposed some of the biggest bribery incidents in the industry to date, and saw massive penalties levied on SBM.

However, Mr Taylor paid a huge personal price when he exposed the bribery at SBM – despite a settlement with his former employer, he has fought seven years of legal battles in Monaco and the Netherlands, he divorced during the time he was detained in Croatia, and he is now unemployed.

Whistleblowers deserve protection so that more corruption can be exposed. There’s too much dirty money in oil and gas, and too much money laundering by enablers and middle men in respectable developed countries, including the US and the UK. The Pandora Papers, the Panama Papers, and the Luanda Leaks reveal the extent to which the oil and gas industry must change and root out corruption.

But don’t hold your breath.

Background reading

Deferred Prosecution Agreements are relatively new and rare in England and Wales, but have been widely used in the US for many years. This piece explains the differences between how DPAs are used in the two jurisdictions – here.

The ICIJ’s Pandora Papers coverage starts here – please support their excellent work.

Hieronymus Bosch

This anonymous commentator is our insider in the world of offshore oil and gas operations. With decades in the business and a raft of contacts, this is the go-to column for the behind-the-scenes wheelings and dealings of the volatile offshore market.