COLUMN | The power and the plight of the whistle-blower [Offshore Accounts]

“I assure you they are nothing more than criminals engaging in criminal stock market manipulation,” thundered a recent correspondent to Baird, following up on one of our recent stories about a certain company. The author offered his or her services as a whistle-blower, to expose the malfeasance about that entity, which shall remain nameless for now.

Whistle-blowers are vital to investigations into corruption, bribery, and corporate malfeasance. We need more of them to step forward to shine light on dark corners of government and corporate abuse, but their fate is often disappointing.

Hollywood films like the Oscar-winning Erin Brockovich, with Julia Roberts starring as a plucky legal assistant exposing pollution in California, have primed us to cheer for the vindication of the brave person who tells truth to power, and exposes wrongdoing. Reality is often much harder.

Edward Snowden – the wanted man

In 2013, Edward Snowden, the former National Security Agency contractor and CIA agent, exposed the massive state-sponsored surveillance of Google, Apple, Facebook and other servers, and the interception of huge volumes of phone data, emails and messaging information through internet backbone cables by the US government. Snowden arranged a massive secure dump of data from his former employers to journalists at The Washington Post and The Guardian.

This comprehensively documented the staggering scope and scale of the NSA’s data harvesting activities against both American citizens and the wider global public. The US government wasn’t happy.

Now, he languishes in exile in Russia. Snowden’s American passport has been cancelled. Charges of violating the Espionage Act of 1917 and the theft of government property remain outstanding against him. If he returns to America, he will face trial and a long jail sentence.

Today, the revelations have largely been forgotten by the billions using the internet and their mobile phones, who would prefer not to be reminded that the NSA and others (thinking of you, GCHQ in the UK) can probably access their nude photos, their most private correspondence, and all their contacts.

Sergei Magnitsky – the dead hero

Arguably the bravest whistle-blower of the twenty-first century was the Russian lawyer, Sergei Magnitsky.

His story is instructive. On Christmas Eve in 2007, three companies belonging to Hermitage Capital, an investment firm, received a tax rebate from the Russian state of around US$240 million, the largest such payment in Russian history. Jackpot!

Unfortunately, control of the companies had been hijacked by crooked officials after a police raid on the Hermitage offices. The rebates were claimed under false pretenses with forged documents, and the cash was diverted to the bank accounts of the scamsters.

Mr Magnitsky forensically investigated what had happened, and exposed the crime to the authorities. Unfortunately, he received no gratitude.  He was arrested, thrown in prison on false charges of collusion, and held without trial for eleven months. The prison guards beat him up, repeatedly. He was denied medical treatment.

Magnitsky died in his jail cell in Moscow in 2009 at the age of just thirty-seven. Erin Brockovich never had such a squalid and horrible ending.

Michael Lauber – shamed bear hunter of Siberia

The Economist recently ran a lengthy piece of investigative journalism (here) on the seeming collusion and incompetence of the Swiss authorities to the highest level, to investigate the money-laundering of the proceeds of the fraudulent tax rebate from Hermitage, which went through banks in Geneva and Zurich. However, the Swiss officials led by disgraced former attorney general Michael Lauber did enjoy some lavish hunting and fishing holidays in Siberia and Kamchatka, paid for by the Russian government, so it wasn’t all bad news for them (Reuters coverage here).

One of the lessons from whistleblowing against state corruption is that if you can steal from the state with impunity, you can buy off your accusers, ones by one, and use judicial process to retaliate.

Bill Browder – the crusader for justice

Whilst the Swiss have sought junkets, Bill Browder, the former CEO of Hermitage, has relentlessly sought justice for Magnitsky. “Most crimes couldn’t be solved unless there were whistle-blowers involved,” Browder said about corruption in an interview with Fraud magazine.

Indeed, the success of the Car Wash investigation in the billion-dollar corruption scandal in Brazil came from the testimony of insiders within Petrobras, as they scrambled to incriminate each other, confess their crimes and receive leniency from the prosecutor.

However, I think our correspondent little realised how wretched the life of the whistle-blower can be, even in jurisdictions less hostile than Russia.

Jonathan Taylor – scourge of SBM’s bribers

Jonathan Taylor currently languishes in Zagreb in Croatia battling extradition to Monaco. He has been trapped in Croatia for over 190 days after he flew there from the UK with his family for a summer holiday and was arrested upon arrival at Dubrovnik airport under an Interpol “Red Notice”.

Taylor spent five nights in custody. He is still forbidden to leave Croatia and must report to the police regularly.

US$240 million in bribes equals US$827 million in fines

Taylor’s crime? Exposing the biggest single bribe payer yet known in the international oil and gas industry. Mr Taylor had reported his employer to the Securities and Exchange Commission in the US in 2012, but the SEC did nothing, so he posted details of the malfeasance on Wikipedia. Yes, the same Wikipedia website where your kids crib their homework.

Mr Taylor worked as a lawyer at Monaco-headquartered SBM from 2003 until June 2012. He exposed the payment of over US$240 million of bribes by the floating production company to government and oil company officials to secure contracts in Angola, Equatorial Guinea and Brazil, and other countries. His Wikipedia entry was picked up by the Dutch press in 2013, as SBM is listed in Amsterdam. All hell broke loose.

Prompted by the press coverage, the authorities finally cranked into action. SBM was investigated and prosecuted in multiple jurisdictions. A quarter of a billion dollars in bribes resulted in three times the amount in penalties for Taylor’s employer.

SBM ended up paying out a mind-blowing total of US$827 million in fines.  The company paid the US Department of Justice US$238 million, US$240 million to the Dutch Public Prosecutor, and US$347 million to the authorities in Brazil, plus over US$2 million to the Dutch regulator of listed companies, the AFM.

Retribution, consequences and repercussions

SBM’s directors were not delighted to have Mr Taylor expose the company’s criminal activities in public, nor were they ecstatic when two of the company’s former CEOs were convicted for their leadership of the bribery, which was recorded in a special coded book in a locked safe in their office.

Another SBM Board member, Jean-Philippe Laures, was embarrassed by Mr Taylor’s claims that he had, “shredded vital evidence of bribery and filling approximately ten bin bags therewith, shortly after the scandal came to light.”

The company struck back.

SBM-inspired extradition attempt shows the risks

The request for extradition to Monaco was based on the claims of his former employer to the Monaco authorities that Taylor had been, allegedly, “trying to blackmail the company”. The Monaco authorities are still pressing for Mr Taylor’s extradition so that they can interrogate him under oath over alleged offences arising from that complaint, lodged against him in 2014, his lawyers say.

Taylor’s lawyers argue the complaint against him is without any merit and the Croatian authorities should release him immediately. At the time of writing, that hasn’t happened.

Monaco turns a blind eye to all but the whistle-blower

Mr Taylor was not informed of the allegations made against him by the Monaco investigating judge until three years after the report, and the case was dismissed by the Monaco Correctional Court.

Strangely, however, “the Monegasque prosecutor chooses not to prosecute a single individual involved in one of the biggest corporate scandals this century for their plotting and executing many of the bribes-for-contracts not four hundred metres from his office,” reported Mr Taylor. “Certain of such individuals who have left SBM remain resident in Monaco (including an ex-CFO and ex-CTO).”

Defamation, claims company that paid millions in bribes, slander!

This wasn’t his first fight against legal manoeuvres to blacken Mr Taylor’s name. The life of a whistle-blower is not an easy one.

From June 2015 to November 2016, Mr Taylor had to defend himself against a defamation case brought by SBM against him in Rotterdam. The Netherlands is a jurisdiction where the losing party does not pay the winning party’s costs, so the court fight pitted one man against a company that had already showed it can pay hundreds of millions in bribes. What’s a few more million to screw the man responsible for reporting the company for its crimes?

It was, “a classic case of bottomless pockets Goliath against whistle-blower with limited resources, David,” said Mr Taylor in describing his defamation suit.

SBM were seeking damages against him for making of statements in connection with SBM’s fraud, its attempt to cover it up and to mislead the market. All the statements have subsequently been declared as true by a Haarlem-based Judge in the Netherlands in a separate case, Mr Taylor stated.

The company lost, but the defamation case and the extradition case show the risks of whistle-blowing. It can be expensive, time-consuming and life-destroying.

In August 2020, SBM informed the Daily Telegraph in the UK that it had withdrawn its complaint in Monaco, “years ago.”

We wish Mr Taylor every success in fighting the extradition order to Monaco, and to defending his name against the claims in Monaco. He and his legal team maintain his innocence, and a leading human rights barrister in the UK has taken up his case. We’ll keep readers posted.

Unaoil’s Montecristo does it differently

The whistle-blower in the Unaoil bribery scandal, which was exposed by Fairfax in Australia and by The Huffington Post, took a radically different approach. The whistle-blower adopted complex security protocols for his or her dealings with the journalist, rather as Edward Snowden had done. He or she is known only as “Montecristo” or “Figaro.”

You can read how the leaks were received after a complex series of tests and procedures in The Age here. Basically, the journalists received a huge dump of confidential documents copied from the Unaoil email server, which revealed damning evidence of the systematic bribery in which Unaoil was engaged across the global oil and gas business. Unaoil had a network of corruption that spanned multiple countries and multiple clients.

Like SBM, Unaoil was a Monaco-based company. And like in the SBM case, the Monaco authorities did nothing to prosecute the malefactors, leaving it to the US and UK authorities to convict the corrupt leadership of the so-called “marketing agency”.

Unaoil’s anonymous whistle-blower

To this day, Montecristo’s identity is not known, certainly not to me. As a result, they seem to have escaped retribution, but if they were feeding the fish at the bottom of Monte Carlo harbour, their anonymity would make none of us any the wiser.

However, the revelations led to multiple convictions for Unaoil executives and the agency’s crooked customers, including Leighton Holdings in Australia, and, predictably, SBM, of course.

Who cares?

Whistle-blowing depends on someone caring. Where there are public listed companies and strong governments committed to enforcing anti-corruption legislation like the Foreign Corrupt Practices Act in the USA, or the British Bribery Act, whistle-blowing achieves results.

Elsewhere, nothing happens. As far as I know, no Equatorial Guinean and Angola officials were prosecuted for their involvement in receiving bribes from SBM, even though Taylor had exposed the second son of the kleptocrat President of Equatorial Guinea (Gabriel Mbega Obiang) as a recipient of US$7 million in illegal payments.

Gabriel’s in the press again

Indeed, only last month, the Organised Crime and Corruption Reporting Project reported here that Gabriel Mbega Obiang, minister of hydrocarbons and mining, was the recipient of multi-million euro bribes to facilitate construction contracts for a Portuguese company called Amando Cunha, in conjunction with a Malabo-based consultancy called Centurion Law Group. The depressing report is worth reading, if only for the photos of the minister at the wedding of one of the bigwigs in Centurion Law Group.

Gabriel Obiang’s half-brother Teddy is the Instagram celebrity and purchaser of Michael Jackson memorabilia, whom we highlighted in our Christmas feature (here). Even the Swiss confiscated 25 of his luxury super-cars in the grounds that they were probably the proceeds of crime (here) and sold them for US$30 million at auction.

If the regime in Malabo is busy taking backhanders, who can hold them accountable?

Adma-Opco and Larsen and Toubro

The Unaoil whistle-blower exposed evidence of bribery at the UAE oil company Adma-Opco, owned by ADNOC, the state oil company of Abu Dhabi. Unaoil was offering payments to a senior Adma-Opco official to influence the tender process for at least two major offshore contracts worth US$400 million. These bribes were paid on behalf of Unaoil’s client, the Indian engineering giant Larsen and Toubro, in 2008 and 2009, according to documents exposed by Montecristo.

The Age set out how Unaoil offered a US$1 million payment to a firm run by the “close associates” of the Adma-Opco manager. “The contract stipulated the money would be paid in return for the official helping Larsen and Toubro win work,” Nick McKenzie and his coreporters claimed.

What happened? Nothing. The Indian authorities and the Emirati authorities seem to have ignored the leaks and, as far as I am aware, took no action against either individuals in Adma-Opco, the agent employed by Unaoil to pay the bribes, or the ultimate beneficiary of the corruption, Larsen and Toubro.

Indeed, The Age reported that by 2011, “Larsen and Toubro had won more than US$500 million worth of work from the Abu Dhabi Marine Operating Company.” Strange, that.

Don’t call that justice

“There is no power, but in conviction,” wrote the French Enlightenment philosopher, François-René de Chateaubriand, and the most powerful convictions are always criminal ones in a court of law.

Whistle-blowers are a necessary and vital part of the fight against corruption and bribery in the oil and gas industry, against corporate malfeasance, and stock market manipulation.

In lots of countries, embezzlement, bribery and corruption are the norm, as in the case of the palace on the Black Sea coast, which Alexei Navalny revealed in Russia (here). Local content laws and requirements to have “local partners” encourage rent-seeking and corruption in the offshore industry. Companies are naturally secretive and prefer to safeguard their secrets internally, rather than face prosecution and fines.

Silence of the Dutch

Indeed, one of the cases springing from the SBM bribery case that is current in Holland today relates to the responsibility of SBM’s third-party lawyers, De Brauw Blackstone Westbroek, the largest law firm in the Netherlands, for their handling of the findings of their “independent investigation” into the corruption claims at SBM (here, in Dutch).

“Not infrequently, the office that conducts the internal fraud investigation has acted as a house lawyer for years — in the Netherlands there are no rules to prevent this,” Stefan Vermeulen observed.

Despite obvious indications and strong industry rumours that some other players in the floating production industry were (and probably are still) paying similar bribes to those paid by SBM, no other major player in the segment has received anything like the scrutiny that SBM went through as a result of Jonathan Taylor’s whistleblowing. Why? Because no whistle-blowers came forward and any evidence is buried within the companies themselves.

Modec says it looks hard and found nothing

For the avoidance of doubt, Bloomberg in 2011 reported (here) Modec’s claims that an independent investigation by a third party law firm, “found no violation of US anti-bribery laws in its work in Ghana.” Parse that statement for what you will.

“Evidence has grown in recent years that such investigations are of little use to justice,” concluded investigators at Follow the Money in the Netherlands.

Whistle-blowers perform a valuable public service, even if they are little rewarded, as we show above. To stand up for what is right and good is a thankless task. But come on forward, nonetheless.


Background reading

The BBC summary of Sergei Magnitsky’s investigation into the tax corruption at Hermitage Capital is here, his Wikipedia biography is here.

We covered the SBM and Unaoil convictions, here, here, and here

For the Sete Brasil and the Petrobras drilling rig scandals, here.

Excellent Dutch coverage of Mr Taylor’s case is here and covers the case here

The most recent issue of Fraud magazine can be downloaded for free here – it features the Top Five frauds of 2020, all multi-billion dollar scandals across multiple sectors, with a dishonourable mention of the former acting chairman of Nigeria’s Economic and Financial Crimes Commission, who was charged with embezzling funds recovered as restitution from financial crime. Ah, the irony.

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.