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A lack of beneficial ownership transparency in the oil and gas industry led to the loss of $1.1bn to a single deal by Nigeria, an international watchdog, Global Witness, has said in a new report.
The report stated that in Nigeria, Democratic Republic of Congo and Angola, lucrative oil and mining assets worth $4bn were awarded to companies with hidden owners, thereby diverting vast resource revenues to unknown private pockets, adding that in the Republic of Congo, a company whose beneficiaries remained uncertain had recently received lucrative stakes in several oil fields.
Noting that three of the four countries in the report were members of the Extractive Industries Transparency Initiative, while the fourth (Angola) desired to join.
Global Witness stated, “Making public disclosure of who truly owns and controls companies a condition of EITI membership would increase the scheme’s credibility and effectiveness.”
On how anonymous companies made $1.1bn disappear in a single deal in Nigeria, Global Witness noted that in 1998, the then Minister of Petroleum Resources, Dan Etete, awarded a company called Malabu Oil and Gas a huge oil block off the West African coast called ‘OPL 245’, without publicly declaring that he was the owner of the company.
The OPL 245 block was said to have been purchased in 2011 by European oil companies, Shell and Eni, who paid $1.1bn into an account set up by the Nigerian government.
The report stated, “The government agreed to transfer the same amount to a Nigerian company called Malabu Oil and Gas, which was secretly owned by a former oil minister, Dan Etete. Malabu eventually passed $800m of the money to a network of Nigerian companies with anonymous owners, which were apparently vehicles for paying others involved in the deal.
“Shell and Eni deny paying money to Malabu. Yet court evidence shows that they knew that the funds would go to the company. Over a period of two years, both Shell and Eni negotiated directly and indirectly with Malabu, including a face-to-face meeting between Shell managers and Etete over ‘iced champagne’, and dinner between high level Eni executives and Etete in a luxury restaurant in Milan.
“All of this only came to light because two of the middlemen involved in facilitating the deal sued Malabu for unpaid fees in London and New York.”
Global Witness noted that the OPL 245 deal had now been investigated by authorities in three countries, saying the Nigerian House of Representatives in a 2014 vote called on the government to cancel the deal, and the Economic and Financial Crimes Commission “is also investigating, and recently questioned Dan Etete.”
“With a new government now in power publicly committed to rooting out corruption, there is a risk that Shell and Eni will have their exploration rights revoked because of the way the block was acquired,” it said.
The global watchdog said in the United Kingdom, police had been investigating allegations of money laundering related to the deal, adding that in Italy, both the current and former CEOs and other senior managers at Eni, the country’s Italy’s biggest company, had been named as suspects in a corruption inquiry.
“Italian authorities have reportedly stated they believe over $500m from the deal was intended as bribes for Nigerian public officials.
“Around $190m of the proceeds of the $1.1bn payment has been frozen in the UK and Switzerland at the request of Italian prosecuting authorities.”
Global Witness said documents seen by it showed that $800m of the original $1.1bn was transferred to Malabu Oil and Gas in late August 2011, shortly after Nigeria gained EITI compliance.
It said the 2009-2011 Nigeria EITI report noted a discrepancy around an additional $207m retained by the Federal Government as a signature bonus for OPL 245, adding that as to the $1.1bn paid by Eni on behalf of itself and Shell into a government account for the oil licence, the report was silent.
It added, “This iconic case demonstrates why EITI must embrace beneficial ownership disclosure as a matter of urgency.
“Had beneficial ownership disclosure been required, it is very likely this deal would never have gone through. It’s not known how many other deals in Nigeria have involved secret payments to companies connected to ministers or other public officials.”
Global Witness said if the EITI required disclosure of beneficial owners, it would pave the way for real transparency in the country.
It said, “Beneficial ownership transparency is critical to resource-rich countries: unless citizens know the identities of the real individuals behind oil, gas and mining companies, it is all too easy for corrupt officials and middlemen to siphon off revenue, which should be for public benefit.
“$4bn could transform the lives of the citizens in Nigeria, the DRC, Angola and Republic of Congo. Furthermore, the $4bn identified in these four specific cases is only the tip of the iceberg.”
Global Witness, ahead of the forthcoming meetings of the International Board and the EITI Global Conference in Lima in February 2016, recommended that the board must require disclosure of beneficial ownership information as part of the EITI Standard from January 2016.
“Companies should have to disclose this information as part of the EITI reporting process in all EITI countries,” it stated.
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