Global Witness submission to Select Committee inquiry into oil and mining sectors calls for:
- a public register of real owners of UK companies
- speedy passing of new EU standard into UK law ensuring company payments to governments are reported
- end to lobbying by Shell, others, to delay UK implementation of EU transparency law
- blocking of attempt to take ENRC private until official investigations completed
- the UK judicial authorities to freeze funds from a major Nigerian oil deal involving Shell, Eni and various offshore companies
Global Witness has submitted written evidence to the Business, Innovation and Skills Select Committee’s inquiry into the mining and oil sectors, calling on it to lift the lid on corruption scandals surrounding UK companies. The submission also makes policy recommendations to guard against future corruption, including calls for transparency over the real owners of companies and payments made by companies to governments around the world.
The submission provides detail on alleged corporate malpractice involving UK-listed and UK-registered firms: the Eurasian Natural Resources Corporation and Glencore; Royal Dutch Shell and the Italian oil company Eni.
All the cases “relied on secrecy over company ownership and lax regulation, in both the UK and in its Crown Dependencies and Overseas Territories,” Global Witness writes in its submission. “This has made the UK an accessory to international crime and has undermined the effectiveness of UK aid to resource-rich developing countries.”
ENRC and Glencore struck deals involving a friend of the president of the Democratic Republic of Congo that deprived the nation of at least $ 1.36 billion, nearly twice its annual spending on health and education combined. Those funds were instead paid into secretive offshore companies, mostly registered in the British Virgin Islands. ENRC, Glencore and their main partner in Congo, Dan Gertler, have all said the deals were in no way corrupt. Glencore has said it regards bribery as “unacceptable”; ENRC has said that it “has a zero-tolerance policy to bribery and corruption”; a representative of Mr Gertler said his holding company “has always behaved with the “utmost honesty, integrity and fairness” in Congo.
The Serious Fraud Office has launched a criminal investigation into ENRC. The law firm Dechert, which was hired by ENRC to conduct an internal investigation, says it found evidence of payments to African presidents and tens of millions of dollars being misappropriated. Global Witness has seen audits and other documents providing further evidence of corruption at ENRC – also involving the use of anonymously-owned companies – and provides details for the first time in its submission.
Global Witness argues that ENRC appears to have misled UK authorities in declarations it made regarding corruption risks. “The evidence not only demonstrates the importance of the UK authorities pursuing their current investigations into ENRC to their conclusion but also raises serious regulatory questions for the Stock Exchange authorities – including why they allowed ENRC to list in the first place,” the submission says.
ENRC has not yet replied to any of the specific questions put to it by Global Witness regarding corruption concerns.
ENRC’s three major shareholders are now seeking to delist the company by buying out other shareholders and, reportedly, reregistering the company in Kazakhstan. This could pose a serious threat to the completion of the SFO’s criminal inquiry, a matter of deep public interest. “UK authorities should block the delisting or, should this prove impossible, prevent associated transactions and the re-registration of the company outside the UK, until the inquiry is complete,” says the submission.
Shell and Eni agreed to pay $ 1.1 billion for rights to a Nigerian offshore oil field, knowing that the money would end up in a bank account controlled by a convicted money launderer.
The payment was made by Shell and Eni to the Nigerian government, which had a separate agreement to pay the same amount to Malabu Oil and Gas, a Nigerian company controlled by convicted money-launderer and former Nigerian oil minister Dan Etete.
As Mr Etete had awarded the oil block to Malabu while petroleum minister during the regime of the corrupt dictator General Abacha, he had effectively given himself one of the most lucrative oil blocks in Nigeria.
Shell and Eni deny paying any money to Malabu. Yet High Court proceedings show they were aware that their payments to the Nigerian government were ultimately intended for the company. Global Witness believes the deal was deliberately structured to allow Shell and Eni to say they paid the government while claiming ignorance of the real destination of the funds. Court documents show the companies knowingly monetised an asset acquired corruptly by Malabu.
Documents seen by Global Witness also indicate that the deal resulted in over $ 801 million of the money transferred to Malabu being passed on to five Nigerian shell companies with hidden owners, raising concerns as to who ultimately benefitted from this deal.
Hundreds of millions of dollars destined for Malabu have been frozen in the UK. Meanwhile, middlemen claiming to have helped Malabu sell the block have sought their share of the proceeds in the UK courts. One company registered in the British Virgin Islands has already been awarded $ 110 million.
Global Witness believes all the funds generated by this deal should be regarded proceeds of corruption. The submission says: “UK authorities should urgently intervene to ensure that UK Courts are not being used to determine the beneficiaries of the proceeds of crime. Rather this money should immediately be frozen and returned to the people of Nigeria.”
To help guard against corruption in the oil and mining sectors, Global Witness calls:
- For the UK government to establish public registries of the real, or “beneficial”, owners of companies registered in the UK. The UK government committed to creating a register of the beneficial owners of UK companies as part of this year’s G8, and has just concluded a public consultation on whether to make this information public. David Cameron has expressed his preference for making the information public, as have the head of the Institute of Directors and the European Banking Federation.
- For the UK government to require its Crown Dependencies and Overseas Territories, which include some of the most widely-abused secrecy jurisdictions in the world, to also establish public registers of the beneficial owners of companies.
- For the UK government to follow through on its commitment made at the G8 summit for the speedy transposition of the EU Accounting and Transparency Directives into UK law. The directives oblige mining and oil companies to publish what they pay governments, which would make it harder for a repetition of the kind of deal struck by Eni and Shell in Nigeria;
- for UK companies including Shell and BP to support swift implementation of EU transparency law and end their support for the campaign to weaken US transparency rules
Daniel Balint-Kurti on +44 (0)7912 517 146 or [email protected];
Brendan O’Donnell on +44(0)207 492 5898 or [email protected]
Notes to editors
1. Global Witness’s submission to the Business, Innovation and Skills Select Committee has been published on the Select Committee’s website: http://data.parliament.uk/writtenevidence/WrittenEvidence.svc/EvidencePdf/2333.
2. Global Witness has published extensively on the “secret sales” scandal, involving ENRC, Glencore and Dan Gertler. See, for example, our memo to ENRC shareholders from June 2012: http://bit.ly/PMCBzX. A less technical Q&A can be found at: http://bit.ly/16uNtFY.
3. On Shell and Eni’s OPL245 scandal, see our four-page briefing on the subject here: http://bit.ly/Pile7S. An Economist article from 15 June on the subject, “Safe sex in Nigeria” can be found at http://www.economist.com/news/business/21579469-court-documents-shed-light-manoeuvrings-shell-and-eni-win-huge-nigerian-oil-block. Global Witness’s latest joint statement on OPL245, issued with The Corner House, is here: http://bit.ly/14DpuaY.
4. A representative of Dan Gertler, Lior Chorev, sent Global Witness comments ahead of our submitting the select committee briefing, saying that any implication of corruption would be false, disputing the valuation data that Global Witness and the Africa Progress Panel (in a separate report) have used, and saying that Mr Gertler’s companies have made a considerable investment in Congo.