How secrecy in the oil & gas sector and the use of anonymous shell companies led to hundreds of millions of dollars being diverted away from Nigeria's citizens and into the hands of a convicted money-launderer.
In May 2012, Global Witness pieced together detailed court documents and other evidence that exposed how Nigerian subsidiaries of Royal Dutch Shell and Italian oil giant Eni agreed to pay US$1.092 billion for one of Nigeria's most lucrative oil blocks, OPL245.
The payment was made by Shell and Eni to the Nigerian government who had a separate agreement to pay the same amount to Malabu Oil and Gas, a company widely believed at the time of the payments to be controlled by convicted money-launderer[i] and former oil minister Chief Dan Etete.
In July 2013, a British High Court ruled[ii] that Etete was indeed the owner of Malabu Oil & Gas.
As Etete had awarded the oil block to Malabu Oil and Gas whilst oil minister during the regime of the corrupt dictator General Abacha, he had effectively given himself one of the most lucrative oil blocks in Nigeria[iii].
Shell and Eni deny paying any money to Malabu Oil and Gas[iv]. However, High Court proceedings and other evidence seen by Global Witness reveal that, in reality, Shell and Eni were aware and in agreement that the deal was for the benefit of Malabu, and had even met with Etete face-to-face on several occasions.
In fact, testimony heard during the case indicates that an official from Shell previously negotiated directly with Etete over "iced champagne" and that Eni officials had enjoyed a luxurious dinner at a 5-star hotel in Milan with him[v].
Global Witness believes that the deal was structured primarily to allow Shell and Eni to claim that they had not struck a deal with Etete nor Malabu.
Yet in making these payments, Shell and Eni effectively bought the block from Etete for over a billion dollars, therefore 'monetising' an asset that was acquired by Malabu Oil and Gas in highly suspicious and possibly illegal circumstances.
Documents seen by Global Witness indicate that over US$801 million of the money transferred to Malabu Oil & Gas was later transferred to a further five shell companies with hidden owners, raising concerns as to who truly benefitted from this deal.
Why transparency matters
Despite Nigeria's abundant oil wealth, Nigerians remain amongst the world's poorest people. In a country that continues to be plagued by corruption, the need for citizen oversight of payments to governments for their natural resources is as important as ever.
Currently, as this case demonstrates, detailed information of this nature only comes to light through the accident of court cases in London and New York. Had these court cases not gone ahead this information may never have fully come to light.
In order to prevent opaque deals like this, extractive companies must make all payments made to governments public.
Shell and Eni must also publicly disclose full details of all the arrangements they made with the Nigerian government with respect to these payments.
Given the history of this block and Etete's involvement, Shell and Eni should explain what steps they took to ensure their payments did not end up in the hands of Etete's company, Malabu. It would be extremely unlikely that Etete's history was not known to sophisticated international companies who, in Shell's case, have operated in Nigeria for more than half a century.
The need for a global transparency standard
New laws in the U.S. and EU now require extractive companies like Shell and Eni listed there to report payments they make to governments for natural resource deals, on a country-by-country and project-by-project basis.
This new global standard allows citizens of resource rich countries to identify what deals are being made on their behalf for their natural assets like the oil block OPL245.
Shell and other companies should stop attacking these laws and start reporting all their payments to governments to help prevent corruption.
A deal like the one finally struck for OPL245 would have been difficult to broker had the real owners of Malabu Oil and Gas been made public from the outset.
However, the real owners of Malabu and the shell companies that received millions of dollars as a result of the deal were kept secret. Hidden company ownership allows for the large scale state looting and affords impunity to the perpetrators.
Global Witness is pushing for the disclosure of the real owners of companies to be a prerequisite for participation in extractive deals.
[i] Etete was convicted of money laundering in France in 2007.
[ii] Energy Venture Partners Versus Malabu Oil & Gas, Commercial court, Queen's Bench Division, 2011-13. The case was brought by a broker who alleged that Etete failed to pay him for work he had done in obtaining a buyer for OPL245. Shell and Eni were not part of these proceedings.
[iii] After General Abacha died in 1998, the administration of Nigerian President Obasanjo revoked Malabu's licence and awarded it to Royal Dutch Shell, but after much legal wrangling a Nigerian court re-awarded the licence back to Malabu in 2006.
[iv] The Economist, "Safe sex in Nigeria", 15 June 2013. http://www.economist.com/news/business/21579469-court-documents-shed-light-manoeuvrings-shell-and-eni-win-huge-nigerian-oil-block; Eni correspondence with Global Witness, October 2012.
[v] Energy Venture Partners Versus Malabu Oil & Gas, Commercial court, Queen's Bench Division, 2011-13. The case was brought by a broker who alleged that Etete failed to pay him for work he had done in obtaining a buyer for OPL245. Shell and Eni were not part of these proceedings.