Global Witness (London)

5 August 2014

Angola: BP and Partners' U.S.$350 Million Payments in Corruption-Prone Angola Show Need for U.S. Transparency Rule

press release

As African leaders meet Barack Obama, campaigners ask where has the money gone?

As heads of African governments gather in Washington D.C. for the U.S.-Africa Leaders' Summit tomorrow, there is a crucial issue that must get attention: where does the money from natural resource deals go - including US$350 million being paid by U.S.-listed companies for a mysterious research center in Angola?

In 2012, Africa's oil and mineral exports were worth US$305 billion - almost seven times the value of international aid to the continent that year[1]. This wealth will contribute to development and poverty alleviation in Africa - if it is managed effectively and transparently.

But, while progress has been made on improving transparency in the global oil and mining industries, there are still serious blocks to this happening both in the U.S. and in resource-rich African countries like Angola.

"In the U.S. BP and a handful of other big oil companies are lobbying to weaken transparency rules that would enable citizens to effectively 'follow the money' from natural resource deals in African countries. Meanwhile many resource-rich countries including Angola are still failing to adequately disclose where billions of dollars are going from oil revenues paid by these companies," said Simon Taylor, director of Global Witness.

As President Obama and the Vice President of Angola Manuel Vicente meet, Global Witness is raising urgent questions about where US$350 million being paid by BP and its partner companies for a project in corruption-prone Angola is ending up.

BP and its partners including Houston-based Cobalt International Energy have contributed US$175 million over the past two-and-a-half years to fund a project in Angola known as the Sonangol Research and Technology Center (SRTC), with another US$175 million due to be paid by January 2016. [2]

Global Witness asked BP and Cobalt to provide any information that confirms the SRTC exists. The companies did not provide this information in their responses.

BP stated that Sonangol, Angola's state-owned oil company, "has informed BP that the SRTC is still in planning stage." Cobalt said they "monitor the progress of our social contributions in Angola, including the Research and Technology Center" but did not provide any further information about the project. [3]

Global Witness asked Sonangol for information to confirm the existence of the SRTC, but the company did not respond. We commissioned interviews with well-placed industry insiders, but none of them could confirm that the SRTC exists. [4] Global Witness is calling on the Angolan authorities to disclose where this money has gone.

International oil companies are contractually obliged to make these types of payments to Sonangol, [5] which has a history of corruption allegations. [6] The lack of information to confirm that the SRTC exists raises serious concerns that the money may have been misappropriated, potentially corruptly.

Rules being developed by the U.S. Securities and Exchange Commission should provide citizens and anti-corruption agencies with detailed information about these types of payments, enabling them to hold governments and companies to account for how natural resource revenues are used.

Yet the American Petroleum Institute, which represents the interests of some oil companies including BP, is lobbying to weaken the U.S. rules and keep payments hidden from public view in Angola and other countries. [7] In contrast to some of its oil industry competitors, Norway's Statoil has publicly endorsed the creation of a strong global transparency standard that matches a new EU law, which requires resource firms to publish their payments to governments on a project-by-project basis in all countries with no exceptions. [8]

Contacts:

Washington DC: Simon Taylor +44 7957 142 121 / staylor@globalwitness.org

London Dominic Eagleton +44 7738 713 016 / deagleton@globalwitness.org

Notes:

1) OECD (2013) 'Aid (ODA) Disbursements to Countries and Regions [DAC2a]' OECD.StatExtracts; andWorld Trade Organization (2013) 'World Network of Merchandise and Trade by Product and Region, 2010-2012'. Table A12, International Trade Statistics 2013.

2) The production sharing contract for oil Block 20 in Angola, signed in December 2011, shows that the block partners BP, Cobalt and China Sonangal agreed to pay US$350 million to the Sonangol Research and Technology Center (SRTC) in annual instalments over a period of four years up to December 2015. Initially, Cobalt's share of the US$350 million was 57.14%, BP's 28.57%, and China Sonangol's 14.29%.

Subsequent to signing the contract, China Sonangol exited the block and assigned its working interest to BP. Cobalt's letter to Global Witness confirms that as of May 2014, the Block 20 consortium had paid US$175 million to the research center, and that another US$175 million is to be paid by January 2016.

The U.S. Securities and Exchange Commission (SEC) requires reporting companies to disclose a contract if their business operations are materially dependent upon it.

Cobalt, which reports to the SEC, disclosed the Block 20 contract and within that the payments to the SRTC, only because it is a relatively small company that is executing a large contract and is therefore materially dependent upon that contract. Larger oil companies' business operations are not usually dependent upon a single contract, and therefore these firms' contracts are not usually disclosed.

3) See letters to Global Witness from BP (28th April 2014), and Cobalt (14th May 2014). In addition, Global Witness asked the Norwegian oil company Statoil, which operates in Angola and makes payments to fund the SRTC, if it could provide information to confirm the SRTC exists.

Statoil did not provide any such information in its response, and stated that "Questions regarding the management of Sonangol's funds and the Angolan single treasury account should be addressed to Sonangol and the Angolan government." Global Witness sent a further letter to BP and Cobalt on 25th July requesting information to confirm the SRTC exists, but the companies had not responded by the time this press release was published.

4) The interviews with industry experts took place in April, May and July 2014. Among those interviewed there was some awareness of an academy opening in Sumbe, a town in west central Angola, but none of those who were familiar with the academy thought that this was the SRTC. The academy, they say, is part of the National Petroleum Institute. Others commented that if BP were involved in the Sumbe academy they would have publicised this information. In its letter to Global Witness, BP does not link the SRTC to this academy.

5) The total amounts that oil companies in Angola are paying to finance obscure projects such as the SRTCare known to be substantially higher than the sums being paid in this instance by BP and Cobalt. The 2004 Petroleum Activities Law requires a proportion of signature bonus payments to be earmarked for social development projects.

Angola's oil contracts also require companies to fund social projects. The amounts payable and what the money is spent on is largely undisclosed by Sonangol, which manages these funds.

In 2008 Sonangol reported the value of payments for social projects to be US$39 million in 2008, but Global Witness research did not identify any further disclosures by Sonangol of social payments. Global Witness is calling for the pending U.S. SEC rule that implements Section 1504 of the Dodd-Frank Act to require covered companies to disclose these types of payments.

See: Amundsen, I & Wiig, A (2008) 'Social funds in Angola: channels, amounts and impact', CMI Working Paper 2008:8; Open Society Initiative for Southern Africa (2012) 'Angola's oil industry operations', Johannesburg: Open Society Initiative for Southern Africa; and Open Society Initiative for Southern Africa-Angola & Global Witness (2011) 'Oil revenues in Angola: much more information but not enough transparency', London: Global Witness.

6) On 4th February 2010 the U.S. Senate's Permanent Subcommittee on Investigations released a 330-page report detailing suspected cases of corruption and money laundering by government officials and their associates in oil-rich African states including Angola.

The report underscored how oil revenue has fuelled corruption and mismanagement in Angola and the need for much greater government transparency and accountability. Additional cases include Weatherford International, which is listed on the New York Stock Exchange.

The company pleaded guilty to violations of the U.S. Foreign Corrupt Practices Act (FCPA), including bribery of the executives of Sonangol. Weatherford agreed to pay fines of $253 million to settle the case - one of the largest settlements under the FCPA. SBM Offshore, a Dutch oil services company disclosed in 2014 that its internal investigation found evidence that its agents made payments to Angolan officials and/or their relatives.

7) BP is a member of the American Petroleum Institute (API), an oil industry lobby group. BP took part in three meetings with SEC officials as part of an API delegation on 15th January, 23rd January and 16th April2014 to discuss the implementing rule for Section 1504 of the U.S. Dodd-Frank Act, which requires extractive companies to disclose payments to governments on a project-by-project basis.

The API filed a lawsuit in October 2012 to overturn the Section 1504 rule. BP refused to dissociate from the API lawsuit when asked to by civil society organisations.

After convincing a judge to suspend the original Section 1504 implementing rule, the API is now calling for the SEC to re-issue a weak rule for the law that would aggregate payment data; keep companies' identities hidden from public view; and include an exemption from reporting in countries where companies claim disclosing payments may breach domestic law.

Angola has been cited by industry as one such country. BP has been critical of the SEC's original rule for Section 1504, supporting the API's position that the rule failed to account for companies' concern that it would harm their competitiveness. BP is also supportive of the API's proposal to include exemptions from reporting in countries where companies claim disclosing payments may breach domestic law (see BP's submission to the UK Government, Question 6.3).

8) See page 19 of Statoil's 2013 Sustainability Report.

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