The Disappearing $1.1 Billion Behind Shell, Eni Trial: QuickTake

LAGOS (Capital Markets in Africa) – Royal Dutch Shell Plc and Eni SpA are going to trial in Italy over bribery charges involving an oil field in Nigeria. Two things are unusual about the case. One is the sheer scale of the sum involved — $1.1 billion. The other is that the defendants include Eni’s Chief Executive Officer Claudio Descalzi, the company’s former CEO and a former top executive at Shell. Hearings resume in Milan on May 14.

1. What was the $1.1 billion for?

It was paid by the companies to the Nigerian government in 2011 for a license to drill in deep waters off the Nigerian coast. The license had been in dispute for years. It had originally been awarded in 1998 by the country’s military dictator, Sani Abacha, to Malabu Oil and Gas Ltd., a Lagos-based company connected to then-Petroleum Minister Dan Etete. Under successive governments, the license was canceled, awarded to Shell, and then awarded to Malabu again before the 2011 deal. Shell and Eni also paid the government about $200 million as a signature bonus — a onetime fee charged by some oil-producing nations.

2. Was that improper?

Not on the face of it. The problem arose, according to prosecutors, when it became clear that most of the money paid by Shell and Eni ended up flowing out of the Nigerian government’s bank accounts.

3. Where did the money go?

Prosecutors in Milan allege that Shell and Eni paid almost $1.1 billion — everything but the $200 million “signature bonus” — into an escrow account for the Nigerian government, from which about $800 million was later transferred to Malabu to be distributed as payoffs. Almost half a billion dollars was transferred to money changers around the Nigerian capital to convert into cash to be divvied up among officials, including then-President Goodluck Jonathan (who has denied wrongdoing), according to the court papers. The payments include more than $50 million withdrawn by one local businessman and another $50 million in cash delivered to the Nigerian home of an Eni executive, Roberto Casula, the prosecutors allege. An Eni spokesman said last week Casula didn’t have any comments.

4. What does Shell say?

For years the company maintained it hadn’t known that any of the money would go to Malabu. Last year, it made an about-face after news reports detailing internal emails discussing the deal. It conceded that it had known that Nigeria “would compensate Malabu to settle its claim on the block” and that “the only way to resolve the impasse through a negotiated settlement was to engage with Etete and Malabu, whether we liked it or not.” Shell said in a statement last week that it believes that the trial judges in Italy will conclude that there is no case against the company or its former employees. “There is no place for bribery or corruption in our company,” Shell said.

5. How about Eni?

Eni has also said it hasn’t broken the law and has pointed to an internal investigation that cleared it of any wrongdoing. “Eni expresses its full confidence in the judicial process and that the trial will ascertain and confirm the correctness and integrity of its conduct,” the company said in a statement last week.

6. Which executives are facing charges?

Italian prosecutors are targeting 13 people and the companies. They include five Eni executives, among them Descalzi and Paolo Scaroni, the former Eni CEO who is now vice-chairman of NM Rothschild & Sons. Four Shell employees including former head of exploration and production Malcolm Brinded, Nigerian officials including Etete, and various others who acted as intermediaries are also identified in the court papers. Eni shareholders re-elected Descalzi as CEO last year. A lawyer for Scaroni declined to comment. A spokesman for Brinded reiterated he has “done nothing wrong and believe that will become clear in any legal proceedings.” Etete’s lawyer, Antonio Secci, said, “We believe Malabu’s business is lawful and transparent.”

7. What happens now?

The trial started Monday, and was assigned a new judge who was more available to focus on the case. The next hearing will take place May 14, and take care of administrative matters first, such as the overall schedule. The trial could stretch over months, with hearings to take place about once a week. Instead of a jury, the arguments will be heard by a tribunal of judges, who will make the final decision. Defendants aren’t required to attend the hearings, and if they choose to testify, they won’t have to take an oath to tell the truth, unlike the witnesses. Both sides will be able to appeal the verdict.

8. What’s at stake?

The tract covered by the license is large with an estimated 9 billion barrels of oil resources, which could be worth $540 billion at a $60-a-barrel crude price. Though some of that will go to the Nigerian government, the companies still stand to make a lot of money. If found guilty, they face fines and revocation of licenses to do business. Descalzi, Brinded and others could go to prison. There’s also the damage to corporate reputations. Shell has sought to project an image of a good corporate citizen acting responsibly. It established a charitable foundation that has poured millions into local development in various countries. Violation of “anti-bribery and corruption legislation or anti-money laundering legislation could harm our reputation and have a material adverse effect on our earnings, cash flows and, financial condition,” Shell said in its last annual report.

Source: Bloomberg Business news