Better uses for $1.1bn

RESOURCE-RICH Nigeria has long ignited interest from oil firms, but it can be a dangerously combustible environment when it comes to the risk of corruption. Two firms caught up in scandals are Royal Dutch Shell and Eni, Italy’s state-backed energy group. In 2010 both entered into deferred-prosecution agreements with America’s Department of Justice after being implicated in separate Nigerian bribery schemes. But those pale beside a case involving the two companies that is set to go to trial in Milan on March 5th.

The case centres on the purchase of a big offshore oil field known as OPL 245, and touches the top ranks of both firms. In the dock will be, among others, Eni’s current CEO, Claudio Descalzi, and Shell’s former exploration chief, Malcolm Brinded. Also on trial are the firms themselves, charged with failing to prevent bribery. The individuals face jail if convicted; the companies face fines. All deny wrongdoing.

In 2011 Shell and Eni jointly paid the Nigerian government $1.3bn for OPL 245. Prosecutors allege they knew the government would pass $1.1bn of the funds to a shell company called Malabu, controlled by Dan Etete, a former oil minister. They claim the companies had reason to believe Mr Etete would use much of what he received to pay off officials, including Nigeria’s president at the time, Goodluck Jonathan. They also suspect that more than $50m may have gone to Shell and Eni executives as kickbacks. Mr Jonathan has denied involvement. Mr Etete faces charges in Nigeria; his whereabouts are unknown.

Shell says that based on the case files, “we do not believe there is a basis to convict Shell or any of its former employees. If the evidence ultimately proves that improper payments were made by Malabu or others…it is Shell’s position that none of those payments were made with its knowledge, authorisation or on its behalf.” Eni says it acted with “correctness and integrity” throughout. Its board says it has full confidence in the firm and its boss.

International investors are particularly vexed about the alleged involvement of Shell, a blue-chip oil major. Last year, after e-mails were leaked, it admitted that executives had known that much of the purchase price would go to Mr Etete, a convicted money-launderer. In the e-mails, they speculated that funds might flow on to Mr Etete’s political friends. One investor says that Shell, by emphasising for so long who the contract was with, not where the money was going, honoured the letter but not the spirit of good governance—“and that’s not good enough anymore”.

Dutch investigators, too, are on Shell’s back. They raided its offices in The Hague in 2016 and tapped the phone of Ben van Beurden, Shell’s current chief executive. Mr van Beurden was not in the job when the oil block was bought and faces no charges. A sizeable team of Dutch investigators is still working on the case, though the Italians have been given the lead.

There has also been disquiet over Eni’s treatment of inquisitive board members. Luigi Zingales, who teaches at the University of Chicago’s Booth School of Business, was an independent director until 2015, when he left the board citing “irreconcilable differences” over how Eni tackled corruption risks. Another non-executive director with solid governance credentials, Karina Litvack, was removed in 2016 from a board risk committee that had access to OPL 245 files. The reason, Eni said, was that she had been implicated in a case of alleged defamation against the firm that was being investigated by a prosecutor in Sicily. Mr Zingales was also targeted: the prosecutor signed a notification that he was under investigation just days after Mr Zingales had informed Eni that America’s FBI, which was following the OPL 245 money trail, had contacted him about testifying.

To many outsiders the defamation claims, always vague, looked like part of a dirty-tricks campaign to discredit two free-thinking board members. Eni denies trying to silence anyone or pervert the course of justice. It has confirmed that Massimo Mantovani, its general counsel at the time (now head of the gas division), is a suspect in a probe by Milan prosecutors into how the defamation case came about. Mr Mantovani declined to comment. The defamation claims have been dropped. Investors nonetheless kicked up a stink. In response, Eni has reinstated Ms Litvack to the risk committee, but tensions remain high. One large investor calls the committee, the board’s most important, “dysfunctional”.

Winning the case would help the two firms restore confidence. Losing would be expensive. Eni would have to replace Mr Descalzi, who is highly regarded by industry analysts. Both firms would face fines not only in Europe but possibly also in America, whose crime-busters could use the deferred-prosecution agreements from 2010 to brand Shell and Eni repeat offenders, calculating their fines accordingly.