CEO of ENI to be charged with corruption?

The CEO of Italian oil giant ENI and his predecessor are likely to be prosecuted under Italy's anti-corruption laws for alleged wrongdoings in the purchase of a Nigerian offshore oil block OPL 245. ENI and Royal Dutch Shell are named in the court documents as having committed "administrative offenses" with regard to the relevant Italian anti-corruption laws . The Nigerian authorities are also moving ahead to prosecute a number of people in the same case for money-laundering offenses.

Just before Christmas Italian prosecutors closed the investigative phase of their inquiry into the dealing of ENI and Shell regarding their joint purchase of the Nigerian offshore block. The issue now moves into the formal prosecution stage, with  eleven individuals set to be charged with "international corruption".  The list includes the past and current CEO's of the Italian oil giant.

The news hit the Italian press on December 23rd and no significant mention of that affair appeared in the international press.  However, a structured search with relevant key words and enforced-term operators reveals  the prosecutors' notice, which can be read in its entirety here.

ENI has stated that it notes the closure of the investigation and "reaffirms the propriety of the transaction" saying that at no time did it make any payments to members of the Nigerian Government. The direction of the prosecutors' investigation appears to suggest that both Messrs Scaroni (as the then CEO) and Descalzi (as head of Exploration) not only knew the terms of the complex transaction but were likely have understood that the Nigerian Government would not benefit from the deal despite the payments for the purchase of the block going into its coffers. The Nigerian authorities have laid charges of money-laundering against nine of the individuals in the Italian case and are expected to include both ENI and Royal Dutch Shell as defendants in time. The diagram below shows the main movements of money in the deal.

Malabu - the story of block OPL 245

As with many OSINT investigations, to get verifiable information you have to start by looking elsewhere. In this case the words ENI and Malabu would deliver a lot of noise, where as a "filetype" search on Malabu Oil & Gas, plus one of ENI's other corporate names (Nigerian AGIP Exploration), delivers us a New York Supreme Court affidavit from 2011, made by a US intermediary in the deal called International Legal Consulting Ltd, in turn owned by Mr Ednan Agaev. Mr Agaev is named as one of the defendants in the Italian prosecutors' findings.  In his affidavit Agaev lays the entire Malabu deal bear for all to see, essentially because he is seriously annoyed at not having been paid his take from the deal.

These court documents from the US Supreme Court, dated June 28th 2011, set out the terms of an operation whereby Shell and ENI bought a key offshore oil block in Nigeria from the Nigerian Government.  What this affidavit claims (see page 20 of the pdf file onwards) is that ENI (and possibly Shell) knowingly structured a back-to-back deal between an ex-Minister of the Nigerian Government (convicted of money-laundering by a French Court) and the Nigerian State whereby the latter sold on the licence to the international oil companies.  This is the document that effectively triggered the current Italian investigation into ENI and several of its past senior executives: this probe has resulted in ENI having to self-report the issue to the US SEC and Department of Justice.

ENI  self-reported (necessarily) to the DoJ and SEC in 2014

ENI has stated that it is under investigation for “alleged international corruption” regarding its acquisition of OPL 245.  Importantly the company goes on to state that it has “reported the matter to the US Department of Justice and the US SEC” – i.e. it has self-reported (see Legal Proceedings note 2.i – page 103).  This is important for two reasons: in the first place ENI has already fallen foul of the US authorities back in 2010, when Snamprogetti was fined along with Technip for FCPA issues in another Nigerian contract.  As part of that settlement ENI ‘consented to the entry of a court order permanently enjoining it from violating the recordkeeping and internal controls provisions’, which is to say that it is obliged to report any possible corruption issues.  Secondly, the US authorities are obliged to investigate the situation regardless of what the Italian authorities might finally decide, given that ENI has a sponsored-ADR traded on the US markets.

A story of multiple amber flags

The history of OPL 245 is tangled, with Royal Dutch Shell and Malabu Oil & Gas having various rights over the block for much of the past eighteen years:

1998 – The Nigerian Petroleum Ministry awards Malabu Oil & Gas the rights over OPL 245 for a price of $2mn.  Malabu is said at that stage to be controlled by Mr Dan Etete, at that time being the Nigerian Minister of Petroleum

1999 – Malabu offers Royal Dutch Shell 40% of the profits on the block in return for carrying all exploration and development costs

2001 – A new Nigerian Government revokes Malabu’s licence to OPL 245 and awards the block to Shell for a signatory fee of US$210mn

2003 – Mr Etete sues Shell in the US courts over ownership of OPL 245

2006 – A different and new government reaffirms Malabu’s rights over OPL 245 and Shell is to be given other assets in compensation

2007 – Mr Etete is convicted and sentenced in absentia by French courts of money-laundering offences (he loses his appeal)

2011 – The Nigerian Government ‘brokers’ a deal whereby Malabu cedes its rights to the Government, which the awards OPL 245 to Shell and ENI for a total price of $1.3bn.  Shell pays a signatory bonus of US$207mn to the Nigerian Government and receives 50% rights to the block, and ENI pays US$1.1bn to the Government, receiving a 50% stake and operatorship.  According to court documents lodged in both New York and London, the ENI payment (US$1.1bn) was transferred by the Nigerian Government to bank accounts controlled by Dan Etete.  

Global Witness had put it very succinctly in 2013:

"In 2011, a deal was signed behind closed doors that involved a former Nigerian oil minister and two of the world’s largest oil companies – Royal Dutch Shell and Eni. It relied on a climate of secrecy in the oil and gas sector, and the clever use of anonymous shell companies that allowed the beneficiaries of the deal to hide their identities and divert huge sums of cash."

Conclusion (for the time being):

ENI has two major FCPA investigations open against it in the US: one relating to this self-reported allegation and the other for allegations of bribery by its subsidiary Saipem, in Algeria. The company's subsidiary Snamprogetti was fined by the DoJ in 2010 (along with Technip) for FCPA offenses also in Nigeria.

By stating that the Italian investigation "reaffirms the propriety of the transaction", ENI is essentially claiming that by making the purchase payment to the Nigerian Government, as stipulated in the terms of the deal, it is essentially off-the-hook when it comes to what the Nigerian Government chose to do with the monies. Under the spirit of the new EU 4th Directive that attitude might be construed as "wilful blindness", which the DoJ finds difficult to accept as a defence.

Whilst both the Italian case and the Nigerian case will take time to rumble through their respective judicial systems, the US authorities might take a more aggressive approach towards a multi-national now in the throws of its third international bribery investigation.