TORONTO (Thomson Reuters Foundation) - Oil and gas companies with major US operations have been the subject of at least 30 prosecutions related to bribes paid to foreign governments under the US Foreign Corrupt Practices Act (FCPA) since 2007, underscoring the urgent need for transparency regulations to tackle corruption in developing countries, activists and researchers say.
Royal Dutch Shell and Chevron Corp. are among the companies that have faced allegations of making illicit payments to foreign officials, according to research by Paasha Mahdavi, a doctoral candidate at the University of California, Los Angeles (UCLA).
These two companies are among those that paid $3 billion over the last 15 years to settle charges that they cheated the US government and Native American communities out of royalties on oil and gas leases. They are also among a group of companies that is leading the battle against strong US transparency rules that activists say are necessary to tackle corruption in poor, resource-rich countries.
Drawing on documents from the US Department of Justice (DOJ) and the US Securities and Exchange Commission (SEC), the research identifies 39 cases involving oil and gas companies, along with those that provide them with construction, engineering and other services, that were prosecuted by the DOJ under the FCPA between 1982 and early 2013. The cases, about three-quarters of which took place after 2007, make up about one-quarter of FCPA cases prosecuted by the DOJ.
“What’s striking is that the cases of corruption are across the board in the industry. It’s not just a matter of a few bad apples,” Michael Ross, a professor of political science at UCLA and an expert on the industry, told Thomson Reuters Foundation. “It’s a matter of a sector-wide, industry-wide problem … not just the problem of going after a few violators.”
Current legislation “has been insufficient to reveal, and deter, a large number of corrupt payments by US-listed firms,” Ross wrote in a letter to the US Securities and Exchange Commission (SEC) last week.
The SEC is responsible for writing transparency rules that would require oil, gas and mining companies publicly traded in the US to report how much they pay governments worldwide to explore, dig and drill for natural resources on their land.
The rules were mandated by Congress in 2010 under section 1504 of the Dodd-Frank U.S. financial reform act in order to combat corruption in the extractive industries worldwide. Almost four years later, the law has still not been implemented.
A set of rules issued by the SEC in 2012 required companies to disclose how much they paid governments on a project-by-project basis. But they were thrown out by the U.S. Court for the District of Columbia last July, after the American Petroleum Institute (API) and the U.S. Chamber of Commerce filed a lawsuit arguing the rules would impose burdensome costs on the industry and undermine its global competitiveness. The SEC plans to re-issue the rule by March 2015.
The API, which represents more than 550 companies including Shell and Chevron, is lobbying for a rule that would lump together disclosure of royalties, fees and other payments by regions within a country so that they can’t be linked to a specific project or company.
Spokesmen for Chevron and Shell, and Stephen Comstock, manager of tax policy at API, told Thomson Reuters Foundation they support transparency.
“We recognize as an industry that there’s corruption in government at times,” said Comstock.
Activists argue that the API’s approach would render the information useless by making it difficult to hold companies and governments accountable.
For example, the provincial governments of Zaire and Cabinda, two oil-producing provinces in Angola, are supposed to receive 10 percent of the revenue from oil produced on their territory, but only receive a fraction of that amount, according to a letter to the SEC from Publish What You Pay (PWYP) US, the American arm of a global network of more than 800 human rights, development, environmental and faith-based organisations that has lobbied for resource transparency.
“Are the payments being made by oil companies to the Minister of Finance who is then short-changing the provinces or are companies actually short-changing the Minister of Finance?” said Jana Morgan, national coordinator of PWYP US, adding that project-level disclosure would make it easier to hold the government accountable.
It’s hard for governments to know if they’re being paid what they’re due, or even if they’re being paid in the first place, because different agencies don’t necessarily talk to one another, said Jonathan Kaufman, legal advocacy coordinator for Earth Rights International.
It’s often the case that a small number of officials decide on lucrative contracts through an opaque bidding process that is difficult for the public to scrutinize, said Mahdavi.
The cases mentioned in Mahdavi’s research include charges against several oil companies, including Chevron, that obtained Iraqi oil linked to illicit payments made to members of Saddam Hussein’s regime as part of the UN’s oil-for-food programme.
Chevron, which settled the charges out of court to the tune of $30 million, had not replied to the Foundation’s request for comments on the case by the time this article was published.
In another case filed in 2010, Shell was one of several companies accused of paying bribes to Nigerian officials.
The payments were made by a subcontractor and Shell staff involved were disciplined, a company spokesman said in an email. The DOJ dismissed the case after the company, which said it prohibits bribes in any form, cooperated with the DOJ and the SEC in their investigation and complied with terms set out by the US government, the email said.
Since then, Shell has been linked to further corruption in Nigeria. In 2012, a high court judge in London ruled that $1.3 billion, paid to the country by Shell subsidiaries and Italian oil giant Eni for an oil block in 2011, ended up lining the pockets of the former Nigerian oil minister.
Stephen Comstock of API said the current regime in place in the US for prosecuting corruption works. “(The companies) have very robust rules in place to make sure that they do not violate the Foreign Corrupt Practices Act. They have zero tolerance for that type of situation.”
“Considering all the thousands of interactions that these companies have with governments, I think (the number of cases identified by Mahdavi’s research) shows how strongly and how intently they do focus on making sure that situations don’t happen,” he added.
But Paul Bugala, senior sustainability analyst at Calvert Investments, said transparency is especially important in light of the growing challenges and risks the industry faces.
The rising price of oil and other resources have pushed companies to develop oil wells, gas pumps and mines “further and further afield in countries that don’t have very strong governance or experience in the industry,” he said. “What it does is creates a black box about what it means to operate in a particular country and the confidence with which investors can look at a particular project.”
Several studies have shown that oil-producing countries face high risks of corruption.
In last week’s letter, Ross urged the SEC to pass strong rules requiring detailed country-level and project-level public disclosure of payments.
“Enormous amounts of money are at stake and the signatures of often a handful of government officials determine where those benefits are going to go. So that’s a situation that’s ripe for enormous corruption and hence needs special scrutiny,” he said.
(Additional reporting by Ashley Renders)