Major investigation provokes concerns that City regulators waved through deal at heart of court case.
Britain’s commitment to tackling high-end money laundering through the City of London is under serious scrutiny after it emerged that regulators appear to have waved through an $800m bank transfer to a convicted criminal as the proceeds from one of the most corrupt deals in the history of the oil industry.
A joint investigation by the Observer and journalists from Finance Uncovered, a non-profit organisation based in London, has discovered that prosecutors in Milan believe two payments of $400m each were wired through JP Morgan in London as the spoils of a huge deal to develop a Nigerian oilfield involving Shell, its joint venture partner the Italian oil giant Eni, and the government in Abuja.
More than half the money was converted into bags of bribe cash via bureaux de change in Nigeria, while tens of millions was wired to buy a private jet and armoured cars in the US, according to documents compiled by the prosecutors. But ordinary citizens of Nigeria have not seen a penny from the deal – which, it is alleged, was partly negotiated by two ex-MI6 officers hired by Shell as “business and investment advisers”.
The astonishing allegations have been made by an Italian prosecutor, Fabio de Pasquale, whose previous scalps include former Italian leader Silvio Berlusconi.
De Pasquale and his team have spent more than two years following the money trail surrounding the murky sale of Nigeria’s prized Oil Prospecting Licence 245 (OPL 245), a huge block off the coast of west Africa estimated to contain 9.3bn barrels of crude: enough to power the continent for seven years.
Oil giants from the west, China and Russia have coveted its riches for years. But Shell and Eni eventually prevailed, paying $1.3bn to the Nigerian government to secure the field in 2011.
However, within days the bulk of the money was transferred through JP Morgan in London to a convicted Nigerian money launderer – a man with whom both Shell and Eni had been negotiating.
“The UK authorities have some serious explaining to do,” said Barnaby Pace, a campaigner with the anti-corruption watchdog Global Witness, which has investigated this case for several years.
De Pasquale has carried out raids on Eni offices in Italy and Shell’s headquarters in The Hague that have yielded tens of thousands of documents and emails.
Last month he requested that an Italian court charge 10 individuals, including five high-ranking executives from Eni, with corruption-related offences. Shell, as a corporate entity, was also included in the request, which will be considered by a court in Milan next month. Shell, Eni and all the executives named by De Pasquale strongly deny the allegations.
De Pasquale has also formally warned four former Shell employees, who allegedly played significant roles in securing the deal, that they could be subject to separate proceedings. Among them are Guy Colegate and John Copleston, identified by De Pasquale in legal documents as having “previously worked for MI6”.
Copleston was a “strategic investment adviser” at Shell who, as the UK’s former intelligence representative in Nigeria, had nurtured contacts at the highest levels of the country’s military and government. Colegate worked as a “business adviser”, compiling regular intelligence briefings on the main actors in the OPL 245 negotiations.
As Shell eyed OPL 245, both the CIA and the Foreign Office were aware that Vladimir Putin and Russia were considering trying to snatch Nigerian assets from the west.
The OPL 245 licence had proved particularly elusive. In 1998, Nigeria’s then oil minister, Dan Etete, had awarded it to a shady new company, Malabu Oil and Gas, in which, it later emerged, he held a significant stake.
But after a new president came to power, Malabu lost the licence and it was assigned to Shell. Later the position reversed and Shell began legal proceedings against the Nigerian government.
Etete was convicted in a Paris court in 2007 for his part in a separate money-laundering scandal. But this did not appear to deter Shell and Eni from continuing to court him at luxury hotels in Europe and Nigeria. After one lunch with Etete in 2009 to discuss his asking price for OPL 245, it is reported that Copleston copied Colegate on an email to say it had gone well, helped along by “lots of iced champagne”.
In 2010, negotiations swung Shell’s way when Goodluck Jonathan, an ally of Etete’s, became Nigeria’s president.
The following year, the $1.3bn deal was struck, with Malabu entitled to $1.1bn and the Nigerian government a $210m “signature fee”. Shell and Eni paid the money directly to the Nigerian government.
A fixer involved in the deal described this approach as putting a “condom” between the buyer and seller so that at no point would Shell or Eni make direct payments to Malabu or Etete, who was officially recognised as a criminal. But in May 2011, days after the Nigerian government received the money, its officials instructed JP Morgan to transfer the $1.1bn to an account in Switzerland.
At this point red flags should have been raised in London. Under money-laundering regulations, banks are required to raise Suspicious Activity Reports (SARs) for highly unusual transactions, especially involving what are called “politically exposed persons” such as Etete. These reports are raised confidentially with the UK Financial Investigations Unit, which in 2011 was part of the Home Office’s Serious Organised Crime Agency (Soca).
Banks are forbidden from confirming whether they have raised SARs, and both JP Morgan and the National Crime Agency – Soca’s successor – have declined to comment on the matter.
However, a source indicated that JP Morgan had raised an SAR as soon as it received the request from Nigeria.
It is understood that the bank would not have proceeded without a green light from Soca.
Well-placed sources offer three possible explanations for why the UK authorities allowed the transfer to go through. Either they saw no problem with it; or they were aware of the money’s provenance but, because the Nigerian government itself saw no corruption, there was little that could be done to secure evidence for a freezing order; or they wanted to track how the funds were disbursed to help gain intelligence.
Whatever the explanation, the transfer immediately ran into difficulties. BSI Lugano, a Swiss bank, rejected the payment, citing Etete’s money-laundering conviction. In August, JP Morgan then made a second attempt via a Lebanese bank to pay the money to Malabu, but this too was rejected. However, a fortnight later the bank was able to transfer the money, in separate tranches of $400m to two Nigerian banks.
Where all of it ended up will probably never be known. De Pasquale alleges that President Jonathan received some of the money, but he denies the claim.
Colegate did not respond to requests for comment. Attempts to reach Copleston were unsuccessful. It was not possible to contact Etete, while Eni declined to comment.
A spokeswoman for Shell said: “Based on our review of the prosecutor’s file and our understanding of the facts, we don’t believe a request for indictment is justified and we are confident that this will be determined in the next stages of the proceedings. We continue to take this matter seriously and cooperate with the authorities.”
Asked about its intelligence-gathering operations, Shell said: “Like most multinational organisations, Shell takes the duty to protect its people, assets and commercially sensitive information seriously and hires those with the most relevant experience to join its corporate security team, including on occasion former government personnel.”
Pace said the scandal highlighted the City of London’s failure to combat money laundering, something that the previous prime minister, David Cameron, had identified as a key priority and which development agencies say is vital if the assets of African countries are not to end up being lost to corruption.
“If we want to stop this kind of deal happening in future, we need to address the system that made it possible,” Pace said. “That means accountability for those that enable corruption in major financial centres like London.”
Written by Lionel Faull, Ted Jeory, Nick Mathiason and Jamie Donald of the Guardian.com