JPMorgan Staff Warned Of Nigeria Oil Deal “Corruption” Risk

It looked like

a major windfall for Nigeria’s taxpayers, more than half of whom were living in “

absolute poverty

.” Two giant energy companies were offering more than $1 billion to drill oil on a strip of ocean just off the country’s coast.

But there was a problem: Back in the 1990s, a corrupt regime had sold the drilling rights to a high-ranking minister who was also a convicted money launderer. So the spoils of this new deal were headed into his pockets.JPMorgan Chase had been asked to facilitate the 2011 payment, a fact that posed some challenges for the largest bank in the Western Hemisphere. “We remain suspicious that these funds could be the proceeeds [

sic

] of corruption by public officials,” an anti–money laundering officer in London wrote in an email obtained by BuzzFeed News.
Banks are supposed to be on guard for evidence of possible corruption, money laundering, or terrorism. When they spot it in a proposed transaction, they must alert law enforcement and decide whether to complete the payment.

In an email to one of JPMorgan’s executive directors, the anti–money laundering officer outlined the bank’s options. First, he wrote, “We could refuse to pay.” Alternatively, they could ask a court to decide what should be done.

Or they could find a way to make the payment — by sending it through the United Kingdom. That way it would encounter fewer obstacles than if it were routed through the US, where it was much likelier to be blocked, the anti–money laundering officer wrote.

The payment was subjected to what one bank executive has described in court testimony as “senior level scrutiny” from the bank’s lawyers and anti–money laundering officers. In the end, JPMorgan sent the money — and used its UK branch to complete the deal, though it is not known whether other branches were used as well. Much of the money ended up with the corrupt ex-minister, who spent it on a private jet and big game hunting. JPMorgan earned an undisclosed sum in fees.

The deal has since become an international scandal, leading to jail sentences for two of the middlemen involved. Executives from Shell and ENI, the energy firms that bought the oil rights, were acquitted on Wednesday of criminal corruption charges in an Italian criminal court. The current Nigerian government is suing JPMorgan in a UK court, arguing that “no reasonable and honest banker” should have approved the payments.

JPMorgan says that it took all the precautions it could. But documents reviewed by BuzzFeed News, including materials that form part of the FinCEN Files investigation, show that the banking giant sent the money despite multiple clear warning signs of corruption that its own staff unearthed and brought to the attention of high-level managers.

After the first payments went through, JPMorgan’s financial crime staff in the US began a new investigation into one of the shell companies used in the suspected fraud. Those officers reported their suspicions to the US Treasury. And as the money began to move around the world, employees at other major banks reviewed related transactions — and reported their own concerns about potential corruption to the US Treasury. Deutsche Bank even opened a “special investigation” into the ex-minister’s finances in conjunction with law enforcement.

Still, JPMorgan approved a final $75 million transaction to close out the deal. Months after that, a JPMorgan financial crime officer once again raised concerns about “corruption risks” linked to the company.

In response to a detailed letter requesting comment, JPMorgan issued a statement through a spokesperson: “We believe that we fully complied with our legal and regulatory obligations in this matter and that Nigeria’s on-going legal claim is completely without merit, so we will defend the claim robustly at trial.”

In court, JPMorgan has argued that it received proper approvals for the transactions from Nigerian officials and had no responsibility to investigate the recipients of the money. The bank has presented a witness statement from one executive involved in the deal who said that having received instruction from Nigerian officials and permission from UK authorities, JPMorgan had no option but to proceed with the payment. “I do not believe that the Bank had any realistic alternative except to make a payment in accordance with its contractual obligations to its client,” the official said.

Before the Italian court verdict, both Shell and ENI told BuzzFeed News that they continued to believe that the transactions were legal. Shell and ENI issued statements on Wednesday welcoming the acquittals. “We have always maintained that the 2011 settlement was legal,” a Shell spokesperson said. “At the same time, this has been a difficult learning experience for us. Shell is a company that operates with integrity and we work hard every day to ensure our actions not only follow the letter and spirit of the law, but also live up to society’s wider expectations of us.”

Since last fall the FinCEN Files, an investigation based on thousands of government documents that BuzzFeed News shared with the International Consortium of Investigative Journalists, has shown how big banks around the world approve trillions of dollars of suspicious transactions despite their own staffs’ warnings that they might be related to crime.

The investigation led UK lawmakers to launch a formal inquiry into their government’s oversight of banks and money laundering. British companies were named in FinCEN Files suspicious activity reports more than 3,000 times, more than those from any other country. In a secret US Treasury report, American officials described the UK as a “higher-risk jurisdiction,” comparing it to notorious money laundering hubs “such as Cyprus.”

The JPMorgan anti–money laundering officer’s email raises further questions — about why a suspicious billion-dollar payment would face fewer obstacles if it were made through the UK instead of the US.

JPMorgan is one of American finance’s most storied institutions. Its founder, John Pierpont Morgan, helped usher in the Gilded Age in the late 19th century. Its current CEO, Jamie Dimon, is one of Wall Street’s most famous executives. The bank is worth more than $470 billion and manages more than $2.5 trillion.

Nigeria has Africa’s largest economy, driven by the country’s vast oil and gas reserves. But government corruption has long kept that wealth out of the hands of its citizens, millions of whom live in poverty. One former official for both the government and the World Bank estimated that more than $400 billion in oil revenue had been stolen or mismanaged since Nigeria’s independence in 1960.

The problem was especially fierce during the military dictatorship of Sani Abacha in the 1990s. He is believed to have embezzled $5 billion from the country during his five years in office.

Dan Etete served as Abacha’s petroleum minister. In 1998, Etete’s ministry awarded control of a deep sea oil reserve to a company called Malabu. The company’s owner was none other than Etete himself.

That same year, Abacha died, and Nigeria began a transition to democracy. The new government claimed that Etete had stolen the oil rights for his personal gain, but after a series of legal skirmishes, he managed to retain control.

In 2007, a court in France convicted Etete of using a pseudonym to open a Swiss bank account and funnel illicit cash into French real estate. In 2009, his conviction was upheld.

A BuzzFeed News investigation found that Shell’s top executives knew the money would go to Etete but signed off on the purchase anyway. But for the deal to go through, the energy companies had to find banks willing to send the money.

Shell had not wanted to deal with Etete directly due to the corruption risk, so a deal was agreed where the cash would be paid to the government of Nigeria, which would in turn forward it to Etete.

As Nigeria was already a JPMorgan client, the bank agreed to act as escrow for the deal. It set up an account that would receive Shell and ENI’s money, and then send it to the final recipient.

In May 2011, JPMorgan tried to deposit the first tranche of funds into an account in Switzerland. But the Swiss bank, worried that the funds were linked to corruption, blocked the payment.

That’s what led JPMorgan financial crime staffers to look at the deal in detail, according to court records.

One wrote that he thought there were red flags. For example, the document claiming to be Nigeria’s official approval for the deal was faxed from a Hilton hotel rather than a government office. “[T]he communications reflect a strong sense of urgency,” he wrote, asking, “was the rationale for that understood?” JPMorgan has argued in court the Hilton fax was “not unusual or suspicious.”

Inside JPMorgan’s London office, the anti–money laundering officer assessed the situation. He wrote in an email that he had been thinking about the deal overnight and had instructed a colleague to file what is known as a suspicious activity report to the UK’s Serious Organised Crime Agency. Over the course of nine of those reports, first reported by Finance Uncovered, JPMorgan noted Etete’s money laundering conviction, expressed concerns that Etete was the owner of Malabu, and pointed out that the transaction had been rejected by the other banks. JPMorgan asked for permission to go ahead with the deal despite these concerns.

While the bank awaited a response, the anti–money laundering officer followed up with his email warning colleagues that “these funds could be the proceeeds [sic] of corruption by public officials.” The version of the email obtained by BuzzFeed News was originally provided to Italian prosecutors who are investigating Shell and ENI. The bank redacted some passages, claiming legal privilege, a claim on which Britain’s Serious Fraud Office said it has “yet to decide.”

“JPMorgan needs to be comfortable that it is taking the appropriate steps,” the anti–money laundering officer wrote. In addition to simply refusing to make the payment or asking courts for help, the anti–money laundering officer also suggested going to Nigeria’s attorney general or, “given the size and sensitivity of the payment, perhaps even the president himself.”

The anti–money laundering officer’s own JPMorgan colleagues in the US would likely block the transaction, he wrote. The UK was a better bet. “Clearly, it would not seem at odds to make a payment from the UK,” he wrote, “which JPMorgan in the US would reject based on the same fact pattern.” He did not say why.

He also asked to “review the legal risks if we went ahead with the paayment [sic] in the given circumstances.” It is not known what legal advice the bank received. The anti–money laundering officer did not respond to requests for comment.

The Serious Organised Crime Agency eventually wrote JPMorgan that it “consents to you proceeding.” The agency warned that JPMorgan still had a responsibility to perform its own due diligence and make its own decision.

The Serious Organised Crime Agency has since closed. Its successor, the National Crime Agency, told BuzzFeed News it could “neither confirm nor deny” what happened but noted that under the law at the time, it could only refuse consent for a transaction if there was a “realistic proposition of positive law enforcement action” within 31 days.

It is not clear exactly who inside JPMorgan made the final decision, and JPMorgan declined to identify the person in its response to BuzzFeed News. Bank staffers have said in witness statements that the payment “was the subject of senior level scrutiny” and that the bank consulted lawyers from high-powered law firm Clifford Chance about the legality of the transaction. Clifford Chance declined to comment.

The bank made the first payment in August 2011. By November the bank’s US division was already investigating it. One US financial crime officer warned in an email that “JPMC identified possible concerns with foreign corruption,” though she had not yet confirmed the wrongdoing.

Around the same time, the US Department of Justice opened a probe. Other banks began tracing the money and reporting what they saw to the US Treasury via suspicious activity reports.

A month after the funds arrived, Etete moved much of the cash from Malabu to Rocky Top Resources, another company whose finances have come under extensive scrutiny.

In 2012 Standard Chartered found that Rocky Top had sent $17 million to a company called Gunes General Trading, which appeared to be laundering money in the United Arab Emirates. It later emerged that Gunes is controlled by Reza Zarrab, who was arrested by the US in 2016 for operating a Middle Eastern money laundering organization. The next year Deutsche Bank uncovered $271 million in suspicious transactions linked to Rocky Top, including direct payments to Etete that went toward an armored car, hunting trips in South Africa, and a 17-seat Bombardier 6000 jet that authorities later seized.

In July 2013, after a Nigerian anti-corruption agency said Etete had used Rocky Top to launder the proceeds of the Malabu deal, JPMorgan reported its own suspicions about the company to the US government, the FinCEN Files show. The full contents of that suspicious activity report are unknown, but a later filing shows that it was related to a British energy firm’s $10 million payment to Rocky Top. JPMorgan did not respond to questions about the Rocky Top payment.

JPMorgan’s investigation into Etete’s relationship with the bank was still ongoing at this time, and one of the financial crime officers involved recommended adding Etete to an internal watchlist of people whose every transaction had to be specially approved by anti–money laundering officers.

The bank followed that advice — but not until after it transferred the final $75 million payment from the Shell deal, in August 2013, court records show. In court JPMorgan has argued that the timing was irrelevant to the transaction, which bank financial crime officers were already scrutinizing.

Around this time, JPMorgan wrote to a different client, Arcadia Petroleum, to inquire why despite “corruption risks” it had paid Rocky Top $10 million, according to documents shared with BuzzFeed News by Finance Uncovered.

Arcadia assured the bank that the companies “do not have a business relationship” and that the transactions were merely repaying expenses. However, it was later reported that the Arcadia CEO advised Etete on the oil rights deal. Arcadia Energy did not respond to a request for comment; it has previously denied any wrongdoing.

Nigeria’s lawsuit against JPMorgan is still pending in UK courts. The trial is due to take place next year.

Etete remains unrepentant. He owns a series of luxury villas in Dubai, including a mansion in “Emirates Hills,” a gated community amid artificial lakes and an 18-hole championship golf course named after Beverly Hills. In a rare interview last year, Etete described the allegations against him as “political propaganda.” ●