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Big oil's dirty secrets - Oil's
(c) The Economist Newspaper Limited, London 2003. All rights
ethics of the oil industry are coming under unprecedented scrutiny
as it celebrates soaring profits - thanks to higher prices during
the war - and soaring share prices, now war is over, the oil
industry faces a new danger largely of its own creation. It will
surprise nobody to learn that oil and ethics mix about as well as
oil and water. But, just as the tobacco industry and Wall Street
gained a false sense of security because for years they got away
with well-known practices of an ethically shady nature, only to
pay a hefty price later, so too oil's hour of reckoning may be
approaching. There are several reasons, including a high-profile
bribery scandal; the growing political sensitivity of the oil
industry; changing attitudes to corporate governance; and some
potentially explosive lawsuits.
bribery scandal, which seems certain to grow larger as more
details emerge, concerns the battle to win oil contracts in
Kazakhstan. During the 1990s, several big oil firms fought for the
right to exploit the oil riches of the region, including Chevron
Texaco, on whose board Condoleezza Rice served prior to joining
the Bush administration. And, if prosecutors are to be believed,
executives at some firms behaved over-zealously as this battle
week, Swiss investigators were reported to have added a bribery
and money-laundering probe involving, among others, Credit
Agricole, a French bank, to continuing American investigations
into alleged Caspian corruption. Last month, a grand jury in New
York issued indictments against two Americans - James Giffen, an
independent banker with close ties to the Kazakh president,
Nursultan Nazarbayev, and Bryan Williams, a former executive of
Mobil. Both deny wrongdoing. America's Justice Department is also
looking into whether Mobil, now merged with Exxon, took part in a
plan to pay $78m from American and European oil firms into Swiss
bank accounts belonging to Mr Nazarbayev, among others. Exxon
Mobil, the world's biggest oil firm, says it knows of no
is already the largest investigation by American authorities into
alleged bribery abroad. As it unfolds, it seems certain to provide
plenty of colourful stories that will keep it in the spotlight. It
involves well-known Russian businessmen and politicians, payments
for speed boats and fur coats, and - if only because they too were
involved in bidding for Kazakh contracts - other big oil firms
besides Mobil, including firms with connections to senior Bush
administration officials other than Miss Rice.
may also provide the sternest test yet of America's Foreign
Corrupt Practices Act (FCPA), which outlaws bribery. When the act
was introduced in 1977, many American oil firms groused that the
law handicapped them against foreign competitors when dealing in
the undemocratic and unscrupulous parts of the world where oil is
often found. That fear was not entirely groundless, as is clear
from the current trial of former officials of France's Elf
Aquitaine (now part of Total), where bribery seems to have been a
American oil-industry executives privately grouse that, if anybody
is found guilty, it will be due to carelessness. The FCPA, they
admit, can be skirted by careful use of "signature
bonus" payments to middlemen brokering contracts and via
"arm's-length" transactions involving law firms based,
more often than not, in London. On the other hand, argues Scott
Horton of Patterson Belknap, a New York law firm, the FCPA has
prompted American oil firms, though generally opposed to
transnational laws on corporate behaviour, to support efforts led
by the OECD to impose an international ban on bribery.
current scandal in the Caspian can only bolster such efforts to
bring some transparency to this mucky business. But will it also
lead to a greater questioning of some of the techniques used to
get around the FCPA? Amy Jaffe, of Texas's Rice University,
insists that the current investigation "is going to force
every legal department at every major oil firm to ensure they have
a clear picture of what their agents, advisers and everyone else
in foreign countries are doing. The Giffen case will define what
you can and can't do."
oil is also facing legal troubles over its famed love of nature.
This week, lawyers for aggrieved indigenous folk filed suit
against Chevron Texaco in Ecuador.
For a decade, legal activists have been trying to sue Texaco for
dumping contaminated water in open ponds in that country's rain
forest that, they claim, harmed both health and the environment.
The firm denies wrongdoing, noting that there were no specific
laws in Ecuador when
it operated there that forbade its practices.
first, the litigants pursued their claim in American courts, but a
judge finally bounced the case back to Ecuador
as the proper jurisdiction for the matter. That appeared to be a
victory for the oil firm, but in order to have the trial moved
south, Chevron Texaco had to agree to respect the ruling of the
Ecuadorian court. If it does not, the American judge has retained
the right to step into the matter once again. Joseph Kohn, a
lawyer for the villagers, is already talking of $1 billion as his
team's estimate for cleaning up the damage allegedly done by the
firm - even before any compensation for suffering and so on.
legal attacks on alleged human rights abuses committed overseas
may prove to be the most nettlesome of all for the oil industry.
Consider the sort of public denial prompted by a lawsuit filed
last month against an American oil firm: "Occidental has not
and does not provide lethal aid to Colombia's armed forces."
Even if the firm does indeed prove not to have provided
"lethal aid," it faces a high-profile trial exposing its
relationship with a regime with an, ahem, uneven record on human
rights. Similarly, Exxon is being accused of complicity in abuses
committed by the Indonesian military in Aceh, and Unocal stands
accused of benefiting from forced labour deployed by the military
government in Myanmar. Both firms have consistently denied any
cases are tests of America's Alien Tort Claims Act (ATCA). As the
law dates back to 1789, its critics note that it does not deal
with the precise circumstances of today's cases: it was probably
intended to give foreigners a legal forum when in America, rather
than offer a domestic remedy for American misdeeds abroad. Oil
industry lobbyists have been pushing Congress to repeal the ATCA.
Last year, the Bush administration took the unusual step of
intervening in a lawsuit brought by the International Labour
Rights Fund (ILRF) against Exxon, arguing that applying the ATCA
in this case might hinder America's efforts to fight terrorism.
so, points out the ILRF's Terry Collingsworth, starting in 1980,
this statute has indeed been applied in human-rights cases where
foreign states or victims have been involved. Now, particularly
with two separate cases related to Myanmar in American courts, it
may end up applying to corporations that are judged to be
"knowingly complicit" in abuses.
this be enough to transform an industry that is famously
shameless, not least in America? Maybe. A few big legal losses,
lots of bad headlines, and an impending Presidential election with
an oil man on the ballot might work wonders.