Investigation

Big Oil, Small Country

Liberia's Nobel Prize-winning president has made fighting corruption the centerpiece of her administration. But the document trail surrounding a recent multimillion dollar oil deal shows just how difficult that fight can be.

Last July, five months before she accepted the Nobel Peace Prize, Liberian President Ellen Johnson Sirleaf welcomed Chevron CEO John Watson into the executive mansion to herald one of the largest investments in her country since the end of its devastating civil war in 2003: Chevron's purchase of the rights to explore for oil off the coast of the West African nation.

Sirleaf told the CEO, "We hope that you will work with us to ensure the fullest of integrity in everything that you do." Watson reciprocated, telling the president, "The hallmark of your administration has been anti-corruption, transparency, rule of law. We look forward, at Chevron, to helping you establish that high integrity method of doing business in this country."

But in the judgment of one of the Liberian government's own anti-corruption watchdogs, Chevron's investment had been tainted even before the multinational oil giant paid its first dollar. According to a report of the auditor general of the Liberian General Auditing Commission (GAC), a series of bribes -- less than $120,000 when added altogether -- was allegedly paid in 2006 and 2007 so that the legislature would grant two small firms the rights to four oil concessions off Liberia's coast. One of those companies, which purchased rights to three offshore properties, sold its concessions to Chevron.

No one has been prosecuted or charged with wrongdoing for the alleged bribes. According to a cache of U.S. diplomatic cables obtained by ProPublica under the Freedom of Information Act, both Sirleaf and the U.S. State Department pushed for the three allegedly tainted concessions to be sold to Chevron even after the allegations became public. ExxonMobil is now zeroing in on the fourth concession. These transactions give U.S. companies potentially rich new oil reserves, and the Chevron deal alone marks the largest concession in Liberia's history, according to one of the diplomatic cables.

What happened after the alleged bribes became public is a tale of compromise and competing priorities that shows how hard it is to root out alleged corruption even when a Nobel-laureate president has made that one of her main goals and even when the United States has poured more than $84 million since 2007 into good governance and anti-corruption programs.

Chevron declined to discuss its investment in detail but provided a statement saying that the company's "engagement with the Liberian Government in relation to our blocks has been made in accordance with all applicable legal and regulatory requirements." ExxonMobil declined to comment in detail but said its agreement is subject to due diligence.

The Money Trail

Liberia's miniature resource boom dates back to the 1997-2003 presidency of Charles Taylor, currently on trial for war crimes at The Hague, when a survey conducted by a private company suggested oil lay off the Liberian coast. So in early 2004, not even a year after the nation's 14-year period of civil war ended, the government began marketing offshore properties for oil exploration.

Four properties, or blocks, each extending about 20 miles offshore, lie between the capital, Monrovia, and Buchanan, the nation's second-largest port city. Two oil companies, Oranto Petroleum Limited and Broadway Consolidated PLC, negotiated production-sharing contracts with the National Oil Company of Liberia (NOCAL). Essentially, Oranto and Broadway acted as middlemen; their contracts allowed them to sell oil exploration rights to international oil giants for millions of dollars -- but first those contracts had to be ratified by the Liberian legislature. They were submitted to lawmakers for approval in 2006, and that's when money allegedly started changing hands.

The long and winding money trail, detailed here, boils down to NOCAL paying money, sometimes on behalf of Oranto, to legislators and legislative staff, according to the report by Liberia's GAC.

NOCAL made two payments in the second half of 2006, totaling $76,900, to its own chief accountant, Timothy G. Wiaplah, who, in turn, "allegedly disbursed [the money] to the Legislators," according to the GAC.

Referring to most of that money, the then chairman of the NOCAL board, Clemenceau B. Urey, told GAC auditors that the contracts languished in the legislature for:

about eight months. During this period, we continued to engage the Legislators and explained to them what benefits the discovery of oil would mean for Liberia. They, however, continued to stick to their demands. After consultation with the authorities we gave in to their demands, reluctantly. The first amount was $ 50,000.00 [and] was approved by the Board.

Urey added:

We were quite aware that making payments to the legislators was wrong. These payments were made after much discussion, consultations and reflection. We decided to comply with the request because we believed that ratification of these contracts could lead [to] the discovery of oil and this could bring huge economic and social relief to our people. The amounts were not paid to induce the Legislators to ratify faulty contracts. I trust what we have done will be vindicated when oil is discovered and the lives of our people are transformed.

When ProPublica contacted Urey, he referred comment to Christopher Z. Neyor, who until this month was president and CEO of NOCAL. Neyor denied wrongdoing by his company.

NOCAL made a second set of payments, according to the GAC report, in April 2007: $40,000 to Alomiza Ennos Barr, at that time a member of the Liberian House of Representatives, and $1,500 to James R. Kaba, then the House's chief clerk. It is not known whether Barr voted to ratify the contracts, because the House of Representatives did not at that time publish how its members voted. As clerk, Kaba did not have a vote.

Barr told auditors that she provided some of that payment to the Joint Committee of the House and Senate on Investment, but the chairman of that committee denied receiving it, and the trail went cold. Kaba "refused to indicate the purpose for which he received the funds," the GAC report says.

Barr declined to comment to ProPublica, and Kaba has died. As for the companies, Oranto, a Nigerian firm with deals in several West African countries, couldn't be reached for comment. No evidence links Broadway Consolidated, which has since renamed itself Peppercoast Petroleum, to the alleged bribes. The company declined to comment on the GAC findings but said, "Our Board is committed to high standards of corporate governance and transparency permitted by law, consistent with a well-run company." Based in Isle of Man, the company says on its website that its "main asset" is the Liberian concession.

NOCAL's Neyor denied in an interview that any of the payments constituted bribery. "That's ridiculous," he said noting that the total alleged amount -- less than $120,000 -- "is so minute." He described the payments as legitimate funds provided to the legislature so it could purchase "computers, stationery, to make copies." He explained, "In 2006, the allocation for their budget was very small for their staff; they didn't have computers -- nothing -- to analyze anything." "It was all transparent" and "in the books," he said, and suggested that only "an error at the time by the financial people" left the purpose of the funds unclear.

The GAC, however, determined that the payments, totaling $118,400, were "intended to influence the Legislature, thus undermining Liberia's democracy" and concluded that they "constitute[d] bribery." The legislature ratified the contracts on Aug. 23, 2009.

The Scramble

On March 30, 2010, the GAC report leaked out and Monrovia newspapers trumpeted the details of the alleged bribes. "Within hours of the media reports, Chevron officials contacted [the U.S. Embassy] seeking further information and expressing concerns about the implications for Chevron's compliance with the U.S. Foreign Corrupt Practices Act," according to another U.S. diplomatic cable obtained by ProPublica.

That cable -- dated April 28, 2010, and sent to the secretary of state, the Justice Department, the National Security Council, and other agencies in Washington -- describes a scramble of closed-door meetings. "Chevron's grave concerns prompted the president of Chevron Africa and Latin America" -- Ali Moshiri -- "to fly to Liberia for a private discussion with President Sirleaf on April 20," the cable says. Moshiri also met with the U.S. chargé d'affaires in Monrovia, according to the cable, while William Burns, then the U.S. undersecretary of state for political affairs, arrived and met with Sirleaf and the U.S. ambassador to Liberia, Linda Thomas-Greenfield.

In the GAC report, Auditor General John S. Morlu II recommended that the Oranto and Broadway contracts be nullified -- meaning that those companies would have lost the rights to sell the concessions to Chevron, ExxonMobil, or any other company. In that case, the government would likely have had to reopen bidding on the offshore properties -- a major worry for Chevron. According to the April 28 U.S. cable, Chevron feared that "the allegations alone would cast doubt on the concessions' legitimacy and open the door for a future GOL [Government of Liberia] decision to nullify the contracts."

According to the cable, Chevron had another worry: that the U.S. "Department of Justice might find Chevron 'guilty by association' if it could not establish a sufficient firewall between itself" and a partner company that might have been involved in corrupt practices.

The cable also contained a warning about U.S. energy security interests. The United States has been pursuing oil exploration around the globe, including in West Africa, in order to be less reliant on oil-producing nations in the volatile Middle East. In the cable, a source, whose name was redacted, cautioned that if Chevron backed out of the Liberia deal because of Justice Department scrutiny, then "top-tier oil majors likely would arrive at similar conclusions. That would leave the field open to Russian and Chinese firms … that place less emphasis on good governance."

As for Sirleaf, she "assured Moshiri of her eagerness to do business with Chevron," the cable says. Another cable, dated April 26, 2010, states, "Sirleaf stressed that she will not nullify the existing contracts, despite a recommendation by the General Auditing Commission to do so."

A later U.S. cable, also obtained under the Freedom of Information Act, sheds light on Sirleaf's thinking. The Liberian president wanted "Chevron in the country because it must abide by U.S. [anti-corruption legislation], which might induce improvements in Liberia's investment climate," according to the cable, dated May 4, 2010.

Nullifying the contracts, as the auditor general had recommended, would also take precious time. Sirleaf, the cable reports, said that "'going back to the drawing board' and rebidding the blocks would take years and delay Liberian oil extraction gains."

In Liberia, delaying a major economic investment has real consequences. One of the poorest countries on the planet, Liberia ranked 182 out of 187 countries and territories on the U.N. Human Development Index last year. More than 80 percent of the population survives on less than $1.25 a day. It also has one of the highest levels of income inequality in the world, with a few very wealthy individuals.

The cables show that the U.S. government, Chevron, and Sirleaf all voiced concerns about the alleged corruption, each for their own stated reasons. The U.S. government has invested more than $84 million over the last five years in a variety of anti-corruption and good-governance programs in Liberia, according to U.S. Agency for International Development. Chevron wanted no legal liability. And Sirleaf, who was then heading into the campaign for her second term, had made fighting corruption a major part of her election pitch.

But each of these players also had other interests. Chevron wanted the lucrative oil reserves that might lie in the offshore blocks. The United States wanted a U.S. company to have access to this strategically important potential energy source. Sirleaf wanted the economic development that would come of the deal, and she wanted that development spearheaded by a company subject to America's strict anti-corruption laws.

The Deal Goes Through

In the end, Sirleaf effectively addressed one of Chevron's concerns -- that the Liberian government might come back later and nullify the contracts. The cables report her telling the U.S. ambassador that "she is willing to give Chevron what it needs in terms of legislative approval for 'comfort.'"

For Chevron, the only remaining question was its exposure to U.S. legal action under the Foreign Corrupt Practices Act (FCPA). "Chevron doesn't have any liability for its pre-acquisition conduct," Philip Urofsky, a former federal prosecutor who pursued FCPA cases at the Justice Department, said in an interview. As for Oranto, Broadway, and NOCAL, they are not American companies and were not subject to FCPA at the time of the payments. So the primary risk to Chevron, said Urofsky, was these companies' current and future actions: "If there's any ongoing conduct, then that could very much become an ongoing problem." Chevron declined to comment on any possible FCPA exposure.

Chevron acquired 70 percent of Oranto's stake in the offshore properties; the terms of that deal are not known. But in August 2010, Chevron was added to the allegedly bribe-tainted contract between Oranto and NOCAL that the legislature had ratified back in 2009. Chevron gained the rights to develop the three offshore blocks, and it agreed to pay almost $10 million to the Liberian government and disburse $10.5 million in tax-deductible community development funds over five years. Chevron has also paid the Liberian government $15 million in withholding taxes for 2010. In a cable, the U.S. Embassy in Monrovia estimated the potential value of the investment at $10.7 billion.

The embassy declined to make Ambassador Thomas-Greenfield available for an interview, but she celebrated the deal in a Jan. 25, 2011, cable with the subject "Outreach and Commercial Success." Thomas-Greenfield wrote that "Embassy intervention and advocacy ensured a level, open 'playing field' … that resulted in Chevron signing a 10.7 billion [sic] contract … this constitutes the largest concession in Liberian history."

Last November, ExxonMobil announced its intent to acquire rights to develop the last of the four blocks. In a complicated deal, the company plans to take a 70 percent interest in the block from a small, Calgary-based company, Canadian Overseas Petroleum Limited, which, in turn, is in the process of purchasing the block from Broadway. ExxonMobil's offer would provide Canadian Overseas Petroleum with $55 million upfront, according to a news release by the Canadian company, and up to $42 million to cover exploration and "venture" costs.

Arthur Millholland, Canadian Overseas Petroleum's president and CEO, did not respond to request for comment. A spokesman for ExxonMobil would not comment beyond saying, "The agreement is subject to due diligence and government approval."

The Aftermath

More than a year after the ratification of the Chevron deal and just as the company prepares to drill its first well off the Liberian coast, none of the individuals involved in the alleged bribery has been prosecuted in connection with the payments. The $118,400 in alleged bribes was never returned. And the contracts have not been canceled, as the auditor general recommended, but remain in place.

Morlu, the auditor general, was not renominated to his position by Sirleaf, who won reelection in November. Morlu had often clashed publicly with Sirleaf and the Justice Ministry, which has pursued only two cases out of more than two dozen GAC audits that recommended criminal investigations, according to Morlu and Christiana Tah, Liberia's justice minister and attorney general. At one point, a couple of months after the audit into the alleged bribes leaked, state security personnel stormed the GAC offices, for reasons that remain unclear. That incident prompted Sirleaf to publicly reprimand her stepson, Fombah, who oversees the agency responsible for the raid.

The revenues flowing into and out of NOCAL are tracked by Liberia's Extractive Industries Transparency Initiative, but the group's reporting has experienced delays. NOCAL has not been audited since the original GAC report, which covered the company's actions through June 2008.

In December, Transparency International released its 2011 Corruption Perceptions Index; Liberia had dropped four spots from the previous year. This month, Robert Sirleaf, the president's son, was named chairman of the board of NOCAL.

This week, NOCAL announced that an exploratory well struck "a potentially large accumulation of oil deposits" in an offshore block very near to those Chevron is now exploring -- a positive omen for all the blocks in that field.

The high-level meetings in Monrovia and the attempts to follow the money seem a world apart from Marshall City, a warren of woven thatch huts that sits on Liberia's Atlantic coast at the terminus of a crimson mud road. African-American settlers named the town for U.S. Supreme Court Justice John Marshall, who passed away in 1835, the year that this area was homesteaded. Today, the 13,000 residents live without running water or electricity, save for the few who can afford generators.

Each day at dawn, men set out from the shore in worn, wooden skiffs, casting their nets for a catch of cassava fish, bonny, grouper, and sardines, which the women set out to dry before selling at market. According to the United Nations, almost two-thirds of Liberia's GDP is generated from fishing, agriculture, and forestry, much of it at the subsistence level. But, there are concerns for the future. "The ocean is not producing," said Aci Johnson, a 30-year-old market vendor and mother of four children, who has noted a drop in the local catch over the last year.

Marshall's future -- like that of hundreds of rural towns that line the coast near the oil concessions -- may depend on the deal Chevron has struck, specifically the $10.5 million in community-development funds intended to go directly to the Liberian people. Government officials have held meetings with the Marshall community, promising improvements in education and health care.

When a Chevron corporate responsibility team visited Liberia, Sirleaf "emphasized to Chevron that no CSR [corporate social responsibility] funds should come through the GOL [government of Liberia] budget," an October 2010 U.S. diplomatic cable noted. The president hoped "to avoid many of the governance issues" that had emerged when previous corporate development money was funneled through local government offices, according to the cable.

But when ProPublica asked for a detailed accounting of these social development funds, to see what entities received money, both Chevron and NOCAL offered only general background on the spending.

In Marshall, Mayor J. Konah McCauley said, "This is one of the oldest cities in the republic and, should I say, we are a little bit behind developed." Speaking of Liberia's oil exploration, he said, "We hope development comes out of it."

Betty Press/Panos Pictures

Investigation

How Many Investigators Does It Take to Catch a Kleptocrat?

Since 2007, U.S. officials have been investigating the rampant corruption of Equatorial Guinea's dangerously debauched president-in-waiting. They haven't gotten far.

View a slide show of the surreal playboy life of Teodorin Obiang.

For the past four years, two U.S. government agencies have led a meandering investigation into charges of corruption and money-laundering involving Teodoro Nguema Obiang Mangue, son of the oil-rich, Exxon-friendly dictator of Equatorial Guinea. As I reported in the most recent print edition of Foreign Policy, internal documents from a joint probe by the U.S. Justice Department and the Immigration and Customs Enforcement (ICE) agency detail how Obiang has amassed an enormous fortune, despite earning an official salary as Equatorial Guinea's minister of agriculture and forestry of only about $5,000 per month.

And yet, federal investigators have displayed remarkably little enthusiasm for bringing a case against Obiang, who is known as Teodorin and has spent millions of dollars in the United States over the last decade living a life of Hollywood debauchery, according to exclusive interviews with his employees, federal investigators, and documents from several international probes I have reviewed. Indeed, U.S. investigators from the Justice Department and ICE have failed to locate or contact important potential witnesses. And recently, some investigators have suggested that they are frustrated with the case and are thinking about whether to shut it down this spring, sources familiar with the probe told me.

It is not as if the U.S. government is unaware of Teodorin's apparently ill-gotten gains. A Senate Permanent Subcommittee on Investigations report last year alleged that Teodorin has laundered more than $100 million into the United States. According to the report -- the subcommittee's second about the Obiang clan -- he used that money to buy a $30 million estate in Malibu, California, a $38 million private plane, and a fleet of luxury sports cars. Global Witness, the London-based anti-corruption group, recently reported that Teodorin had commissioned plans for a custom-built $380 million superyacht.

"The evidence of corruption in this case is overwhelming," said Jack Blum, a former Senate investigator who worked on major cases such as the Bank of Credit and Commerce International affair and is now a Washington attorney specializing in money-laundering and corruption. "We know that the money being tossed around by young Obiang is not coming out of his official salary, but the U.S. government isn't interested in taking him down because there's oil involved. You can't run a pretend investigation when the problems are this acute. It's outrageous."

Equatorial Guinea would be of little international consequence if it didn't have one thing: oil, and plenty of it. The country is sub-Saharan Africa's third-largest producer of oil after Nigeria and Angola, pumping around 346,000 barrels per day, and is both a major supplier to and reliable supporter of the United States. Energy revenues have flowed into the pockets of the country's elite, but virtually none has trickled down to its citizens, who by and large are desperately poor. Under the rule of his father, who has run the country for 32 years since taking power in a coup, Teodorin has been given his own fiefdom to exploit -- timber, the country's second most valuable resource. Justice Department and ICE documents I reviewed from the fall of 2007 noted that a large chunk of Teodorin's assets were likely derived from "extortion, theft of public funds, or other corrupt conduct" and that he made huge sums by imposing a large "revolutionary tax" on timber that went into his pocket.

The inquiry's goal, according to one ICE document, is to "identify, trace, freeze, and recover assets within the United States illicitly acquired through kleptocracy by Teodoro Obiang and his associates." Yet four years later, Teodorin still comes and goes into the United States -- plane records indicate that in late February he flew into Washington, D.C. (which a source confirms) on his private jet before heading to California and from there on to Rio de Janeiro to celebrate Carnival with his father -- and federal officials have taken no steps to seize his Malibu mansion.

Legal experts contend that Teodorin shouldn't have been allowed to enter the United States since 2004, when President George W. Bush issued Proclamation 7750, which bars corrupt foreign officials from receiving U.S. visas. President Barack Obama reaffirmed this message, pledging to "vigorously" enforce the proclamation and saying, "We have a responsibility to support those who act responsibly and to isolate those who don't." Meanwhile, as the investigation plods along, a source has informed me that Teodorin has arranged to ship his luxury cars and other assets out of the country.

The Justice Department and ICE declined to comment for this story, as did Teodorin (through Qorvis Communications, the Washington lobbying and public relations firm to which he pays $55,000 per month).

At many points, researchers and journalists have seemed to be several steps ahead of the federal investigators. It was only last year -- after they belatedly read a small item I wrote for the Harper's Magazine website -- that investigators apparently learned that former employees at Teodorin's Malibu estate were suing him for cheating them out of wages and that they possessed damaging information about his finances and personal lifestyle.

The investigators contacted the plaintiffs' attorney, Jim McDermott, but they haven't bothered going to Malibu to interview him or his clients. "They asked for stale information that they could have found on the web," McDermott told me by phone recently. "It looked like they just wanted to check off a box showing they had called me. Any law firm would fire a first-year associate for doing that level of work."

According to sources familiar with the probe, federal investigators have repeatedly complained in private that they are hamstrung because they need to prove that the wealth accumulated by Teodorin and his family is the fruit of corruption. But documentation about the nature and extent of the family's corrupt rule of Equatorial Guinea has been in the public domain for decades, at least since the 1990 publication of Robert Klitgaard's Tropical Gangsters, the seminal work on Equatorial Guinea's modern economy.

Klitgaard, who worked in Equatorial Guinea for the World Bank in the 1980s, described how the Obiang family plundered cocoa farms and other state resources after seizing power in 1979. In describing one confidential 1984 memo written by two members of an English cocoa-importing firm active in Equatorial Guinea, which detailed the company's corrupt deals with President Obiang, Klitgaard wrote, "Even though I had written a book about Third World corruption, seldom had I seen such blatant, almost casual evidence of graft."

Klitgaard also wrote about a World Bank project approved in 1983, which was to give credits to owners of cocoa farms: "And so in 1984 there were draconian nationalizations of farms.... Most had been owned by Spaniards and Portuguese; now government ministers held title to the choicest farms. The Prime Minister had a beauty near Luba, and the President himself seized nearly four thousand acres near the Malabo airport."

Tropical Gangsters contains many such details and leads, as well as the names of potential witnesses who could be located and interviewed. And yet, as of a few months ago, U.S. investigators had not sought to talk to Klitgaard -- nor did they appear to even know about his book. When they finally realized they should reach out to him, the investigators, I learned, struggled to locate his contact information even though it can be found with a two-second Google search.

Indeed, a great deal of information about Teodorin's disastrous and corrupt stewardship of the Agriculture and Forestry Ministry is easy to find online. Logging in Equatorial Guinea has declined in recent years, which the government attributes to its conservation efforts. More impartial observers say this decline stems from the fact that there are simply not that many trees left: Teodorin's ministry has facilitated the rapid depletion of forest resources in the country. "Enforcement of legal requirements is virtually non-existent regarding commercial logging," concluded a 2001 assessment by a group called World Rainforest Movement. In 2005, Allan Thornton, president of the Environmental Investigation Agency, testified before a U.S. House subcommittee that virtually all of Equatorial Guinea's timber exports to China were illegal.

Diligent investigators should be able to find evidence of how Teodorin operates. After my Foreign Policy story was published I was contacted by a foreign timber executive who lived in Equatorial Guinea in the 1990s, before oil revenues began pouring in and when the timber industry was still the country's primary cash cow. According to this person, even before Teodorin became the minister of agriculture and forestry, he had acquired a notorious reputation among the country's logging companies. He quickly earned the nickname "El Nino" from foreign timber executives, due to the storms that he would kick up when he flew back to Equatorial Guinea from lengthy vacations abroad. "He would call emergency meetings of all the logging company heads in which he would announce some new tax on logging operations," the source said.

This person also said that Teodorin slapped an extra "tax" -- payable directly to him -- on wood harvested from Equatorial Guinea. "Each company paid a royalty to the state treasury for each cubic meter of log shipped. This might be $100 per cubic meter," the source explained. "Above that, each company also had to pay an amount per cubic meter directly to Teodorin."

I later spoke with a French national named Jean Michel (he asked that I omit his last name) who worked for a French logging company that Teodorin seized. By his account, it was impossible for timber companies like the one he worked for to operate in Equatorial Guinea without paying off Teodorin. According to this person, it was when his firm refused to pay further bribes that Teodorin sent the military to shut down its operations and kick its employees out of the country.

Shakedowns like this aren't the exception. They're the rule -- and it's only gotten worse since the country happened upon a glut of offshore oil. Why Teodorin and his father's regime have thus far escaped sanction from U.S. authorities is a mystery.

Perhaps the U.S. federal investigators are making more progress than I am aware of, but that certainly doesn't appear to be the case. What accounts for their hapless investigation? Is it due to political interference from the Obama and Bush administrations in order to protect friendly relations with an American oil partner? Is it a result of ineptitude and incompetence? I'm not sure; but what certainly is clear is that the evidence is out there, and investigators seem largely uninterested in obtaining it, not to mention prosecuting the case against Teodorin.

Javier Espinosa/El Mundo