Shell Discloses FCPA Investigation Related To Panalpina

In its Annual Report and Form 20-F for the year ended December 31, 2007, Royal Dutch Shell plc includes a Foreign Corrupt Practices Act disclosure. It relates to the Department of Justice's ongoing investigation of Panalpina. Shell says,

"In July 2007, Shell’s US subsidiary, Shell Oil, was contacted by the US Department of Justice regarding Shell’s use of the freight forwarding firm Panalpina, Inc and potential violations of the US Foreign Corrupt Practices Act (FCPA) as a result of such use. Shell has started an internal investigation and is cooperating with the US Department of Justice and the United States Securities and Exchange Commission investigations. While these investigations are ongoing, Shell may face fines and additional costs."

Shell's Annual Report can be downloaded here. Warning -- it's a 224 page pdf file.

Shell is the first major oil and gas producer we know of to be named in the Panalpina investigation. Before this, oil and gas services firms were disclosed as targets, but not producers. For those unfamiliar with the Panalpina investigation, here's some background:

In February 2007, the DOJ said in connection with the Vetco case that bribes in Nigeria "were paid through a major international freight forwarding and customs clearance company to employees of the Nigerian Customs Service . . .” Since then, about a dozen leading oil and gas services companies have announced FCPA investigations resulting from their relationship with logistics leader Panalpina.

By mid 2007, the DOJ and SEC had extended the investigation into Panalpina's activities in Nigeria, Kazakhstan and Saudi Arabia, and had sent letters to its customers, “asking them to detail their relationship with Panalpina . . . ." Schlumberger, Tidewater, Nabors Industries, Transocean, GlobalSantaFe Corp., Noble Corp. and Global Industries are among those involved. In September 2007, Panalpina said it is cooperating with U.S. prosecutors and exiting the Nigeria logistics and freight forwarding market for all oil and gas services customers.

We commented earlier that with crude prices at triple digits, can the U.S. government afford to cripple output anywhere in the name of FCPA enforcement? Probably not. But in addition to encouraging Panalpina to stop doing business in Nigeria for oil and gas services firms, the DOJ may have made special arrangements directly with the Nigerian government for customs clearance and permitting on behalf of Panalpina's former customers. That will allow them to keep working in Nigeria but still comply with the FCPA.

View prior posts about Panalpina here.