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Tuesday, Apr 23, 2024

JPMorgan Sent Money For A $1.1 Billion Deal Despite Staff Concerns

JPMorgan Sent Money For A $1.1 Billion Deal Despite Staff Concerns

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. Executives from Shell and ENI, the energy firms that bought the oil rights, face criminal corruption charges and possible jail sentences in an Italian criminal court. And 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.

Both Shell and ENI told BuzzFeed News that they continue to believe that the transactions were legal, and that they believe that the criminal court in Milan will acquit them. “Based on everything we have seen before and during the trial, we continue to believe there is no basis to convict Shell or any of its former employees,” a Shell spokesperson said in a statement. “We are confident that the Milan Court judgement could finally clarify that Eni and its management are not involved in any illegal conduct,” an ENI spokesperson said.

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.
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