Corruption in the Fossil Fuel Industry

Corruption is rife in the oil and gas industry. Fossil fuel graft schemes commonly involve senior oil executives and politicians. Two prominent recent examples are Petrobras in Brazil and Gazprom in Russia.

According to a new report, the extractive sector, which includes fossil fuels, is the most corrupt industry in the world. Of all reported cases of corruption, almost 1 in 5 (19 percent) were associated with the extractives sector. Most of these corruption cases involved the paying of bribes by senior executives. This is the finding of an Organization for Economic Co-operation and Development (OECD) report that analyzed 427 cases of bribery in international business. Public sector employees including senior politicians and Presidents of state companies were most likely to be involved in bribery.

In Brazil, the oil industry is embroiled in what is being described as the biggest corporate scandal in the country’s history. Dozens of senior managers of Petroleo Brasileiro SA (Petrobras) and other companies have been arrested as part of what is being called “Operation Car Wash.” So far a total of 80 people have been charged. In addition to senior executives at Petrobras, the kickback scandal is expected to implicate some senior members of the Brazilian Congress, the government of President Dilma Rousseff, and the opposition.

Petrobras executives are alleged to have conspired with contractors to divert billions of dollars from the company to bribe politicians and political parties. The defendants include two former Petrobras senior managers and 23 executives from six of Brazil’s leading construction and engineering companies. At least 40 politicians are implicated in the scandal.

Brazil’s top prosecutor Rodrigo Janot filed charges against Petrobras executives including Nestor Cerveró who was head of international operations at Petrobras from 2003 to 2008. He is alleged to have accepted bribes to help engineering and construction firms win contracts. Fernando Soares and Oscar Algorta were two of those charged with racketeering and money laundering related to the purchase of a $586 million oil drilling ship from Samsung Heavy Industries. In response to the scandal, Petrobras CEO Maria das Gracas Foster and five other executive directors have resigned.

In addition to harming the national reputation, corruption is also taking a toll on shareholders. Petrobras stock (PBRA) has plummeted 53 percent since the scandal broke and credit rating companies Fitch and Moody’s downgraded Petrobras shares to junk status. A class action suit has been launched by Wolf Popper law firm, which represents Petrobras’ shareholders. The suit alleges that the oil company released false statements and misled investors about its asset values.

Petrobras is not the only fossil fuel company to suffer from corruption, Russia’s state-controlled natural gas exporter Gazprom is also dealing with its own corruption scandal. Gazprom managers are facing corruption charges in Switzerland. Former and current Gazprom managers are implicated in connection with the construction of the Yamal gas pipeline that connects Siberia to Germany. “The federal prosecutor is conducting an investigation against four individuals suspected of misappropriation, forgery of documents, money laundering and bribery of foreign government officials,” the Swiss prosecutor’s office said. Charges are forthcoming.

An investigative reporting piece in the Daily Beast brilliantly exposes corruption in Russia. The article discusses Bill Browder who is well-known in Moscow for investigating corruption in major Russian companies including Gazprom. For example, he revealed that in the ’90s, 53 percent of Sibneftegaz (a Gazprom subsidiary) was sold to a group of buyers which included the brother and nephew of Gazprom’s then-CEO Rem Vyakhirev, for 0.3 percent of its estimated cost.

Sergei Magnitsky, Browder’s tax attorney was wrongfully arrested, jailed, and then murdered for uncovering Gazprom corruption. The interior and tax ministries, the Federal Security Service (FSB), and the Russian judiciary were all complicit in the conspiracy with a transnational organized crime syndicate and murderous cover-up, which culminated with the posthumous “trial” of Magnitsky in 2013.

Browder was also tried in absentia and sentenced to nine years. In 2012, Congress passed the Sergei Magnitsky Rule of Law Accountability Act, which aims to ban and freeze any stateside assets of Russian officials credibly accused of gross human rights violations. Boris Nemtsov wrote a report on corruption in Gazprom and on February 28th, 2014 he was gunned down in front of the Kremlin in Moscow. Corruption costs everyone and as the murders of good men like Magnitsky and Nemtsov demonstrate, it can be lethal for those brave souls who have the courage to expose it. Emissions from the fossil fuel industry are deadly as is getting in the way of their corrupt practices.