THE WALL STREET JOURNAL: A Nigerian Cop Cracks Down On a Vast Black Market in Oil (ShellNews.net) 13 April 05

Mr Ribadu Pursues Smugglers Of Up to $3 Billion a Year;

By CHIP CUMMINS

Staff Reporter of THE WALL STREET JOURNAL

April 13, 2005; Page A1

PORT HARCOURT, Nigeria -- Each night, armed gangs tap into the oil pipelines that crisscross the swamps of the petroleum-rich Niger Delta. By some estimates, the smugglers steal up to 10% of Nigeria's annual oil output, which was valued at $30 billion last year.

"Bunkering," as the racket is known here, is one of the world's biggest black markets, but authorities turned a blind eye for years. Africa's most populous nation, Nigeria was ruled until recently by a succession of mostly military leaders, often eager to tap the nation's oil riches for themselves and their cronies.

Then, in 2003, amid the country's most recent drive to clean house, President Olusegun Obasanjo created a financial-crimes investigation unit. The new antifraud czar, Nuhu Ribadu, ordered clandestine tests of the oil used at some overseas refineries. The samples confirmed a long-held suspicion: Much of Nigeria's stolen oil was being shipped by well-organized syndicates to destinations such as Ivory Coast and Cameroon and even as far away as Brazil. An informant turned in a list of suspected suppliers of the stolen oil.

Next, Mr. Ribadu did a remarkable thing for Nigeria: He started going after the suspects.

Since taking charge of the new Economic and Financial Crimes Commission, Mr. Ribadu has pursued oil mobsters, Internet fraudsters and corrupt politicians. The former street cop has 185 active fraud and corruption cases working their way through the courts, up from zero before the commission started its work two years ago. Working in the capital of Abuja from an office overlooking goats grazing in a vacant lot, the wiry 44-year-old has locked up 200 alleged smugglers and seized $700 million in property, including a collection of office buildings, from suspects in oil smuggling and other crimes. Royal Dutch/Shell Group, whose joint venture with the state petroleum company pumps about half of Nigeria's oil, says the amount of crude stolen from its network has fallen by almost half since early last year.

In the past three weeks, Mr. Ribadu's political-corruption investigations have shaken Nigeria, triggering the sacking of two government ministers and the resignation of a leading lawmaker. Yesterday, the country's former education minister and six legislators pleaded not guilty to charges related to alleged bribe-taking. Mr. Ribadu also ordered the arrest of his own ex-boss, the nation's former chief of police. Last week the disgraced chief appeared in handcuffs at his arraignment, where he pleaded not guilty to a 70-count charge, including money laundering and theft.

Nigeria's crackdown on corruption could have broad implications for world oil markets and the Western companies that do business here. Global oil prices are simmering near record highs as the world's largest petroleum producers, including Nigeria, strain to meet soaring demand. Nigeria pumps about 3% of the world's oil, much of it prized low-sulfur grade. The theft robs oil companies of revenue -- discouraging investment that could bring more oil to the market -- and bleeds the Nigerian treasury, which depends on crude for as much as 95% of its export revenue.

Cleaning up the oil business is essential to transforming Nigeria, which has struggled to achieve a stable democracy since the British left in 1960. The country is emblematic of the "oil curse," in which easy petrodollars help entrench corrupt elites and discourage long-term economic planning. Embezzled oil money has helped grease the wheels of Nigeria's dysfunctional political system.

Larger than Texas, with a population of 137 million, Nigeria is already one of the top suppliers to U.S. refineries. Its output is expected to double this decade. The U.S. hopes West Africa will offer a hedge against the volatile Middle East. But ethnic clashes and criminal activity in the oil-rich Delta lead to about 1,000 killings a year, according to consultants hired by Shell to study the region. Tensions between the Muslim north and Christian south often flare into violence. Factions from many of the country's major ethnic groups have threatened a breakup of the fragile Nigerian federation.

Mr. Ribadu thinks his efforts could become a model to rid Africa and the developing world of fraud and corruption. "Nigeria is the focal point -- it will hold the key to a change in all of Africa," he says.

But sustaining early success against oil smuggling is proving tough. Mr. Ribadu's commission has a meager $10 million annual budget. Nigeria's poorly run courts have thwarted prosecution of some of his biggest catches. His officers often find themselves outgunned by smugglers during sting operations in the vast Delta swamps.

"If you just go on patrol without knowing the place, you end up a dead man," says Ibrahim Lamorde, in charge of the commission's crumbling Lagos office, surrounded by rows of impounded cars baking in the sun. "It's more or less like a guerrilla war."

Death threats against commission staff are common. Mr. Ribadu drives a bullet-proof BMW. When someone knocks at his office door, he instinctively glances at the grainy closed-circuit television set on his desk, which monitors three hallways leading to his office.

President Obasanjo last year sent in the army to quell a violent clash between two Delta warlords, Mujahid Dokubo-Asari and Ateke Tom. Mr. Asari declared "all-out war" on the government, sending crude markets soaring the day he spoke. Authorities say the two were fighting for control of lucrative smuggling routes. Smugglers typically pay protection money to such territorial bosses. That cash in turn has financed the creation of well-armed private militias in the region.

To get their oil to market, smugglers also "settle" with communities and traditional chiefs, often in the form of cash payments. Many law-enforcement officers and oil-company executives get a cut of the action, according to commission officials and outside analysts.

"We have every right to do whatever we want with our own oil," Mr. Asari said in an interview in his walled compound in Port Harcourt, Nigeria's dilapidated oil capital on the edge of the country's southern swamps. Last fall, he agreed to lay down his arms in a deal brokered by the president. He denies any personal involvement in the bunkering racket and says his aim is to win control of the Delta's resources for the local people. But, he added, "If a bunkerer comes and wants to donate to our cause then, jolly well, we'll accept it."

President Obasanjo -- a military ruler in the late 1970s turned elected leader in 1999 -- declared he would clean up Nigeria after winning his second term in 2003. Among the reform-minded technocrats he brought into the government was Mr. Ribadu, a rising officer in the federal police.

Mr. Ribadu says his interest in fighting graft dates from law school in the early 1980s, as he watched a democratically elected government crumble amid rampant corruption. He probed corruption during his mandatory youth service after graduation, and later took a job as a beat cop walking the slums of Lagos, the crime-infested commercial capital. The move shocked his elite Muslim family. His father had served as a government minister, and police work was considered beneath the clan.

Cottage Industry of Fraud

By 1997, Mr. Ribadu was running the prosecution department of the federal police. He gained fame by building murder and financial-fraud cases against cronies of former dictator Sani Abacha. After taking over the fraud commission, he won international kudos for breaking up bank-fraud schemes spread via the Internet. In recent years, Nigeria has become home to a cottage industry of Internet scams that often lure victims with e-mail promises to share in a deposed dictator's bank account. Last summer, the commission arrested a suspect who was impersonating Mr. Ribadu himself, in e-mails that began, "Re: Urgent Contract Payment Advice As Regards My Telephone Conversation With You Today."

But the oil smugglers have proved elusive prey. According to authorities and people familiar with the trade, many of the smuggling rings are organized around so-called cults -- violent gangs with names like the Icelanders, the Mafia Lords and Black Axe. The groups grew out of underground Nigerian college fraternities that date back to the 1970s.

Working mostly at night, they break into bits of pipe poking up from the swamps or buried lines on land. They siphon off crude to waiting trucks or flat-bottom barges. During a routine flight last month, the pilot of a Shell-chartered helicopter pointed out clusters of such barges tied up along the river banks.

Emeka Nwonyi, who took over the commission's Port Harcourt office in December, meets with local military and police officers and Shell executives twice a month to share intelligence. He also relies on informants -- often smugglers themselves -- to identify targets. But acting on such information is risky.

A Tip Goes Sour

After a recent tip-off, Mr. Nwonyi says, his men and a detachment of army soldiers surrounded a village in the heart of the Delta. They watched as armed smugglers loaded a group of tanker trucks with crude. Outgunned, out of cellphone range and lacking a radio to communicate with nearby Navy patrols, Mr. Nwonyi withdrew his men. "It looked as if the place was hot," he says. He planned to arrest the smugglers as they made their getaway, but they slipped away by a different route.

To break the stalemate, Mr. Ribadu has targeted the trade's big financiers and buyers, who typically operate far from the marshes. The top rung of the trade is dominated by wealthy Nigerian businessmen, often teaming up with foreign buyers or middlemen, according to commission investigators. The Lagos office is investigating more than a dozen suspected Nigerian and foreign ringleaders and companies.

After filling barges in the Delta with oil, smugglers send the vessels down river and then load up larger tankers in open water headed for far-off markets. Two years ago, President Obasanjo prodded the navy to help. Armed with four World War II-era buoy tenders provided by the U.S. Coast Guard, the navy began stopping suspected smuggling ships.

In late 2003, the navy intercepted the Capbreton, a large tanker loaded with crude valued at $162,000. Authorities impounded the vessel. The Capbreton's owner was listed as Okon Onyung, a retired army officer and local doctor, according to investigators. The commission arrested Dr. Onyung, froze his bank accounts and impounded his Lincoln Navigator.

But before the commission could press charges, a local magistrate granted Dr. Onyung bail. He disappeared and is now being sought by police. Dr. Onyung maintained his innocence during questioning by investigators. Attempts to reach Dr. Onyung for this article weren't successful. His wife and a handful of foreign crewmembers were charged with unlawful conveyance of crude and are currently on trial. Ms. Onyung's attorney has said she wasn't involved in the alleged smuggling operation. Attempts to reach the attorney for comment weren't successful.

In the same sweep that netted the Capbreton, the Navy brought in an even bigger catch: the 12,000-ton African Pride. About the length of a football field, the ship was bearing as much as 80,000 barrels of crude, valued at some $1.2 million. Navy officers seized the ship and tied it up at a Lagos wharf, jailing most of the crew.

Then, sometime between Aug. 6 and Aug. 8 last year, the tanker vanished. The lone guard posted to secure the ship later testified he left his post after having no contact from his superior officers for three weeks, according to Anthony Aziegbemi, chairman of a parliamentary committee on naval affairs that is investigating. Other testimony suggested there was a payoff to the navy to allow the ship to sail, but no conclusive proof ever emerged.

The navy eventually court-martialed three admirals in connection with the incident. The presiding officers ruled that two of the admirals be dismissed from the service for facilitating theft; the third was exonerated. The rulings are pending approval of navy headquarters.

Capt. Sinebi Hungiapuko, the navy's director of information, denies that any bribe-taking took place. He adds that navy headquarters has no indication that any officers in the Delta are on the take. "But in an organization like this there can be bad apples," he said.

Mr. Ribadu says he has made a big dent in spite of the setbacks. Shell executives say theft can fluctuate widely day to day, but currently stands at some 40,000 to 50,000 barrels a day, down from almost 100,000 barrels in early 2004.

Mr. Ribadu's crackdown has prompted a number of high-level figures in the trade to flee the Delta, he adds. "We destabilized them," he says.

Write to Chip Cummins at chip.cummins@wsj.com

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