The Wall Street Journal: Shell Gets Toughest Scrutiny From U.S.
By KARA SCANNELL, SILVIA ASCARELLI and CHIP CUMMINS
Staff Reporters of THE WALL STREET JOURNAL
April 26, 2004; Page A3
Posted 27 April 04
Royal Dutch/Shell Group calls two European countries home, but so far it faces the harshest scrutiny from the U.S.
Prosecutors with the U.S. Attorney's office in Manhattan and regulators at the Securities and Exchange Commission have jumped on the case, investigating the company's massive overbooking of oil and natural-gas reserves, while European regulators appear to be moving more cautiously.
Those investigations are in very early stages and there have been no findings. But the aggressiveness shown by American prosecutors and financial regulators underscores the role of the U.S. as the world's financial police at a time when the European response is still fragmented. In the wake of recent corporate scandals in the U.S., prosecutors there have stepped up their pursuit of violations of securities laws. Recently they also have investigated alleged wrongdoing at Ahold NV, Adecco SA, Parmalat SpA, and the conduct of two U.S. oil executives in striking oil deals in Kazakhstan.
But pursuing these cases can be more complicated than a domestic case. Plus, under some extradition policies, countries won't extradite individuals they are prosecuting themselves. A spokesman for the U.S. Attorney's office declined to comment.
Shell has two parent companies based in different countries: Royal Dutch Petroleum Co. of The Hague, Netherlands, and London-based Shell Transport & Trading Co. A spokeswoman for Britain's Serious Fraud Office, a government department that investigates allegations of complex fraud, said there is "no active investigation at present." But in a highly unusual move, Britain's newly minted markets watchdog, the Financial Services Authority, said Friday that it is "formally" investigating Shell and has been in contact with overseas regulators.
It didn't describe the focus of the probe, but said it had been conducting inquiries -- including the "gathering and analysis of documentary evidence" -- for several weeks. The agency can also refer cases to the Serious Fraud Office.
In the Netherlands, securities wrongdoing is rarely a criminal act, and a spokesman for the Dutch justice ministry said it won't take up such an investigation until it receives a complaint from the stock exchange, the company itself or a third party, like an investor. "We haven't gotten any complaints," the spokesman said.
Big Dutch investors so far aren't pushing for a probe. "We still have enough confidence in Shell, even after what has happened, that they are investigating themselves thoroughly," said a spokeswoman for PGGM, a €52.9 billion ($62.6 billion) Dutch pension fund for health-care and social workers.
In the U.S., prosecutors have likely taken a strong interest because of "the size of the company, its prominence, and I assume what the government believes to be the magnitude of the fraud," said Robert Cleary, a former U.S. Attorney for New Jersey and the southern district of Illinois. Shell has a U.S. unit, and its two parent companies trade on the New York Stock Exchange. Also, Shell's filings with the SEC were inaccurate.
Past experience suggests it can be difficult to prosecute non-U.S. citizens living outside the country. The two former Shell executives implicated in the executive summary of the company's internal report aren't U.S. citizens, which would require them to be extradited to the U.S. for trial.
In 1999, a U.S. grand jury indicted the two co-founders of Livent Inc. on charges of cooking the books of the Toronto theater-production company. U.S. authorities didn't seek to extradite the men because, under the Canadian extradition treaty, authorities won't extradite people if they have an investigation under way. The Canadian authorities levied criminal charges against the men in October 2002. They have denied wrongdoing.
In recent years, U.S. prosecutors have aggressively probed other foreign companies' accounting, including temporary-staffing company Adecco and supermarket operator Ahold. In both cases, the alleged fraud took place at U.S. subsidiaries and involved U.S. citizens, making it easier for prosecutors to claim jurisdiction. So far, no charges have been brought in either case.
To be sure, authorities have been more assertive in some European countries. In the case of Parmalat, Italian prosecutors moved fast in investigating and charging senior executives. U.S. prosecutors are also investigating the alleged fraud at the Italian dairy company, but charges, if any, would likely come after the Italian authorities complete their probe. Parmalat's stock isn't traded on the U.S. market and most of its investors and alleged victims are in Italy.
U.S. regulators also took a back seat to European regulators in investigating former executives at Belgian software maker Lernout & Hauspie Speech Products NV. Prosecutors in Belgium brought fraud charges against several senior executives in 2000. One Belgian citizen who lived in Boston was extradited to Belgium to face charges.
In Shell's case, the U.S. Justice Department launched a criminal investigation shortly after the company's twin boards ousted its chairman and a top deputy early last month. The U.S. Attorney's office has asked the company to refrain from releasing its internal report for fear it will harm its investigation.
A Shell spokesman declined to comment on any investigations except to say the company is cooperating fully. Shell's internal report implicated former Chairman Philip Watts and Walter van de Vijver, former chief of exploration and production, in the reserves overbooking. Both men were fired early last month. Sir Philip hasn't commented in the wake of his ouster. Mr. van de Vijver has contested the findings of Shell's report in public statements.
--Susan Warren in Dallas contributed to this article.
Write to Kara Scannell at kara.scannell@wsj.com,
Silvia Ascarelli at silvia.ascarelli@wsj.com
and Chip Cummins at chip.cummins@wsj.com