Financial Times: Criminal authorities step up US Shell probe
By Adrian Michaels in New York and Carola Hoyos in London
22 April 04
US federal prosecutors have stepped up their investigation of the crisis at Royal Dutch/Shell, indicating that the criminal authorities are now taking a central role in the investigations into how it overstated reserves for two years.
People close to the investigations said the Manhattan branch of the Department of Justice was influential in the request that Shell's lawyers hold back the bulk of a damning report on the company's failings.
Legal experts said the Securities and Exchange Commission - the civil financial regulator also investigating Shell - rarely takes steps to stall disclosure but that the criminal authorities are more sensitive to how much information is made public while they pursue investigations.
The disclosure came as Shell's troubles deepened further on Wednesday, when Moody's Investor Services and Fitch Ratings stripped it of its highly-prized AAA credit rating, questioning the company's flawed controls, reserves base and vulnerability to litigation. Standard & Poor's cut its rating on Monday.
Moody's said the recent audit report into the Anglo-Dutch energy group's conduct "indicates a range of reporting and oversight flaws inconsistent with a highly rated entity, and raises major questions about Royal Dutch/Shell's controls, reporting standards and corporate governance".
The agency hit out against Royal Dutch/Shell's dual structure, saying it would slow the company's ability to make the changes it has promised and regain its credibility in the financial community.
Shell this week published just a summary of the report - an investigation led by the law firm Davis Polk & Wardwell into the events leading to a massive downgrade of reserves it had booked with the SEC. It said only that "US government authorities" had asked that the full text not be released.
Neither the Department of Justice nor the SEC comment on individual cases.
The US attorney's office for the southern district of New York was already monitoring developments at the Anglo-Dutch energy group. But it has recently taken a more active role, intervening to limit the amount of infor- mation that the company makes public while its investigations continue.
Shell declined to comment on Wednesday on the intervention by criminal prosecutors.
Frank Razzano, a former assistant US attorney in New Jersey, said: "In all likelihood the Department of Justice has agents going out to interview people and does not want the report's contents colouring the information that they get from witnesses." Mr Razzano is now at the law firm of Dickstein Shapiro Morin & Oshinsky in Washington.
The full 463-page Davis Polk report could contain more information on who was involved in the events at Shell, lawyers said. That may be used by criminal authorities as leverage when interviewing witnesses.
The extra involvement of the Department of Justice is a serious development for Shell but there is no suggestion at this stage of any criminal wrongdoing.
Meanwhile Shell said on Wednesday that the non-executive chairman of its UK board was due to retire at the 2005 annual meeting. Lord Oxburgh, the company said, turns 70 next year, the retirement age for non-executive directors.