The Independent: FSA confirms formal inquiry into Shell over reserves scandal

By Michael Harrison Business Editor

24 April 2004

The main City regulator, the Financial Services Authority, confirmed last night that it has launched a formal investigation into Shell which could lead to the criminal prosecution of the company and former executives for deliberately misleading financial markets.

This is the fifth investigation into the troubled company to be initiated by regulatory authorities since Shell shocked the oil industry and the stock markets by cutting its proven reserves by 20 per cent or 3.9 billion barrels in January.

A damning report produced for the company's audit committee earlier this week disclosed that Shell executives had known for at least two years that it was overbooking reserves but this had been concealed from investors.

The FSA said that if its investigation established that current or former Shell executives had knowingly made false statements or dishonestly concealed material facts, it could result in a prison sentence of up to seven years and heavy fines.

The confirmation of the FSA investigation will increase the pressure on the former Shell chairman Sir Philip Watts, who was sacked in March along with the company's head of exploration and production, Walter van de Vijver, over the reserves scandal.

Sir Philip has resolutely refused all comment since his sacking, although Mr van de Vijver has made a statement through his lawyers claiming that the overbooking of reserves was an issue that the full board of Shell had been aware of for a long time.

This week's audit committee report also highlighted the way in which Mr van de Vijver had repeatedly warned of the dangers of concealing the information, culminating in an e-mail last September to Sir Philip in which he complained he was "sick and tired of lying" about the extent to which Shell had overbooked reserves.

The FSA said it had been conducting inquiries and analysing documentary evidence for some weeks and was in close contact with overseas regulators. Shell is being formally investigated in the US by the Securities and Exchange Commission and the Justice Department, which is thought likely to bring criminal charges of its own.

The FSA is expected to seek to interview both Sir Philip and Mr van de Vijver as part of its investigation.

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