The Independent: City watchdog drops action against ex-Shell chairman Watts: “The main City watchdog, the Financial Services Authority, ignored the advice of its own specialist enforcement staff yesterday by announcing that no further action would be taken against Sir Philip Watts, the disgraced ex-chairman of Shell, over the oil giant's reserves reporting scandal.”: Thursday 10 November 2005
By Michael Harrison, Business Editor
Published: 10 November 2005
The main City watchdog, the Financial Services Authority, ignored the advice of its own specialist enforcement staff yesterday by announcing that no further action would be taken against Sir Philip Watts, the disgraced ex-chairman of Shell, over the oil giant's reserves reporting scandal.
The FSA's Regulatory Decisions Committee (RDC) reached the verdict despite a recommendation from the organisation's enforcement division that action be taken against Sir Philip, who was ousted from Shell last year after admitting that its oil reserves had been overstated by a quarter or almost 4.5 billion barrels.
In a brief statement, the regulator said: "The Financial Services Authority has been pursuing enquiries into the roles of certain individuals in the mis-statement of Shell's hydrocarbon reserves. Those enquiries have reached a conclusion and the FSA will be taking no further action."
An FSA spokesman said: "The enforcement division carried out an investigation and made a recommendation for action to the RDC but the RDC decided that no action should be taken. We accept that in some cases the RDC will not uphold enforcement recommendations. That is the nature of the system."
The decision means that all regulatory action against Shell and its former chairman is now at an end in the UK and the US. Last year, the FSA fined the company £17m over the affair.
The investigation into whether Sir Philip had committed a breach of civil law by misleading investors over the size of Shell's reserves began in March last year - two months after the oil giant had stunned the market by disclosing that it had overstated reserves by 3.9 billion barrels.
In April last year, Shell published a devastating report commissioned from an independent US law firm revealing that Sir Philip had been warned on several occasions over a two-year period that the market was being misled. In one e-mail, sent to Sir Philip in November 2003, the then head of Shell's exploration and production division, Walter van de Vijver, said: "I am sick and tired about lying about the extent of our reserves issues and the downward revisions that need to be done because of far too aggressive/ optimistic bookings."
Sir Philip was fired along with Mr Van de Vijver and Shell's former finance director Judy Boynton, but still received a pay-off of more than £1m. Mr Van de Vijver is understood to be among the "certain individuals" referred to in yesterday's FSA announcement but the regulator would not confirm the names of anyone other than Sir Philip.
The RDC consisted of a four-man panel chaired by Tim Herrington, a former City lawyer with Clifford Chance, who is a full-time FSA executive. The other three were drawn from a pool of 27 independent external members from various backgrounds including law, the City, commerce, the police, broadcasting and the civil service.
The FSA would not say who the three independent members were, nor the basis on which the RDC panel decided that no further action should be taken. It also declined to say how much the Watts investigation had cost or how many times the RDC had reached a decision which went against the advice of the FSA's enforcement division.
Sir Philip, who has been advised by the law firm Herbert Smith, lost an earlier case against the FSA in the summer when an appeals tribunal ruled that he had not been identified or prejudiced when the FSA published its decision to fine Shell £17m. The former Shell chairman argued that he should have been given the chance to respond to the ruling before it was made public.
An FSA spokesman said that although it had decided not to proceed against Sir Philip, it was not liable to pick-up his costs, which have so far been met by Shell.
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