US$11 billion fraud case spotlights Nigeria’s resource governance woes

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One of the biggest international arbitration cases in recent history is due to go to trial in London in January 2023, pitting the Nigerian government against a British Virgin Islands-based resource company for an amount equal to 10 times Nigeria’s annual health budget.

The $11bn case highlights the collision of opaque, self-interested foreign businesses and chronically weak governance, with the poorest Nigerians as the main casualty.

The story begins in 2010, when two Irish nationals – former music manager Michael Quinn and his business partner Brendan Cahill, who had been previously contracted to repair tanks and planes for the Nigerian military – founded Process and Industrial Developments (P&ID) in the British Virgin Islands.

P&ID was then awarded a 20-year contract to process gas for the Nigerian domestic energy market. Two years later P&ID commenced arbitration proceedings, claiming the Nigerian government had failed to build the required infrastructure for the energy project, and had in effect reneged on the contract.

An arbitration tribunal in London concurred, and in 2017 awarded P&ID $6.6bn in compensation. With the addition of backdated interest of 7% per annum, the amount has almost doubled as the dispute has rolled on.

Nigeria says the project was compromised from the start. Following an investigation in Nigeria, a judgement by the London high court in 2020 found strong evidence that the initial contract was procured by bribery, with the subsequent arbitration corrupted by collusion between Nigerian government counsel and P&ID. For Quinn and Cahill, claim the Nigerians, the arbitration was the business.

There was little intention to fulfill the original contract, they allege, saying P&ID’s initial and exclusive aim was to shake down the government for as much as it could. The company was purchased immediately after the 2017 award by Lismore Capital and VR Advisory Ltd – Lismore is owned by the lawyer representing P&ID, and VR is described as a “vulture fund” by the Nigerian government.

The high court’s finding of a “strong prima facie case of fraud” paved the way for Nigeria to appeal the arbitration award, with subsequent victories in New York, the British Virgin Islands and London granting access to key documents, including some held by VR Capital and P&ID itself.

“The Federal Republic of Nigeria… is leaving no stone unturned in its fight through the courts,” said a 15 July statement by the Nigerian government. “This is another step in our long running effort to reveal who stands to benefit from one of the world’s biggest scams.”

Self-interest all around

No party comes out looking good.

P&ID appears to have linked several incentives to the arbitration outcome, adding weight to Nigeria’s accusation that they never intended to provide the energy they promised. According to court documents, half of any payout above $1bn was to go to Adetunji Adebayo, a Nigerian oil and gas industry figure, under an agreement he signed with the company to help facilitate negotiations around a potential settlement back in 2014.

Further, the Nigerians allege, co-founder Brendan Cahill convinced a former employee not to testify in the trial with a promise of remuneration that was contingent on P&ID succeeding in its claim. The involvement of litigation funders – a notoriously self-interested set on which several countries, including Australia, have attempted to crack down in recent years – in P&ID’s case broadens the circle of cynicism.

For Nigeria, however, the episode is equally unedifying. The government, after all, screened and signed the initial contract, and had prior dealing with P&ID’s founders stretching back into the 1990s.

The long trail of alleged corruption uncovered during the investigation – in one instance, it is claimed, P&ID dropped a bag containing $50,000 in cash into the car of a Nigerian official, while Nigeria’s appeal hinges on multiple instances of civil servants leaking privileged and confidential government documents to the company in return for cash payments – paints a picture of P&ID’s actions being abetted by the state itself.

Transparency will improve Nigeria’s business environment

The case represents yet another instance of the “resource curse”; the enduring negative relationship between oil and gas wealth, rent seekers and social, economic, political and governance outcomes. Despite being Africa’s largest fossil fuel exporter for over half a decade, Nigeria retains the widest energy access deficit in the world, with the government citing the “egregious” impact their payout to P&ID would have on the 40% of the population that still lives below the poverty line.

A number of African nations, including Nigeria itself, are preparing to massively expand their oil and gas extraction efforts to speed up economic development at home while supplementing global supply abroad at the behest of foreign investors, companies and governments emboldened by energy market chaos in the wake of Russia’s invasion of Ukraine.

This court case is one more cautionary tale about the behaviour of multinational firms in so-called developing countries. Multinational firms must be held to the same standard in all global markets

As unfortunate as this sorry tale may be, however, the consistent application of governance standards across jurisdictions can only be good for global business as well as less prosperous countries. Processes like these strengthen institutions.

Justice being served could, for example, see Nigeria move up global competitiveness rankings. A sense of fair play and transparency also aids the perception of the rule of law by international investors, who have in recent years become more attuned to governance concerns as part of the shift to sustainable investing that takes into account environmental, social and governance (ESG) metrics. The G is all too often neglected.

Finally, with the world’s media focused on the outcome of the case, it is more likely the outcome will be just. The disinfecting sunlight of the media as an institutional support to governance, due process, and transparency efforts in capital markets cannot be understated.

Source: Dr Desné Masie and Angus Chapman, african.business

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