Oil Firms’ Rich Concessions to Tainted African Ruler Probed

WASHINGTON —  Six years ago, the president of Equatorial Guinea was invited to invest in a promising venture with one of the U.S. oil giants tapping his tiny nation’s reserves.

Mobil Oil Corp. offered the West African leader a stake in an oil trading business for $2,300, according to documents the company filed with a Senate subcommittee that were released last month.

Now, the company says, that stake is valued at about $645,000.

Mobil, now part of Exxon Mobil Corp., was not alone in sharing the wealth with President Teodoro Obiang Nguema Mbasogo, whose regime has been accused of massive corruption and human rights abuses.

Business ties between Obiang and seven U.S. oil companies, including real estate leases and investment in energy production facilities, are the subject of a probe by the Securities and Exchange Commission, according to the companies and lawyers familiar with the investigation. Attorneys familiar with the Foreign Corrupt Practices Act say the investigation involves the broadest examination of the oil industry’s overseas practices since the law was passed in 1977.

Exploration by U.S. companies in Equatorial Guinea, previously an obscure cocoa producer, began to pay off in the late 1990s as the U.S. sought new sources outside the turbulent Middle East to meet its rapidly growing demand for foreign oil. The effort intensified after the Sept. 11, 2001, attacks and again after the invasion of Iraq last year.

The hunt for energy has pushed Washington and the oil industry into relations with regimes in the former Soviet Union and West Africa whose records on human rights and corruption are similar to those of traditional U.S. suppliers in the Middle East.

Under the Foreign Corrupt Practices Act, American companies can do business with government officials but are not allowed to provide anything of value to anyone who can misuse a position of power to help them obtain or retain business.

U.S. government scrutiny of business relations with Equatorial Guinea grew out of a money-laundering inquiry begun in 2003 by the Senate Permanent Subcommittee on Investigations on accounts held by the country at Riggs Bank in Washington. The biggest account contained hundreds of millions of dollars in oil revenue deposited by American companies, according to the Senate report.

That report, along with documents from lobbyists and an industry-funded trade group and interviews with former U.S. officials, show that the companies made multimillion-dollar deals with Obiang and his relatives and helped them win political support in Washington.

Oil companies feted Obiang at Washington affairs attended by federal officials and helped broker meetings between members of the Bush administration and regime officials. The companies lobbied to reopen the U.S. Embassy in Malabo, Equatorial Guinea’s capital, which had been closed since 1995. That was in part because of the country’s dismal human rights record.

In 2003, the Bush administration reopened the embassy, citing the need to protect U.S. investments and the growing number of American oil industry employees.

With daily output of 370,000 barrels and estimated reserves of 1.1 billion, Equatorial Guinea is the third-largest oil producer in sub-Saharan Africa, a region that provides 15% of U.S. oil imports and is expected to supply 25% by 2015.

American oil companies operate almost all of Equatorial Guinea’s energy fields. They have invested about $5 billion in the country.

Stephen Hayes, president of the Corporate Council on Africa, which represents companies doing business on the continent, said oil companies “would be a lot happier with a more transparent government” in Equatorial Guinea, but they were “dependent on the goodwill” of host governments.

“The only choice is: Do we take the oil, or do we ignore it? It’s real tough right now with current energy demand to ignore one of the hottest spots in the world,” Hayes said. “If we weren’t there, there are any number of other countries who would be, at our expense.”

Exxon Mobil, Amerada Hess Corp., Marathon Oil Corp. and ChevronTexaco Corp. said their activities in Equatorial Guinea complied with the Foreign Corrupt Practices Act, or FCPA. Three other companies under investigation, CMS Energy Corp., Noble Energy Inc. and Devon Energy Corp., declined to comment, as did Equatorial Guinea’s embassy in Washington and Riggs Bank.

“Oil companies are basically in partnership with the dictator or his family,” Sen. Carl Levin of Michigan, the top Democrat on the permanent subcommittee, told The Times. “Neither our companies doing business abroad nor our banks here at home ought to be contributing to the corruption problem.”

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Roughly the size of Maryland with an impoverished population of 400,000, Equatorial Guinea has been run by Obiang since 1979, when he seized power from his tyrannical uncle and had him executed.

The 62-year-old ruler has been elected twice in balloting marred by allegations of fraud. He received 99% of the vote in 1996 and 97% in 2002.

Human rights abuses in Equatorial Guinea “have been well documented and have elicited international condemnation,” a 2002 Riggs memo said.

However, it predicted: “Any hesitancy on the part of U.S. ... towards Equatorial Guinea will be temporary, due to the rising importance of the oil sector.”

Unless new reserves are found, the country’s energy resources will be pumped dry by about 2020, giving the Obiang regime a limited time to use its oil revenue to improve living conditions for its population. However, there is little evidence that it is even trying.

The Department of Energy reported in October that the government appeared to have “misappropriated” energy earnings and that its “failure to direct oil revenues toward development ... has undermined economic and social progress.”

The State Department’s 2004 human rights report says security forces in the country have “committed numerous abuses, including torture.” But another State Department report this fall said: “With the increased U.S. investment presence, relations between the U.S. and the government of Equatorial Guinea have been characterized by a positive, constructive relationship.”

After they began producing oil in Equatorial Guinea, U.S. companies deposited revenue due the government into an account established by the Obiang regime at Riggs Bank. Last year, The Times reported the existence of the account, over which Obiang exercised de facto control, prompting inquiries by the Treasury Department and the Senate Permanent Subcommittee.

They found that Obiang also held more than $16 million in an offshore account that the bank helped him establish in the Bahamas. In addition, the president bought two large estates in the Washington area, paying $2.6 million in cash for one. In one internal Riggs memo obtained by the Senate, the Obiang family’s private banker raised the daily limit on the first lady’s debit card to $10,000.

“The $2,500 limit is insufficient for her needs,” the banker wrote.

Obiang’s eldest son, Teodorin, aspires to succeed his father and serves as minister of infrastructure. He sold a Beverly Hills home in October for $7.7 million and spends much of his time in Paris, where he lives in a luxury hotel and owns a small fleet of sports cars.

In May, the Treasury Department’s Office of the Comptroller of the Currency fined Riggs $25 million in connection with its handling of accounts controlled by Equatorial Guinea, saying the bank had failed to report suspicious transactions as required by the Bank Secrecy Act.

The money trail from the Riggs accounts led investigators to extensive Obiang business holdings in energy, construction, hotels, supermarkets, cocoa, farming, pharmaceuticals, telecommunications and real estate, records show.

Teodorin who previously was minister of forestry and the environment, owns a company that has exclusive rights to export timber. That business netted him $26.8 million in 1999, according to a Riggs memo.

Obiang and family members were involved in joint ventures and contracts with U.S. oil companies, often on highly favorable terms, according to information in the Senate report.

Exxon Mobil’s internal guidelines on the Foreign Corrupt Practices Act, a copy of which it provided to the Senate, say a foreign partner with no expertise or apparent qualifications other than the ability to influence government policy should be viewed as a “red flag.”

Asked during testimony in July to the Senate Permanent Subcommittee whether Obiang’s holding company brought any technical “assets” to the partnership, Exxon Mobil Executive Vice President Andrew Swiger replied: “I’m not aware of any.” Obiang’s official biography on his country’s website does not mention experience in the oil industry or a business background of any kind.

Exxon Mobil also paid Obiang and his wife a total of $366,000 on leases of land for its business operations, according to the Senate report.

Other transactions under federal investigation:

* Exxon Mobil and Amerada Hess paid about $1 million to Sonavi, a private security firm headed by Armengol Ondo Nguema, Obiang’s brother and the country’s security chief. State Department reports have identified Nguema as a torturer.

* Amerada Hess paid government officials and their relatives more than $2 million for building and office leases. About a quarter of it was paid to Obiang’s 14-year-old son. Marathon Oil has paid or agreed to pay Obiang more than $2 million for land purchased to expand its business operations in Equatorial Guinea.

* In two transactions in 1996 and 1998, the holding company controlled by Obiang received a combined stake, now worth as much as $29 million, in two joint ventures that Marathon inherited when it bought CMS Energy’s Equatorial Guinea holdings in 2002. According to the Senate report, Obiang obtained his stakes through GEOCAM, a state-controlled energy firm that is a partner in the joint ventures and in which his holding company owns a 25% share.

GEOCAM put no money down for its initial shares. Obiang’s holding company has netted more than $1 million in dividend payments from the two ventures over the last two years, according to the Senate report.

Alexandra Wrage of TRACE, a nonprofit association that advises corporations on compliance with the Foreign Corrupt Practices Act, said no previous probe had examined the activities of so many oil companies.

Wrage said companies must ensure that deals they strike overseas are not merely vehicles for funneling cash to a government official. “If it’s a primary decision maker and they are not contributing money or technical expertise, that’s a bright red flag,” she said.

A Washington lawyer, who spoke on condition of anonymity, said that if a company is concerned that a transaction would violate the FCPA, it can ask the Justice Department for an advisory opinion. “It’s a cumbersome process ... but in close cases I recommend that clients do it,” he said.

Dealings between Obiang and Exxon Mobil, Marathon and Amerada Hess are the object of intensive scrutiny. Exxon Mobil declined to say whether it had sought an advisory opinion in regard to Equatorial Guinea. The other two companies said they had not.

Asked about its dealings in Equatorial Guinea, Exxon Mobil cited a prepared statement by Executive Vice President Swiger to the Senate, which said that many businesses in that country “have some family relations with a government official” but that the company’s commerce there had been conducted “in strict compliance with U.S. and local laws.”

In a statement to The Times, Amerada Hess said that Triton Energy Ltd., which it bought in 2002, was responsible for most of the activities examined by investigators. “We do not believe that the company ... has engaged in any activities that violate the FCPA,” it said.

Marathon said it did not know for sure that Obiang had a stake in its projects until this summer. Regarding its land deals, Marathon said it had paid fair market prices and had no choice but to deal with Obiang because he owned the land it needed.

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Houston-based Walter International, a small company, was the first U.S. energy firm to arrive in Equatorial Guinea. It began producing at a modest natural gas field in late 1991.

The State Department’s annual global human rights report released in early 1993 alleged that security forces had tortured students during a large-scale roundup of Obiang’s political opponents the previous year. John Bennett, who was then the U.S. ambassador, drafted the section of the report on Equatorial Guinea. He said in an interview that Walter International executives criticized him for its harsh language.

“They told me, ‘Don’t you realize how that will make things difficult for us with the government here?’ ” Bennett recalled. Soon afterward, Bennett received an anonymous death threat. He said witnesses told him the note was delivered by an official in Obiang’s government.

Walter International, which later sold its Equatorial Guinea holdings to Marathon, did not return phone calls seeking comment.

The Clinton administration shuttered the U.S. Embassy in 1995. But just months later, Mobil discovered a huge oilfield in Equatorial Guinea waters. The Obiang regime allowed Mobil, and firms that followed, to retain about 90% of the oil revenue they produced, a share far above the international standard.

In 1998, Mobil made a $65,000 grant to the Institute for Democratic Strategies, a Virginia-based organization funded by the government of Equatorial Guinea.

“Obiang was not satisfied with the 1996 election and how it was received,” said Bruce McColm, director of the institute. “He also told me he wanted to improve the human rights situation.”

McColm said he provides advice on elections and human rights to Equatorial Guinea. In 2000, his group sent observers to monitor municipal elections, which they reported to be basically free and fair. A United Nations report, in contrast, said the vote “was characterized by the omnipresence of the [ruling] party ... and the intimidating presence of the armed forces.”

The industry-backed Corporate Council on Africa has sponsored events honoring Obiang at venues such as New York’s Tavern on the Green and the St. Regis Hotel in Washington.

At a February 2002 luncheon at Washington’s Army-Navy Club, Exxon Mobil’s Swiger lauded Obiang for his commitment to policies “that will benefit the country and its people.”

The Corporate Council on Africa published an investment guide to Equatorial Guinea, paid for by six oil companies, that said the Obiang regime had sought to “encourage political diversity” and address human rights problems.

Hayes of the corporate council acknowledged that tributes to Obiang at its events “sound like a love fest” but said his group was not lobbying for Obiang’s government. Engaging with problematic governments rather than ostracizing them, Hayes said, generally offers “a better chance to change the nature of the country over the medium and long term.”

He said there were limits to how hard companies could press foreign governments to reform. “There is a constant fear that their contracts will be pulled. Could the companies be more courageous? Maybe.”

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The oil industry’s clearest success on behalf of Equatorial Guinea in Washington has been the reopening of the U.S. Embassy.

The campaign was coordinated by lobbyist K. Riva Levinson of BKSH & Associates, who previously worked for the Obiang regime. Triton and then Amerada Hess paid for the lobbying campaign, Levinson said.

“Most of the oil and gas concessions awarded in Equatorial Guinea to date have been awarded to U.S. firms,” Levinson said in a 2001 memo to the Bush administration. “This is in stark contrast to neighboring countries in the region, where the United States has consistently lost out to ... [European] competitors.”

The administration announced soon afterward that the embassy would be reopened, and it followed through in 2003. This year it announced that Niels Marquardt, its ambassador in neighboring Cameroon, another troubled, oil-rich nation, would serve as ambassador to Equatorial Guinea as well.

A State Department official, who spoke on condition of anonymity, said the Bush administration was pushing the Obiang regime to “adopt more people-friendly policies towards its citizens. To do that, and to facilitate the important American business interests at stake in Equatorial Guinea, it’s better to try to persuade the government rather than to slam it at every opportunity.”

In June, Obiang came to Washington to meet with Secretary of State Colin L. Powell and Energy Secretary Spencer Abraham. Two months later, the two countries signed a memorandum of understanding that aimed to expand the U.S. presence in Equatorial Guinea’s oil and gas sector.

At a Corporate Council on Africa conference in Houston on Nov. 30, Mary Fleming of the State Department’s Africa bureau said she had been struck by parallels between the early days of the oil booms in Equatorial Guinea and Alaska. She cited the “excitement of discovery” and the importance of each government ensuring that “wealth trickled down” to citizens.

And Marathon executive Steve Guidry said his company believed that Obiang’s regime had “the will and desire ... to do the right thing.”