Nexen and the Dictator

When the Canadian oil company Talisman Energy finally withdrew from war-ravaged Sudan in 2002 — after the company’s reputation had been dragged through the global mud by activists who blamed Talisman for enriching the brutal Sudanese government — oil explorers realized that in the modern business world a reputation for ethical conduct is at least as valuable as any item on the balance sheet. No company took that lesson more seriously than the Calgary-based oil company Nexen Inc. “Corporate social responsibility” is a mantra for Nexen executives, and the company’s focus on doing business in a way that respects people, the environment and human rights has paid off with a slew of corporate citizenship awards and a sterling reputation for being an oil company with a heart.

That reputation may soon be put to the test. The Citizen has learned that Nexen Inc., acting in part on advice from Canada’s Department of Foreign Affairs, is exploring for oil in Equatorial Guinea, an obscure central African country ruled by one of the most corrupt and brutal governments in the world.

No one has accused Nexen of acting in a corrupt or unethical way in Equatorial Guinea. But experts note that simply by operating in the country, a company effectively enriches and empowers the regime. “Even if you’re being nice on a day-to-day basis, you’re providing large finances that are supporting the repressive power of the state,” says Macartan Humphreys, a professor of political science at Columbia University who has advised the neighbouring island country of Sao Tome and Principe on the handling of oil revenues.

Dwain Lingenfelter, Nexen’s vice-president for government relations, says the decision to enter Equatorial Guinea “wasn’t taken lightly and without rigorous, rigorous research and evaluation at every level.” The company is fully aware, he says, of the regime’s record of graft and human rights abuses as well as its horrific past.

The only Spanish colony in sub-Saharan Africa, Equatorial Guinea became independent in 1968. Its democratically elected president, Francisco Macias, quickly put members of his own family in all key government and military posts, seized dictatorial powers and terrorized the nation with sweeping arrests, forced labour, torture and mass murder. As many as 80,000 people may have been killed in the 11 years of Mr. Macias’ rule — 80,000 in a country which then had just 380,000 citizens. When Mr. Macias was finally overthrown in 1979, one-third of Equatorial Guinea’s population was either dead or in exile — a record of savagery on par with that of Pol Pot, Mao or Hitler.

The leader of the coup was no opponent of the regime, however. It was Mr. Macias’ nephew and chief enforcer, Teodoro Obiang. And Mr. Obiang, now 63, is still the president today.

Mr. Obiang is, by any reasonable definition of the word, a dictator. Equatorial Guinea’s government is nominally a democracy, but in reality there is no political freedom. Genuine opposition politicians are harassed and assaulted. Arbitrary arrests, detention and torture are all routine, according to reports by the United Nations and the U.S. State Department. Elections are stage-managed frauds, delivering near-unanimous support for the president. Non-governmental human rights groups are not permitted. There are no bookstores or newsstands, and the government controls all television and radio broadcasts.

In the 2005 rankings of political and civil liberties prepared by Freedom House, a respected Washington non-governmental organization, only eight countries in the world got a worse score than Equatorial Guinea.

At the controls of the authoritarian machinery is the same clan that has been in power since 1968, with all powerful positions held either by Mr. Obiang or his relatives. John Bennett, a former United States ambassador to Equatorial Guinea, says the regime isn’t so much a government as “an ongoing family criminal conspiracy.”

Until the mid-1990s, few people in the West had even heard of this sad backwater in Africa, but that changed when American companies discovered that deep beneath Equatorial Guinea’s territorial waters are vast deposits of natural gas and oil. Production grew quickly. From 1995 to 2003, average annual economic growth in Equatorial Guinea was the fastest in the world. By 2003, 282,000 barrels a day were flowing out of the country, most of it pumped by ExxonMobil and other giant American companies, and Equatorial Guinea had become the third-largest oil producer in sub-Saharan Africa.

With proven reserves of 2.5 billion barrels, and soaring oil prices, Equatorial Guinea’s sudden turn of fortune looks likely to continue for some time. Although revenues are a strictly held state secret, it is likely the tiny country, with just half a million people, is making more than $1 billion a year from oil (all figures in U.S. dollars).

Often called the Kuwait of Africa, Equatorial Guinea “is one of the rare countries where oil could really transform the place if properly managed,” says Alex Vines, a senior researcher with Human Rights Watch who has visited several times. But unlike Kuwait, there’s little sign in Equatorial Guinea that oil wealth is doing anything for ordinary people. “You have abject poverty and you have tremendous amounts of child mortality because of disease, proliferation of malaria and other sorts of ailments.”

According to the United Nations, there are no clear figures on real incomes and poverty. But life expectancy at birth is known: It is 43 years, which puts Equatorial Guinea in 166th spot out of 177 countries ranked by the UN. And despite having enough money to fill the country with schools, Equatorial Guinea ranks 120th in school enrolment.

So where is all that money going? No one can be sure. But one thing that is certain is that the president and his extended family are becoming fantastically rich.

Mr. Obiang is known to have purchased multimillion dollar mansions and villas in France, Morocco and the United States. One $2.6-million property in Washington, D.C. was purchased with cash.

Others in the ruling clan live even more lavishly. Mr. Obiang’s son and expected heir, 34-year-old Teodorin Nguema Obiang, is a globe-hopping playboy who owns a rap record label in Los Angeles and is notorious for shopping sprees such as a recent excursion in Cape Town, South Africa, where he reportedly bought two Bentleys and a Lamborghini at a cost of more than $2 million.

The president’s new wealth has attracted covetous attention and there have been several alleged and confirmed coup attempts — including a scheme linked to Mark Thatcher, the son of former British prime minister Margaret Thatcher, that was broken up in March, 2004, when mercenaries were arrested after their plane stopped in Zimbabwe to pick up weapons. Mr. Obiang is surrounded at all times by heavily armed bodyguards from Morocco.

Guns and guards, however, could not protect Mr. Obiang from a threat of a very different kind that arose in 2004 in Washington, D.C.

In 1995, Mr. Obiang set up numerous accounts in the Riggs Bank, an old and well-connected Washington institution. Among the accounts in Riggs was one that received payments from oil companies and effectively became Equatorial Guinea’s treasury. There was also a cluster of personal accounts belonging to Mr. Obiang and various family members.

By 2003, Mr. Obiang was Riggs’ largest customer — with the value of all accounts estimated to be roughly $700 million — and the bank gave its client very personal service. Twice, a Riggs official went to the little country’s embassy to retrieve new deposits in the form of suitcases stuffed with $3 million in plastic-wrapped cash.

After allegations surfaced that Riggs officials were ignoring reporting requirements under anti-money laundering laws, the U.S. Senate investigated and held hearings. A damning report followed in July, 2004.

It turned out that Mr. Obiang wasn’t the only dictator on Riggs’ list of clients. Augusto Pinochet, the former strongman of Chile, was also a client.

The Senate revealed that Riggs had allowed Mr. Obiang and his relatives to move money from the government account to their personal accounts. In at least one case, $35 million in the government account vanished into the private accounts of two unknown companies in countries with strict bank secrecy laws. Transfers from the government account required only one authorization: the signature of the president.

Senate investigators further found that oil companies operating in Equatorial Guinea had been making millions of dollars in payments directly into the Obiang clan’s personal accounts. These payments were said to be for such expenses as tuition for Equatorial Guinean students, almost all of whom happened to be from Mr. Obiang’s extended family. (It is widely believed the U.S. Securities and Exchange Commission is investigating these payments to see if they violate anti-corruption laws, although the commission does not confirm or deny the existence of on-going investigations.)

Riggs ultimately pleaded guilty to failing to make required money laundering reports and paid $41 million in civil and criminal fines. In July, 2004, the venerable institution was bought by PNC Bank of Pittsburgh.

With his profile unflatteringly raised in Washington power circles, Mr. Obiang moved to limit the damage. “The government is employing several lobbying firms in Washington now to clean up its image,” says Sarah Wykes, a researcher with Global Witness, a non-governmental organization based in the United Kingdom that monitors the oil industry and other extractive sectors.

Equatorial Guinea also “allowed the (International Monetary Fund) to do what’s called a fiscal report on standards and codes,” Ms. Wykes notes. “That means the IMF goes in and looks at the system the government has for managing public revenues. That report was published early this year. It also allowed the IMF to publish one of their normal country reports. So that has put more information into the public domain.”

Oil revenues are now deposited in an account in the Bank of Central African States (BEAC) in Cameroon. The IMF is satisfied with the new arrangement, says Helmut Hans Franken, an economist with the fund. “Within its regular surveillance activities with regard to Equatorial Guinea, the IMF receives detailed information on all treasury accounts, including the money deposited at BEAC. Indeed, recent missions have been able to reconcile the data regarding government oil production shares, exports and revenue.”

Mr. Obiang also declared his intention to join the “Extractive Industries Transparency Initiative,” a program launched by the United Kingdom under which governments rich in natural resources commit to making the flow of money between corporations and governments transparent. The idea behind EITI is that transparency will lead to accountability — and accountability will lead to money from resources benefiting ordinary people.

But as Sarah Wykes notes, for that process to work, a country must have free speech, active non-governmental organizations and a political forum that allows governments to be held to account. Equatorial Guinea has none of that. And without it, it doesn’t matter whether a company does publish exactly what it pays to a host government — as Nexen does in its annual reports — because that information will never be made available and discussed in Equatorial Guinea.

Despite the welcome monitoring by the IMF, Ms. Wykes feels the bottom line on Equatorial Guinea remains the same. “The government is extremely untransparent, undemocratic and unaccountable.”

A further dilemma for a company that wants to operate ethically in Equatorial Guinea was identified by the Senate report on the Riggs Bank scandal. After decades of land seizures and iron-fisted control, the ruling clan effectively owns everything of any real value. “Obiang controls literally anything going,” says John Bennett.

When oil companies rent homes for their employees or build on-shore facilities, they have to deal with the president or his relatives and pay the very high prices they demand. In these circumstances, it’s difficult to tell the difference between a legitimate payment and a pay-off.

The U.S. embassy itself is located in a building “owned by one of the biggest thugs in the regime,” notes Mr. Bennett. Manuel Nguema Mba is the minister of national security who has been accused — in cases documented by both the U.S. State Department and the U.N. — of participating in the torture of political opponents, including one instance in which the victim died. And the U.S. government is paying him rent.

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This is the country Nexen entered in 2003 when it purchased a 25-per-cent stake in a vast stretch of water known as Block K. That stake was later increased to 50 per cent, with the Spanish company Repsol holding the other half. So far, Nexen has drilled two exploratory wells but failed to find oil.

That Nexen had entered such choppy waters surprised some who know the company’s reputation. “They are known to be very heavily involved in the area of corporate social responsibility,” says Penny Collenette, an adjunct professor at the University of Ottawa law school.

In 1997, Nexen helped draft the International Code of Ethics for Canadian Business. It contributes to “Canadian Business for Social Responsibility,” a Toronto-based group that promotes ethical business, and the company recently co-sponsored a CBSR conference called “Human Rights: Everyone’s Business.” Nexen sponsors an award for corporate citizenship through the department of foreign affairs and one of the company’s senior advisors, Jeff Flood, is a board member of Amnesty International Canada.

Nexen is also one of only a handful of companies to have signed onto the United Nation’s Global Compact, a set of guidelines for ethical business — the first principle of which is “businesses should support and respect the protection of internationally proclaimed human rights.”

For its efforts, Nexen has won a string of awards and been named to numerous lists of meritorious companies, including the Dow Jones Sustainability Index. At the recent World Petroleum Congress, an international gathering of the oil industry, Nexen was given an Excellence Award in Social Responsibility for its work in Colombia. The WPC also elected as its new president Randy Gossen, Nexen’s vice-president for social responsibility.

So how did a nice Canadian company like Nexen end up in a place like Equatorial Guinea?

“We have a fairly formal process called an above-ground review where a team of Nexen folks go in and deal with the above-ground issues, such as physical security, safety, all the issues of transparency,” says Dwain Lingenfelter. “And we meet with a variety of people we feel are important to us, one being the Department of Foreign Affairs in Ottawa.”

The Canadian government was keen on Nexen getting involved, Mr. Lingenfelter says, and that weighed heavily on the company’s decision. “After some lengthy discussions, it was decided between the department and ourselves that even though there’s a lot of issues in Equatorial Guinea, that we’re probably better off as a society here and as a company to be involved and help effect change rather than isolate.”

Several oil companies came to the opposite conclusion, says Alex Vines. “There have been quite a few companies who have turned away from Equatorial Guinea in the last few years because they have done due diligence studies and decided that the reputation risks are too high.” One is Statoil, the state-owned Norwegian company that, like Nexen, has a strong reputation for good behaviour. Statoil even received the same award as Nexen at the recent World Petroleum Congress.

Mr. Vines was surprised to hear that Nexen has gotten involved with Equatorial Guinea. “Honestly, Sudan with Talisman is almost easy territory in comparison with Equatorial Guinea at the moment. It’s going to be very challenging for a company like that.”

Nexen vice-president Randy Gossen says that after deciding to get involved, the company drafted a “road map” that “identified what our vision was, what we’re going to be guided by in terms of beliefs, values and principles and then came up with a number of projects that together working with the community we’ve been able to implement.” Following this road map, Mr. Gossen says, will ensure Nexen’s presence in Equatorial Guinea will do more good than harm.

Nexen’s “road map” calls for “quite modest dollars,” as Mr. Gossen says, to be invested in health and education programs. “We provided some support for a public health laboratory. We’ve provided computers to schools. We’ve input to hospital funding.”

But Nexen’s most important contribution, Mr. Lingenfelter says, is moral leadership. “I think Canadian companies with a high level of integrity and social responsibility can effect and influence the development of these emerging economies and emerging democracies.”

Mr. Lingenfelter points to Nexen’s experience in another Third-World country with a poor human rights record. “In Yemen, after 15 years of operating there I think, and maybe I’m deluding myself a little bit, but I think Nexen has had a huge influence in making that society much more open than it was when we first went there by nudging, cajoling and encouraging the government, not directly, but indirectly by example, to become more open and support newspapers and an open press. When we first went to Yemen, there was one or two newspapers and they were totally controlled by the government. I think the last we checked there were 30 or 40 independent newspapers operating in Yemen.”

This view is shared by the Canadian government. “Canadian investment is a vector for the promotion of Canadian values, therefore, there is a benefit derived from the presence of Canadian companies in these countries,” a spokesman for the department of International Trade told the Citizen by e-mail.

“Furthermore, Canadian missions abroad are mandated to assist in the promotion of these values abroad,” the spokesman added. “In Africa, and central Africa in particular, efforts have been systematically deployed with a view to using the African private sector, including participants from Equatorial Guinea, to effect a decrease in corruption, an increase in business ethics and the growth of fundamental human rights.”

Canada has no embassy in Equatorial Guinea, however. Canadian affairs in the country are handled by the embassy in Gabon — which will soon be closed, the government recently announced.

Alex Vines agrees that the presence of American oil companies in Equatorial Guinea has produced some benefits, but they’re very modest and limited to the capital city, which is the only presence on land the companies have. They include “little openings for entrepreneurs and others and a slightly more open discourse and little bit less harassment from police and less enthusiasm to torture straight away. That type of thing. So gradually there are little bits of things that happen. But it is extremely slow.”

Whether this is enough to make a company’s involvement in a country like Equatorial Guinea ethical is a subject hotly debated in academic and business circles.

At one extreme are those who argue the business of business is making money for shareholders and politics should be left to politicians. The other extreme was expressed by U.S. Senator Carl Levin when ExxonMobil executives testified before a Senate hearing about their involvement in Equatorial Guinea. “I’ve got to tell you,” the senator said in disgust, “I don’t see any fundamental difference between dealing with an Obiang and dealing with a Saddam Hussein.”

Experts who study business ethics, however, typically take a middle view. In most cases, they say, it is ethical for corporations to operate in countries with awful governments if they can demonstrate that their presence is doing more good than harm.

“It is possible for a company to go in, to have a plan and implement the plan, whereby they make the situation better,” says Leonard Brooks, professor of business ethics at the University of Toronto’s Rotman School. “And if they can prove that, then obviously they’re doing themselves and humanity a service. But if they can’t prove that then they face repercussions in their customer market, amongst their employees and in the stock market.”

Macartan Humphreys notes that where an abusive government is keen to recruit foreign companies, those companies have some bargaining power — and a responsibility to use it to improve the situation. “You could say these are the terms under which we will operate in this country and we expect there to be an environment in which we can engage the press freely and so on and if these terms aren’t met, we’re pulling out.” Other demands a company could make, Mr. Humphreys says, include the right to fund human rights organizations or the freedom to distribute information about oil revenues locally.

A company could also demand that the payments it makes to the government be internationally monitored and automatically spent on health, education and other sectors using an agreed formula – a model now used in Chad and Sao Tome. “And if a country is not willing to take those risks, is not willing to open up, then that’s a pretty clear sign the company is taking on too much in trying to go in there.”

Nexen, however, made no such demands of Equatorial Guinea’s government. “We really hesitate to try to be overly involved with the operation or planning of government,” says Mr. Lingenfelter.

More significantly, Nexen refuses to make its “road map” public.

Mr. Humphreys says that fatally undermines Nexen’s case. “It is easy to claim that you are being a responsible corporate citizen, but companies like Nexen need to provide the evidence that the steps they are taking are more than an exercise in public relations.” To do so, he says, Nexen “simply has to make the roadplan available, along with a set of indicators of success. Without doing that there is no way of knowing whether to take these claims seriously even if they are meant in good faith, as well they may be.”

One argument that’s often made in support of Canadian companies operating in countries with appalling governments is that if they leave, they will simply be replaced by companies from countries that don’t care about corruption and human rights. That is in fact, what happened when Talisman left Sudan — Chinese companies now dominate that country’s oil production.

Nexen executives didn’t raise this argument, but the spokesman from the Department of International Trade did. “Canadian actors are a positive force in the promotion of fundamental values. Their absence would be replaced by other countries who may not be carrying, as effectively, these same values.”

Macartan Humphreys rejects that view. “I’ve heard people use that argument to say Western companies should maintain low standards because the alternative’s worse. But there are better alternatives which take place at the international diplomatic level.” What’s needed is a concerted effort to create and enforce international standards, otherwise a race to the bottom is possible, with almost any behaviour justified on the grounds that someone else will do worse.