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Kent Moors

Kent Moors

Dr. Kent Moors is an internationally recognized expert in oil and natural gas policy, risk management, emerging market economic development, and market risk assessment. His…

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High Profile Oil Scandals That Flew Under The Radar

Achieving a level playing field is sometimes all in the eye of the beholder.

You see, an ongoing issue that has perplexed both oil and natural gas investors and shareholders alike has found its way into the advisories I’m providing to my global investing clients here in Paris.

It involves the ability to value actual assets following a wave of serious corruption revelations.

All of these involve putting a price on trades once oil moves into the wider market.

It all started a month ago when, on the same day, two revelations hit, both centering on continuing legal challenges in trading exchange transactions.

Both connect to oil and may prove to be merely the tip of the iceberg when it comes to oil trading scandals.

Here’s how these scandals will affect your energy investments…

The Forex “Cartel”

The first revelation came in a Brooklyn courtroom when the U.S. finally achieved a guilty verdict in a high-profile forex trading case involving a foreigner.

Mark Johnson, who had been a top HSBC Holdings plc banker, was found guilty of defrauding a client in a $3.5 billion currency deal.

The decision could end up having a major impact in the forex market, and its more than $5 trillion in daily value.

Johnson himself could receive a 20-year sentence now that he has been found guilty.

The nine counts on which a jury found him guilty involved use of confidential information from the UK oil and gas company, Cairn Energy Plc.

The company had hired HSBC to convert asset sale proceeds from dollars to pound sterling.

However, the indictment charged that Johnson developed a way to trade for the bank before trading for the client.

A “pre-hedging” profit of $7 million was made as a result.

That profit, the government charged, was illicit – and the jury agreed.

Among some of the London-based bankers I know, these kinds of pre-hedges are considered common practice.

Now, it looks like these guys will need to reconsider.

And the next shoe is likely to be falling rather soon…

The U.S. Department of Justice is also seeking to move against Johnson’s former colleague Stuart Scott, who is considered to be a co-conspirator in the affair.

Related: WTI Prices Surge On Keystone Spill

Scott headed the HSBC currency desk at the time and is currently resisting extradition.

On the other hand, there’s also a lot of interest on a case involving three other UK traders, collectively called the “cartel,” on foreign exchange price fixing.

Unlike Scott, these three have not fought extradition and are actively contesting the charges in a separate New York case.

However, a second matter that could shape up to be even more significant has been emerging…

The Oil Corruption Gamut

A report from the Swiss NGO Public Eye has shed light on a complicated network of individuals at Gunvor Group Ltd., one of the world’s biggest oil traders, offering secret payments to officials in the Republic of Congo for access to the country’s assets.

This group allegedly runs the gamut of corruption in crude oil, natural gas, and mining industries in several penumbral market regions.

The main problem emerges not from the operating companies, but from the commodity players that trade, invest, transport, or store oil, gas, and mineral assets.

Now, the Gunvor Congo case is hardly new.

In 2012, prosecutors raided their Swiss offices and followed trails of money transfers linked to deals with the Republic of Congo’s national petroleum company.

At the time, Gunvor blamed a rogue employee.

The problem here is that transparency standards set forth by international groups under the provisions of “mandatory disclosure” legislation have so far only been introduced in some parts of the world and not others.

Over 30 countries have agreed to apply stricter requirements. However, these are primarily the EU, Canada, and Norway.

And while these do apply to some of the larger publicly-traded oil, natural gas, and mineral extraction companies, they do not transfer up the “food chain” to commodity traders and other middlemen.

Some in the latter category, apparently including Gunvor, can still tap into the patronage networks that had plagued the producers before the transparency regulations were introduced.

And there are other major participants in the “middle space” that have come under scrutiny.


A separate public interest disclosure has exposed the dealings in Chad of Glencore Plc, another international commodity major.

There, the national ruling group was paid off in the currency of oil-backed loans.

The last of the three largest players – Trafigura Pte Ltd. – proactively decided to disclose previously unrecorded payments to national oil companies in at least six developing countries.

Related: Tesla Completes World’s Largest Battery

These after-the-fact “coming to accord” announcements revealed aggregate payments of at least $4.3 billion.

However, the Trafigura public move only came after taking a drubbing by global media.

This followed the company taking out a “super injunction” in British courts – a judge-ordered ban on news reporting that went so far as to prevent any public mention of the court ruling itself. The story they tried to quash was about their role in a toxic dumping incident in the Ivory Coast.

Finding its hand in the proverbial cookie jar, Trafigura “came clean” in an attempt to save what it could of its tarnished reputation.

A movement of sorts may also be underway among some national oil companies on the other end of this corruption pipeline.

Thus far, only Indonesia appears ready to pledge a cleaning out of the transit sequence from extracted to commodity traders. Regulators there have uncovered – via audit – a series of disturbing payment and collateral problems in national oil and gas company, Pertamina.

In response to rising pressure from global accountability agencies, national oil companies in Cameroon, Chad, Ghana, Mauritania, and Nigeria, national oil companies have expressed interest in demonstrating transparency in wellhead transactions (the initial sales from operator to distributors or commodity traders).

Baby steps, to be sure.

The real impact is how serious the national entities are, and how forthcoming their national officials may be as the spotlight turns to them.

In the interim, I will be focusing all of my attention on determining risk assessments. Risk assessments that I can then use to base our next round of investments decisions on.

By Dr. Kent Moors

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  • Philip C Branton on November 27 2017 said:
    Hmm........think of the dominoes of this type of intel that ripples back to..... "Mugabe".

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