An alleged scam to make Nigeria pay billions to a company in the British Virgin Islands has put a spotlight on how courts of arbitration can be weaponised to misappropriate public funds.

In September 2019, President Buhari of Nigeria stood at the podium of the United Nations General Assembly, addressing his fellow leaders and delegates. About half-way through his speech, a smatter of applause rippled across the chamber as he reached a critical point: “We are giving notice to international criminal groups by the vigorous prosecution of the P&ID scam attempting to cheat Nigeria of billions of dollars”. His reference to P&ID would have meant nothing to most people in the room. But for Nigeria, this corporate acronym was worth almost 30 per cent of their foreign reserves (and counting).

The contract

The words Process and Industrial Development, or P&ID, have plagued the Nigerian government since January 2010, when they entered into an agreement with the opaque company registered in the British Virgin Islands (BVI) to process ‘wet gas’ and supply them with more usable ‘lean gas’. The two Irishmen who fronted P&ID, Michael Quinn and Brendan Cahill, had no experience in the gas sector and little to offer outside a good relationship with General T.Y Danjuma, the influential Nigerian billionaire and former Minister of Defence who would later be named in the Panama Papers. Despite the red flags, the contract was signed and the parties, at least on the face of it, commenced operations.

Fast forward two and half years and P&ID had commenced arbitration over lost profits, claiming Nigeria had failed to supply the company with the ‘wet gas’. What happened thereafter was a long and drawn out investor-state arbitration in London, which in 2017 resulted in Nigeria being held liable for US$6.6 billion in damages plus interest. Today the bill stands at almost US$10 billion. The vast sums alone made the story compelling, but a subsequent investigation by the Nigerian Economic & Financial Crimes Commission may have uncovered an unprecedented case of corruption hidden within corruption.

What is Investor-State Arbitration?

Investor-state arbitration is a dispute resolution mechanism that takes place outside the normal legal system of a country. One party is a private actor and the other party is a state. Investor-state arbitration can arise under a contract between the investor and the state, where the contract contains an agreement to arbitrate (‘contract-based ISA’), or under an investment treaty that contains the state’s agreement to arbitrate with any private actor from another state (‘treaty-based ISA’). P&ID v Nigeria is an example of contract-based ISA.

The scheme

In the arbitration, Olasupo Shasore, counsel for Nigeria applied to the panel of three arbitrators for permission to cross-examine a witness. But there was a problem. Not only had the lawyer failed to take the prior procedural steps required to summon the witness; the witness was already dead.

A number of errors like this were a significant factor in Nigeria losing the case. But how could Shasore have been so incompetent?

Following the award by the London court in 2017, Nigeria attempted to delay payment by appealing to the UK courts whilst P&ID aggressively sought enforcement. However, a disclosure request in New York earlier this year revealed transactions from P&ID-linked bank accounts to two employees of the Ministry of Petroleum Resources in Nigeria, Taofiq Tijani and Grace Taiga, who were both heavily involved in the negotiation of the gas contract. These findings were one reason why in September 2020 the High Court in London allowed Nigeria to apply for the US$6.6 billion award to be re-considered, four and a half years after they were found liable.

However, this evidence alone may not have been enough were it not for another startling revelation.

Two other former employees of the Ministry of Petroleum Resources, Folakemi Adelore and Ikechukwu Oguine, travelled to London in December 2014 for negotiations with P&ID. Only a month earlier, Adelore had recommended to the Attorney General that the state had a weak case and settlement was the best option available. Seven days after this recommendation, US$100,000 was deposited into each of their accounts. The source of such well-timed payments? None other than Olasupo Shasore, the lawyer who wanted to cross-examine the dead witness. The counsel for Nigeria is accused of making these payments to cover up his conduct during the arbitration. There is little evidence to suggest another interpretation.

Nigeria has made the case that Shasore had in fact colluded with P&ID to intentionally lose the arbitration: the legal equivalent of a goalkeeper taking a bribe to throw a World Cup final. The High Court in London agreed that there is strong evidence to suggest this. As a result, Nigeria will finally have the opportunity in 2021 to argue that this was an audacious double-layered scheme to defraud an entire country, and that to reward P&ID with US$10 billion would be wrong.

The system

How did this case get so far? The UK courts were forced to act due to the strength of the evidence against P&ID. But, given the extraordinary circumstances, why did it take such irrefutable evidence before suspicions were raised?

If arbitrators were given greater powers to investigate corruption red flags during the arbitration proceedings, the entire case could have been shut down within months of the 2014 hearing. Instead, lengthy and costly legal proceedings left everyone involved worse off and threaten to deprive the Nigerian public of US$10 billion.
The arbitration process in cases like P&ID v Nigeria takes place behind closed doors. More transparency would have allowed civil society advocates in Nigeria and elsewhere to investigate an award that would have serious macroeconomic implications for Nigeria. In recent years, there have been some attempts to increase transparency within treaty-based ISA. However, when it comes to contract-based ISA, opacity is the default position. If proceedings had been more transparent and the rules had permitted the participation of civil society, advocates like the Civil Society Legislative Advocacy Centre (CISLAC), Transparency International’s national chapter in Nigeria, could have raised red flags to the court.

In 2019, P&ID was purchased by a UK hedge fund and a private financial management firm based in the Cayman Islands. This is clearly no longer a claim for compensation. It should be treated as an investment play that has been legitimised by an opaque system that cannot protect a nation with 85 million people living in extreme poverty from opportunists at home and abroad. The judge in the September 2020 High Court hearing commented that “[n]ot only is the integrity of the arbitration system threatened, but that of the court as well, since to enforce an award in such circumstances would implicate it in the fraudulent scheme”.

If a missing US$10 billion is not enough to force more transparency in the arbitration system, it is difficult to see what else will.

By Kush Amin

Legal Officer, Transparency International.

Courtesy: Transparency International