Malabu Deal: Court Begins Hearing on Nigeria’s $1.7bn Case against JP Morgan

Emmanuel Addeh in Abuja with agency report

A London high court began to hear a lawsuit yesterday launched by Nigeria against a United States bank, JP Morgan Chase, claiming more than $1.7 billion for its role in a disputed 2011 oilfield deal.

The civil suit filed in the English courts relates to the purchase by energy majors Shell and Eni of the offshore OPL 245 oilfield in Nigeria, which is also at the centre of ongoing legal action in Italy.

A panel of judges in Milan acquitted the companies and executives, who all denied any wrongdoing, of bribery last March. Prosecutors have appealed the ruling, a Reuters report said yesterday.

In the court documents pertaining to the London case seen by Reuters, Nigeria alleged JP Morgan was, “grossly negligent” in its decision to transfer funds paid by the energy majors into an escrow account to a company controlled by the country’s former Oil Minister, Dan Etete, instead of into government coffers.

The trial opened with details of the claim by Nigeria’s lawyer, Roger Masefield, but JP Morgan is expected to present its defence early next week. The trial will end on April 7 and a judgment will likely take several months.

In court, Masefield said Nigeria’s case rested on proving two key points: That there was a fraud and JP Morgan was aware of the risk of fraud. He said JP Morgan had breached its duties.

“The evidence of fraud is little short of overwhelming,” Masefield told the court.

“Under its Quincecare duty, the bank was entitled to refuse to pay for as long as it had reasonable grounds for believing its customer was being defrauded,” the lawyer to Nigeria added.

Quincecare is a legal precedent whereby the bank should not pay out if it believes its client will be defrauded by making the payment.

JP Morgan’s London offices deal with business for Europe, Middle East and Africa, including Nigeria.

A spokesman for the bank in a statement to Reuters said it was, “confident that it acted appropriately in making these payments” and said the bank would “robustly defend against this claim.”

The damages sought included cash sent to Etete’s company Malabu Oil and Gas, around $875 million paid in three instalments in 2011 and 2013, plus interest, taking the total to over $1.7 billion. The Nigerian government at the time had asked JP Morgan to make these transfers as part of the oilfield sale, court documents show.

The London case dates back to 1998 when Nigerian military ruler Sani Abacha awarded the offshore oilfield licence, OPL 245, to a company Etete owned.

The $20 million price tag – of which Etete paid about $2 million, according to court documents – was widely viewed by industry experts as too low given the block was expected to yield billions of dollars of crude, although it remains undeveloped.

Subsequent Nigerian administrations contested Etete’s rights to the field, triggering years of legal wrangling until a deal designed to end the battles was struck in 2011.

Etete’s company Malabu Oil and Gas handed the undeveloped OPL 245 back to Nigeria as part of a resolution agreement involving Shell and Eni.

To complete the deal, Shell and Eni paid a signature bonus of about $200 million directly to the Nigerian government and then deposited $1.1 billion in the Nigerian government’s escrow account with JP Morgan, court documents show.

Etete’s lawyers did not comment on the trial as Etete is not a party in this suit. Shell and Eni are also not parties to the London law suit and declined to comment, Reuters said.

“JP Morgan is confident that it acted appropriately in making these payments, which were authorised by senior representatives of the Nigerian government, and only processed following extensive engagement with law enforcement and other agencies and courts. We will robustly defend against this claim,” a spokesman for the bank had said.

Eni said in an email to Reuters: “Eni was finally acquitted following the trial in Milan since there was no case, so we have nothing to add with regards to the OPL 245 deal and to the London trial, which doesn’t involve Eni.

In the related Italian case in Milan, Shell, Eni and its executives were on trial from 2018 to 2021. Italian prosecutors alleged the companies paid $1.1 billion in bribes to Nigerian officials and others through the OPL 245 deal.

Reuters quoted a spokesman for the Nigerian government as saying that the London case would hold JP Morgan to account.

“JP Morgan was on clear notice that the payments put its customer, the Federal Republic of Nigeria, at risk of being defrauded which was what, indeed, happened,” he said.

Last year, THISDAY reported how fresh documents on the long-standing legal dispute between the federal government and Malabu, had shown that JP Morgan, the bank in the middle of the alleged scandal may have been alerted by its internal control system that the transfers were questionable.

It was reported that JPMorgan Chase & Co. was warned by its compliance team over the “great risk” of corruption just days before it made the last of three transfers that totalled $875 million to the former Nigerian oil minister.

The federal government had alleged that most of the $1.3 billion purchase price for the licence for the offshore oilfield known as OPL 245 was siphoned off to politicians and middlemen under previous administrations.

In 1998, the government awarded OPL 245 for $20 million to Malabu Oil and Gas, which was later found to be owned by Etete, who was oil minister at the time, in collaboration with people close to former military ruler, Sani Abacha.

Three years later, in July 2001, the then government under President Olusegun Obasanjo revoked the OPL 245 licence, triggering legal disputes over its ownership that dragged on for years.

By 2006, Malabu reached a settlement with the federal government, agreeing to pay $218 million to Nigeria in return for the licence being fully reinstated, after it was given to Shell, which subsequently failed to pay.

The case became even more complex when Mohammed Abacha, son of the former ruler, launched a legal challenge arguing that Etete pushed him out of his partial ownership of Malabu.

In 2011, Malabu agreed to hand OPL 245 back to the government for $1.092 billion. In parallel, Shell and Eni agreed to pay the government $1.092 billion plus a signature bonus of $208 million, taking their payment for OPL 245 to $1.3 billion.

In the same year, $1.092 billion was placed in an escrow account opened by the Nigerian government with U.S. bank JP Morgan, from which $875 million was transferred to bank accounts in the name of Malabu.

In 2017, Nigeria filed a case at a London’s High Court against the bank alleging negligence for its role in transferring the $875 million to Etete’s Malabu, an allegation JP Morgan said it considered “unsubstantiated and without merit”.

The U.S. bank is accused of ignoring red flags when it transferred funds between 2011 to 2013 from government accounts to Dan Etete, whose private jet was recently seized by the Muhammadu Buhari government.