Nigeria: UK Judge Rules No Evidence of Fraud in Govt’s $1.7bn Case Against Jpmorgan

A London High Court yesterday affirmed that there was no evidence of fraud against an American Bank, JPMorgan, in a case of $1.7 billion brought before it by the federal government.

The court had begun to hear the details of the lawsuit launched by Nigeria against the bank for its role in a disputed 2011 oilfield deal, maintaining that the bank failed in its “duty of care.”

The federal government alleged that JPMorgan was, “grossly negligent,” in its decision to transfer funds paid by oil companies, Eni and Shell into an escrow account to a company controlled by the country’s former oil minister, Dan Etete, instead of into government coffers.

Nigeria’s lawyer, Roger Masefield, had argued that Nigeria’s case rested on proving two key points, namely that: There was a fraud and that JP Morgan was aware of the risk of fraud.

He maintained that JP Morgan had breached its duties, describing the evidence of fraud as “little short of overwhelming.”

According to Masefield: “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 damages sought by the federal government included the cash sent to Etete’s company Malabu Oil and Gas, which was 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 the transfers as part of the oilfield sale, court documents showed, in the case that dates back to 1998 when Nigerian military ruler Sani Abacha awarded the offshore oilfield licence, OPL 245, to a company Etete owned.

Nigeria alleged that the bank ignored, “glaring” red flags, including “overwhelming” evidence of fraud and stark warnings from its own compliance staff when it authorised the payments.

But Judge Sara Cockerill ruled yesterday that the Nigerian government couldn’t show that it had been defrauded.

“With the benefit of hindsight, JPMorgan would have done things differently. But again, none of these things individually or collectively amount to triggering and then breaching its duty of care to its client,” Cockerill stated.

The judge added that by the time of the 2013 payments, the bank was “on notice of a risk” of fraud, but pointed out that it wasn’t enough reason to give a judgment against the bank.

“There was a risk – but it was, on the evidence, no more than a possibility based on a slim foundation,” the judge held.

Bloomberg quoted a spokesman of the Nigerian government as saying that: “The Federal Republic of Nigeria is naturally disappointed by the outcome of the judgment and will be reviewing it carefully before considering next steps.”

“The Federal Republic of Nigeria (FRN) will continue its fight against fraud and corruption and to work to recover funds for the people of Nigeria,” it added.

Also reacting in a statement, the bank said: “This judgment reflects our commitment to acting with high professional standards in every country we operate in, and how we are prepared to robustly defend our actions and reputation when they are called into question.”

Justice Cockerill dismissed the lawsuit, ruling that it had fallen at the first hurdle because there was no evidence a fraud had been perpetrated against Nigeria in a deal in which Malabu surrendered its claims in 2011 after Nigeria’s government agreed to pay it $1 billion so the oilfield could be developed.

But no allegations of wrongdoing were made against JPMorgan staff. However, the US bank had provided a depository account for Nigeria’s government to make the payments, the court heard during the trial earlier this year.

The Financial Times of London, reported that the case was closely watched in the banking industry because the court also examined whether JPMorgan had breached its duty as a bank not to follow a customer’s instructions where it suspects or has been “put on notice” that it may in fact facilitate a fraud.

A Milan court last year cleared oil companies Shell and Eni and their senior and former executives of any wrongdoing in the 2011 oilfield deal, and Etete of corruption charges. They had all denied wrongdoing. Neither the oil companies nor Etete were parties to the High Court case.

Earlier, in the run-up to the latest case, a $20 million price tag on the well- of which Etete paid about $2 million, according to court documents – was widely viewed by industry experts as too low given that 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 JPMorgan, according to court documents.

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