On October 24, a jury in London’s Southwark Criminal Court, after a seven-week trial, convicted two former officials of the defunct oil and gas producer Afren Plc of fraud and money laundering charges stemming from their secret diversion of $45 million from a $300 million payment to Afren’s oil field partner in Nigeria.
Former Afren Chief Executive Officer (CEO) Osman Shahenshah and former Afren head of operations Shahid Ullah were each convicted on one count of fraud by abuse of position, contrary to sections 1 and 4 of the Fraud Act 2006, and two counts of money laundering, contrary to sections 328 and 329 of the Proceeds of Crime Act 2002. Both men were acquitted on one count of fraud by abuse of position, contrary to sections 1 and 4 of the Fraud Act 2006, relating to a management buyout of another of Afren’s business partners.
At trial, which began September 3, the jury heard evidence that Shahenshah, who was being paid £6.6 million as CEO, and Ullah, who was being paid £3.8 million, were faced with possible reduction of their salaries in the wake of shareholder opposition. The defendants then created a scheme to increase their compensation without disclosing that fact to the Afren Board. According to the Serious Fraud Office (SFO), which prosecuted the case, both defendants
recommended that the Afren Board agree to a $300 [million] payment to Oriental Energy Resources Ltd, the company’s oil field partner in Nigeria. Unknown to the Afren board, Shahenshah and Ullah had struck a side deal with Oriental which led to 15% of the $300 [million] . . . then [being] paid out to a Caribbean shell company controlled by the defendants. The men then used the $45 [million] to purchase luxury properties in Mustique and the British Virgin Islands. A smaller portion of the $45 [million] laundered was split between Oriental employees and a close network of Afren staff dubbed ‘The A Team’.
After Afren fired Shahenshah and Ullah in 2014, an internal investigation by KPMG and the Willkie Farr & Gallagher law firm reportedly uncovered evidence of the secret deal. In 2015, after “a combination of alleged corporate governance abuses and a slumping oil price” left it unable to service its substantial debts, Afren, which once had been valued at $2.6 billion and had ranked in the FTSE 250, collapsed.
The sentencing hearing in the case is scheduled for next Monday, October 29.
Note: The convictions are significant for two reasons. First, the facts at trial demonstrate, for corporate boards and chief compliance officers, the importance of conducting enhanced due diligence in major corporate transactions, to guard against the kind of secret deals and diversion of corporate funds in which the defendants engaged.
Second, these convictions represent a significant trial victory for the SFO. Although complex fraud and money laundering cases always pose challenges for even the most experienced prosecutors, the SFO has not always fared well in some of its more prominent cases at trial. A victory of this type should bolster the SFO’s credibility in dealing with defense attorneys in future investigations.