Investigators seek breakthrough a year after EU raided Big Oil

By Gaspard Sebag, Lananh Nguyen and Andy Hoffman
Bloomberg News

Twelve months after raiding oil companies and Platts in a hunt for evidence of possible manipulation of price benchmarks, European Union officials are looking for a breakthrough.

In the wake of an international probe of banks that rigged the London Interbank Offered Rate, the EU said providers of market data for oil and biofuels may also have colluded — when they reported prices used to establish benchmarks for global fuel sales. At the heart of the investigation are reference prices produced daily by the publisher Platts with bids, offers and trades from oil companies around the world.

While watchdogs probing Libor and currency rigging benefited from banks such as UBS AG (UBSN) racing to the EU’s door, offering intricate details in an immunity program that rewards the first company to own up to wrongdoing in exchange for avoiding fines, regulators delved into oil-benchmarks without such guidance, according to two people familiar with the case. They asked not to be identified because the probe isn’t public.

“It’s harder and more time-consuming for the commission to build a case without a company spilling the beans,” said David Tayar, a lawyer at Willkie Farr & Gallagher LLP in Paris. “An immunity applicant hands evidence on a platter” to the regulator.

On May 14 last year, EU investigators had to leap into a taxi cab to Royal Dutch Shell Plc (RDSA)’s trading floor on the Strand in central London after arriving at the wrong destination — the company’s London head office on the opposite side of the River Thames — according to one person familiar with the antitrust raids on that day. Lawyers say such mishaps are common during so-called surprise inspections — especially where officials lack the guiding hand of an immunity applicant.

Brent benchmark

Officials have rarely broken their silence on the case as they sift through thousands of pages of documents gleaned from raids on Shell, BP Plc (BP/), Statoil ASA (STL), Platts, Abengoa SA (ABG)– the owner of continental Europe’s biggest bioethanol plant — and Argos Energies. Platts’s Dated Brent benchmark is used to price more than half the world’s crude oil. None of the companies has been accused of any antitrust violations.

While Cecilio Madero, a senior EU official, told an April 4 conference of lawyers in New York that the probe is on a promising track, his boss, Antitrust Commissioner Joaquin Almunia, has refused to speculate about the prospects of the investigation.

“We can work with or without” immunity applicants, Almunia said on April 23 in Marrakesh, without revealing any other details of the inquiry. “Before the immunity application existed, we worked as well.”

July decision

The commission will make a decision about the next steps before the end of July, according to two people. The probe, which is preliminary, won’t be dropped, another person said.

The oil investigation started on the basis of complaints, the people said. These can be lodged by disgruntled customers or competitors. Employees or former workers might also put the EU regulator on a trail.

Copycat probes followed on from the EU’s raids. The U.S. Federal Trade Commission and the Japanese Fair Trade Commission started quizzing BP in June. The Korea Fair Trade Commission opened an investigation in December and the U.S. Commodity Futures Trading Commission requested price-reporting documents from BP the following month.

Wide net

Hunting for evidence of potential collusion to rig oil and biofuel benchmarks by reporting distorted prices to Platts and preventing other firms from participating in the company’s price assessment process, the EU regulator cast a wide net during its oil raids, one of the people said. Inspectors sifted through pages of online chats used by traders on a daily basis to carry out transactions in search of compelling evidence of antitrust violations.

While the officials used keywords to refine their search, these weren’t as specific as when the EU has an immunity applicant at hand, according to the person. The added difficulty for the commission in this case is that traders use many obscure abbreviations in these chats, said the person.

Despite their Shell slip up, the EU’s investigators managed to maintain the element of surprise with industry executives including Jorge Montepeque, Platts’s global director of market pricing.

On the morning of the inspections, Montepeque delivered a speech at a Platts-organized crude oil conference at the Hilton hotel near London’s Tower Bridge. After his address, he mingled with attendees, including reporters, before heading to Heathrow airport for a business trip to the Middle East.

Laptop confiscated

En route, Montepeque was notified of the raids at Platts’s office and asked to hand over his work laptop and mobile phone to investigators, according to two people with knowledge of the situation. A courier was summoned to collect them before Montepeque made his flight, the people said.

“Platts fully cooperated with the EC’s information gathering, which included providing information from a number of Platts staff involved in our price-discovery activities,” Kathleen Tanzy, a spokeswoman, said in reference to the commission’s raid. Participation in the company’s oil price assessment processes “has remained robust and unchanged.”

Platts, which is a unit of New York-based McGraw Hill Financial Inc. (MHFI), has assessed prices for crude oil, petroleum products and related swaps using its market on close process since 2002 in Europe. To participate, traders voluntarily report some of their bids, offers and trades to Platts’s defined window period each day, which are then used to create end-of-day price assessments for various commodities.

Commodities traders

To get a better understanding of the $3.4 trillion-a-year oil market, the commission also sent questionnaires to major participants — Vitol Group, Glencore Xstrata Plc (GLEN), Mercuria Energy Group Ltd. and Gunvor Group Ltd. The oil traders have said they aren’t under investigation by the commission and have not been asked to provide any further information regarding the probe.

Pannonia Ethanol, a Hungarian ethanol producer, complained to the EU’s antitrust arm in late-2012, saying it was denied the opportunity to contribute to Platts’s price assessments. The publisher said in March that the Hungarian company will join its pricing process in Europe. Still, Pannonia hasn’t hasn’t dropped its complaint, Eric Sievers, chief executive officer of its parent company, Ethanol Europe, said by phone on April 30.

Marketplace impact

The EU probe has had an impact on the marketplace, said Shaun Ledgerwood, a consultant at the Washington-based Brattle Group, who has been hired by one of the parties involved in the investigation. “Traders are more worried about compliance. Obviously, no one wants to get in trouble.”

“In the U.S., the most drastic thing that I’ve seen are traders who tell me they only trade physical positions because to trade financial simultaneously would run the risk of enforcement action,” said Ledgerwood, who isn’t authorized to identify the company that he’s advising.

Antoine Colombani, Almunia’s spokesman, declined to comment as did Cristina Cabrera Angulo, a spokeswoman for Abengoa. Argos Energies didn’t return two e-mails and a phone message seeking comment.

Full confidence

“All Shell companies fully cooperated with the EU commission during the inspection at our offices and will continue to do so as the commission’s investigation proceeds,” Ross Whittam, a company spokesman said.

BP said in a statement it has “full confidence” in its compliance systems. “We have had conversations with the officials from time to time — our trading activity continues as normal.”

“We still await the results here and inquiries regarding status on the case should be addressed to the EU body in charge of the investigation,” Morten Eek, a Statoil spokesman, said in an e-mail.

Bloomberg LP, the parent of Bloomberg News, competes with Platts and other companies in providing energy markets news and information.

While the EU antitrust regulator moved quickly toward fines over Libor and Euribor rigging, with the cooperation of banks including UBS, Citigroup Inc. (C), Deutsche Bank AG and Royal Bank of Scotland Group Plc — lawyers say it would be wrong to point the finger at the EU for dragging its heels on oil benchmarks.

“A year isn’t that long” for the commission to plow through all the information it has collected, Leigh Hancher, a lawyer at Allen & Overy LLP in Amsterdam, said in a phone interview.

“This is one of the first major cases they bring against the oil sector, they don’t want to lose it,” Hancher said. “A bad precedent is much worse than no precedent.”