by Margot Gibbs and Lionel Faull

Classified documents from Britain’s financial crime agency have revealed how it allowed JP Morgan to pay $875 million of suspicious funds to a Nigerian politician widely known as a convicted money launderer.

The documents, rarely seen Suspicious Activity Reports (SARs), were filed by the banking giant’s London branch as it raised concerns about huge payments it was being asked to make by the Nigerian government to Dan Etete, the country’s former petroleum minister.

The reports were filed in 2011 and 2013 to the UK’s Financial Intelligence Unit (FIU), which at that time sat within the now defunct Serious Organised Crime Agency.

According to the documents, JP Morgan’s compliance bosses warned the agency “the funds may constitute criminal property”.

But despite also being told that two other banks – one Swiss and one Lebanese – had refused to handle the funds – the FIU appears to have given JP Morgan tacit permission to make the payments.

In doing so, it may also have immunised JP Morgan from any future money laundering prosecution.

The money, the proceeds of the notorious OPL245 oil deal, was then allegedly used for kickbacks, to buy a private jet, an armoured Cadillac, and antique shotguns.

The documents underline serious failings in the use of SARs, which are meant to be a central plank in the international fight against money laundering.

Last week, a massive leak of suspicious activity reports from the US’s financial intelligence unit, FinCen, and published by the International Consortium of Investigative Journalists, revealed similar concerns.

Critics claim they are little more than exercises in ticking boxes that allow banks to duck their responsibilities.

Susan Hawley, director of Spotlight on Corruption, said the SARs regime needed a drastic overhaul.

“There is little prospect of winning the battle against money laundering without some kind of radical shift in how we deal with this,” she said.

“It can’t be right that banks can effectively shrug off their responsibility for handling dirty money by filing a SAR and passing the buck to overstretched and underfunded law enforcement bodies.”

JP Morgan declined to comment on detailed questions, citing ongoing legal proceedings. The bank is being sued by Nigeria in connection with its role in the deal. It has strongly denied any wrongdoing.

A spokesman for the National Crime Agency, which now oversees the FIU, said at the time of the JP Morgan payments, consent could only be declined if there was a realistic prospect of “positive law enforcement action” within 31 days of a refusal.

OPL245 – The background

In the OPL 245 deal, Shell and Italy’s Eni in 2011 paid the Nigerian government of then president Goodluck Jonathan a combined $1.3 billion for an oil block. Of that amount $875 million was paid to Malabu Oil & Gas, a company controlled by Etete.

Etete had awarded Malabu the rights to the block in 1998 when he was Nigeria’s oil minister.

Within weeks of the deal in April 2011, half of Malabu’s money was allegedly packed into bags and paid out to Nigerian government officials and Western oil executives as cash bribes.

The major players in the deal, including Shell and Eni, are being tried on various corruption charges in a major criminal trial in Milan. All have denied wrongdoing.

But the deal has also spawned further lawsuits, including efforts by a new presidential regime in Nigeria to recover assets.

The latest is a $1 billion case brought by the Republic of Nigeria against JP Morgan in the UK. Nigeria claims the bank failed in its due diligence and duty of care when it processed the payments.

JP Morgan says that it has done nothing wrong and that it followed “valid, binding and irrevocable” instructions from its client, the Federal Government of Nigeria.

The SAR files

It has cited its SAR submissions in its defence, claiming that the FIU gave it consent to make the payments.

The SARs were obtained by Eni via the UK courts last year, and have been accepted as evidence in the ongoing criminal trial in Milan.

They also show just how strong the corruption suspicions were among JP Morgan bosses before they made the payments – two of around $400 million in 2011, and a final $74 million in 2013.

In each of the nine SARs made by the bank over this two year period, Dan Etete (pictured below) is named as the “main subject” of its suspicions.

In its first report to the FIU in June 2011, the bank stated that OPL 245 had been originally awarded to Malabu in 1998 and that, “according to public domain sources, Malabu is owned or substantially owned by Daniel Etete, a former Minister of Petroleum in Nigeria from 1995 – 1998”.

The report also noted Etete’s recent money laundering conviction in France in 2007.

The bank then told the FIU that one attempted payment to Swiss bank BSI Lugano had already been rejected “for compliance reasons,” because BSI was “not comfortable” receiving the funds.

After a second bank, this one in Lebanon, rejected the money in August 2011, JP Morgan emailed the FIU to explain it had received “new instructions to split the funds between two local Nigerian Banks”.

These instructions, according to the compliance official, had “resulted from the rejection by Banque Misr Liban of the earlier payment”.

This turned out to be the last chance that UK law enforcement had to stop the bulk of the money flowing to Etete.

According to Susan Hawley, the proposed splitting of funds should have stopped JP Morgan in its tracks.

But at this point, a senior FIU officer emailed JP Morgan to say: “This is a business decision for JP Morgan to make, taking into account the legitimacy and all aspects of due diligence regarding this new request.”

In a highly revealing exchange in August 2011, a JP Morgan compliance director forwarded this email to a colleague, writing that there was “no need for a further SAR… Provided we are sufficiently happy with the legitimacy of the instruction then no objections from SOCA.”

They then made the payment.

In its legal defence to Nigeria’s high court claim, JP Morgan said it had been “informed orally” by SOCA that consent to the payment had been granted.

By the time JP Morgan was instructed to pay the final $74 million of the OPL245 funds to Malabu in August 2013, JP Morgan knew even more about the deal and its beneficiaries, Etete and Malabu.

According to the SARs, which have been published on Eni’s website, JP Morgan was now fully aware of judicial findings that Etete was the beneficial owner of Malabu, as well as active investigations into the deal by the UK’s Metropolitan Police, the US Department of Justice, and the Nigerian Senate.

In its final reports to the FIU in 2013, the bank detailed “pieces of information… that give rise to suspicion that the funds may constitute criminal property”.

These included “Production orders obtained by the Metropolitan Police Proceeds of Corruption Unit, Specialist Economic and Organised Crime Command and the facts and matters detailed in support of applications for these orders”.

It also referred to a potential Serious Fraud Office investigation related to the funds.

Nonetheless, the bank still sought permission from the FIU to pay a balance of more than $74m it held on account to Malabu and, eight days later, this permission was granted.

A spokesman for the NCA said he could not confirm nor deny facts relating to possible operational activity.

But he explained that at that time the law required there to be a realistic chance of “positive law enforcement” within 31 days of the FIU refusing consent for such payments.

Under the Criminal Finances Act, introduced in 2017, this time period was extended to six months.

It is not clear why the FIU might have deemed there no realistic chance of enforcement action against the payments in 2011 and 2013, but those who have followed this deal closely believe a major factor was that the payment instructions came from the Nigerian government itself.

Analysis: SARs system is broken

Whilst the 2017 Criminal Finances Act has made it easier for law enforcement to freeze suspicious funds, and given it a greater time period in which to do so, the SARs regime is still troubled.

The volume of SARs has proliferated in recent years. In 2019 the UK’s FIU, which sits within the National Crime Agency (NCA), received nearly 500,000 reports.

However, its 118 employees only have the capacity to investigate and block a tiny fraction of these. Of the 34,500 SARs it received last year that had a request for a “defence against money laundering”, 96% were granted.

The NCA has complained that these volumes are “untenable”. Its annual report states that from this barrage of reporting, law enforcement was able to freeze just £132 million.

This suggests that banks are being given de facto permission to make thousands of transactions they know to be suspicious.

“The current figures on the paltry amounts confiscated as a result of SARs are pretty damning,” says Susan Hawley. “The Government should be investing heavily in increased enforcement capacity to follow the money trails unearthed through bank reports.

“Ultimately, we have to start thinking ambitiously about a SARs regime that results in banks declining dodgy transactions unless explicitly authorised by law enforcement to go ahead for intelligence purposes.”

A spokesperson for the NCA said: “We recognise there is more work that needs to be done in this area, hence our commitment to the Home Office led SARs Reform Programme which aims, among other things, to improve the quality of SARs reporting.”

Last year the Law Commission recommended the creation of an Advisory Board to measure the effectiveness of the SAR regime and to advise the Secretary of State on ways to improve it.

Editing by Ted Jeoryand Nick Mathiason