Conversation — July 7, 2014, 8:00 am

Ken Silverstein’s The Secret World of Oil

On the endemic corruption of the global oil industry

Ken Silverstein © Gabriel Silverstein-Rivera

Ken Silverstein © Gabriel Silverstein-Rivera

Ken Silverstein is a senior investigative reporter with First Look Media, a former Washington Editor of Harpers Magazine, and the author of several books of investigative reportage, including Private Warriors and Washington on $10 Million a Day: How Lobbyists Plunder the Nation. He has been reporting on Beltway politics and foreign affairs for more than two decades. His newest book, The Secret World of Oil (Verso Books), collects and expands on a series of previously published reports — including the Harpers stories “Dirty South” (November 2013) and “Invisible Hands” (March 2009) — about the secretive and borderline-illegal dealings of oil companies as they work to influence governments across the globe. The pieces explore the lucrative contracts that oil companies and commodities traders forge among themselves and with oil-rich autocracies and pariah states to keep oil flowing; the fixers and gatekeepers who serve as intermediaries; and the lobbyists and political flaks who push for industry-friendly laws and regulations. I spoke with Ken about the endemic corruption of the oil industry worldwide and in our nation’s capital:

Why is the corruption surrounding oil so widespread? Is it somehow intrinsic to the commodity or to the industry?

There’s certainly something intrinsic to the oil industry that makes it different. The only thing that compares is weapons. Not coincidentally, an energy analyst I interviewed noted that these are the two real sovereign goods. As a ruler or a government, you need both of them desperately. You need oil to run your economy, your factories, your cars, and you need weapons to defend your borders — or often, in some of these oil-rich countries, to repress your populations.

With oil, the profits on every deal are huge. If you’re selling most things — clothing or tires or take your pick — one contract is not going to enormously impact the year’s balance sheet. But with oil, you’re talking about tens of billions of dollars over decades, and so if it’s a big field or any sort of big deal, you’re particularly keen to get it. That encourages playing a little fast and loose with the rules.

Because it’s such an important commodity, it’s typically dealt with at the top levels of government. I’m guessing that even in the most corrupt places, the president, no matter how crooked, is not going to be reviewing every new apparel plant — well, unless it’s Cambodia. But with oil, you’re chasing huge contracts, there are only a few decision makers, and frequently the deals are struck without a lot of scrutiny and in backrooms. All of that encourages bribery, and so that’s why when you see the Foreign Corrupt Practices Act invoked, oil is the number-one violator.

You write about how, as enforcement of the Foreign Corrupt Practices Act (1977) improved and people started being sent to jail, direct bribery disappeared, but oil companies found new ways to achieve the same ends. Do government regulatory agencies stand a chance against a determined company that can circumvent the spirit, if not the letter, of the law?

It’s very, very difficult to regulate the oil companies, because they have so many means of paying legal bribes. Some of what they do probably falls within the letter of the law, and some of it is outside the letter of the law. These companies are clever, and they hire very smart intermediaries to negotiate with government officials. But frequently the government doesn’t care to prosecute. It’s not a question of the government standing a chance, it’s a question of the government simply not prosecuting cases where it’s clear that the companies effectively bribed foreign government officials.

An example: Equatorial Guinea is a very small West African country that has been run by Teodoro Obiang since 1979, when he executed his uncle and staged a coup. Oil companies first arrived in the mid-1990s, and it was hugely lucrative because Obiang’s government let them keep an especially large share of royalties. Also, the president was a newcomer, and it probably didn’t initially cost that much to bribe him. So it was a wonderful environment to operate in.

All the companies operating there basically bribed the government. Exxon bought land for its compound directly from Obiang, and they almost surely paid far more for the land than it was worth. According to intermediaries I spoke with, this is a common tactic. A president or an oil minister or some important government official owns land that might be worth a million dollars, and you pay ten million dollars for it. Who’s to say it’s a bribe? It’s hard to establish land value in Equatorial Guinea, and you can argue that it was a fair price.

Other companies hired a security firm run by the minister of security (who had been identified as a known torturer in State Department reports). Or they gave Obiang a stake in their operations, for which he didn’t put any money down. It’s pretty damn obvious that this is bribery. But the SEC opened an investigation against, I think, five companies, and in the end none of them were prosecuted.

You also write about domestic failures in regulating the oil industry — notably in Louisiana, where it’s clear that the oil industry infiltrated not only the state legislature but also its regulatory agencies. Do you think this is a worst-case example, or is this happening on the national level as well?

Louisiana is about as bad as it gets in terms of industry’s influence over lawmakers and regulators. In a lot of states industry backs politicians that are close to energy companies and sponsors their candidacies because they have a record of being pro-industry. In Louisiana in some sense they’ve cut out the middleman. They just elect oilmen, and oilmen are put in charge of the regulatory agencies. It’s a pretty stunning record.

But clearly at the federal level — and this is not just oil, this is across the board — you’ve seen in the last thirty years the massive intrusion of corporations into government. The absolute gutting of all sorts of rules on industry has been going on since the 1970s. It’s just amazing, the way that the oil industry has won specific and important exemptions from every significant piece of environmental legislation. The industry still complains about the EPA I think out of habit more than anything; there has been real erosion of the EPA’s regulation of the industry. And again, that’s not just oil. Whether it’s Wall Street or oil or any important industry, regulation has pretty much evaporated.

Oil is also a key part of foreign policy — some people oversimplify and view it as the sole driver of foreign policy — and government is always going to be extremely reluctant to do anything that will diminish oil companies’ability to do business, at home or abroad, because oil is deemed to be so important to national security and economic prosperity. Keystone is a good example. Obama has a lot of environmentalist supporters, and the administration recognizes that they’re part of the constituency and they have to pretend to care, but there’s no question that Keystone is going to go through. They’ll take a few steps that, say, make it somehow safer or less environmentally damaging, and they’ll push it through.

Oil companies, as you note, say that they do business with dictators because that’s where the oil happens to be, and that they would be just as happy to partner with non-authoritarian governments. Yet their business interests are served in other ways, too, by dealing with autocrats. Do oil companies hold a certain amount of blame for perpetuating dictatorships?

A large share of blame. They probably don’t like paying bribes, and they probably don’t like having to deal with crooks who are constantly asking them for money. One executive who worked for Mobil in Angola said he spent 99 percent of his waking hours trying to figure how not to technically violate the Foreign Corrupt Practices Act. But in the end, they choose to deal with these people, and in some ways it’s very advantageous.

As former Chevron executive Ed Chow told me, they don’t really have a good case to offer the public in a place like Equatorial Guinea — or in Kazakhstan or Azerbaijan or Cameroon or Chad. These are countries with very corrupt leadership, where profits don’t trickle down much. Oil doesn’t create many jobs, and frequently the best jobs are not for the locals. There’s environmental destruction. If oil companies had to build a case with the public they’d never get anywhere. But in a dictatorship you don’t have to build support with the public — you have to build support with three or four or ten top officials in the government. And it’s pretty easy to do that. You don’t have to prepare a PowerPoint showing the pros and cons. You just have to figure out a way to make them happy, and that always involves making them wealthier. A trader in Switzerland was very frank about this. He said you cannot operate in these countries without enriching the rulers, and you can call it corruption, but it’s part of the system.

You extensively document the various PR specialists, lobbyists, and political flaks hired by oil-rich dictatorships to polish their images in the West. Yet clearly the U.S. government knows the human-rights record of an Obiang or Nazarbayev. We’re dealing with them because we want access to oil, not because we have illusions about their nature. Who, then, is the Washington PR machine for?

That’s a good question, because nobody in any important position in government — even in America today — is dumb enough to believe that Equatorial Guinea is anything resembling a democracy. And yet it spends a lot of money on lobbyists in Washington. That’s typical. Every oil-rich dictatorship has a lobbyist, or two or three, in Washington.

Part of it is that the lobbyists are scamming the clients. They convince them that they have to have representation, and they oversell what they can do. It may be a fat contract, but it’s not a lot of money for these governments. What’s a million dollars, or a couple million dollars, to pay for Washington lobbyists? I have to assume that most of these governments aren’t carefully evaluating whether they’re getting value for their dollar. I expect most of them aren’t. But I think it’s an expected feature of Washington — you have to have your lobbyist.

The Secret World of Oil, by Ken SilversteinIn the blog post you wrote when you stepped down as Harpers Washington Editor, you said that you could no longer muster up the sense of moral outrage required to report from the capital. You’d seen the same stories repeating themselves every five years, and you were jaded. Has a return to long-form investigative journalism been rejuvenating?

It’s funny — I think more people talk to me about that send-off piece than maybe anything I’ve ever written. I was really burned out at the time. I moved to Washington in 1993, and since then things have gotten undeniably worse in every way, in terms of the health of the country’s democracy, the health of the economy, the health of citizens’ ability to impact the government. It’s discouraging. I did feel like I needed a break, and I got it — I went to Open Society, got a fellowship, and did the reporting that led to this book. I found it rejuvenating to be able to withdraw for a while, but I’m a creature of politics, a political person, and I live in Washington. I’m stuck with it. It’s not something I’m going to withdraw from caring about or wanting to write about.

When I was much younger, I had very, very high expectations for every story. I guess I used to view journalism as something that could change the world. And I don’t say this in a cynical sense, but I have more realistic expectations of journalism now. Sometimes it really is life-changing, and stories get written that do have huge impact. But my view now is that writing a good story is reward unto itself. That’s what I aim for. I feel like if I am able to write a story about something that I think is important, and I turn in something intelligent that helps people understand something like the oil industry and uncovers new information that people aren’t familiar with, that will have to do. That has to be enough. If you get more, that’s just icing on the cake.

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