Royal Dutch Shell Group .com

The Independent: Sarbanes-Oxley may force out Shell duo


By Tim Webb

28 March 2004


Shell's new chairman and finance director face potential criminal charges under the investigation into the oil giant by the US Justice Department and financial regulators.


Despite being exonerated of blame for the overbooking of reserves by Shell, the pair could be fined up to $5m (2.8m) each, and spend 20 years in jail under the new Sarbanes-Oxley Act. Any charges would force their resignations from the company.


Sir Philip Watts left as chairman last month after reclassifying a fifth of the company's "proven" oil and gas reserves as "probable". Shell reclassified more of its reserves and delayed the publication of its 2003 annual report in the UK and US earlier this month.


Shell hopes that Sir Philip and the former head of exploration, Walter van der Vijver, will be the last senior executives to be forced to leave the company over the issue. But pressure is growing on Sir Philip's replacement, Jeroen van der Veer, and the finance director, Judy Boynton.


The pair signed Shell's last annual report in the US for 2002, along with Sir Philip and Mr van der Vijver.


The Securities & Exchange Commission and Justice Department investigations are at any early stage and have not begun interviewing executives. Neither would comment.


Under the Sarbanes-Oxley Act, company directors face criminal as well as civil liability for knowingly filing false accounts. Mr van der Veer and Ms Boynton each certified that: "Based on my knowledge, this annual report does not ... omit to state a material fact necessary to make the statements ... not misleading". It also requires the directors to disclose "all significant deficiencies in the ... operation of internal controls" and "any fraud", which they also certified.


But earlier this month, The New York Times quoted Shell memos suggesting that senior executives had discussed problems with reserve accounting. The internal memos, reportedly being examined by SEC investigators, were sent to senior executives in 2002, including Mr van der Veer and Ms Boynton, it said.


Shell has declined to deny or confirm the existence of the memos. But if they exist, Mr van der Veer and Ms Boynton will come under pressure from investigators to explain why they still signed off the 2002 annual report without recommending changes to the accounts.


Mike Pullen, a partner in the regulatory group at law firm DLA, said: "Company directors can't turn around if the results turn out to be wrong and say 'It's not my fault, I didn't know'.


"If evidence is found [that] directors intentionally decided to mislead the market they could also be guilty of securities fraud, or conspiracy to defraud. The sin of omission is just as great as of actively misleading the market."


In a conference call earlier this month, Mr van der Veer denied he knew of "incorrect bookings" in the SEC filings. But he admitted that Shell executives had been advised about reserve bookings which might not comply with SEC guidelines.


One shareholder said: "It's obvious this will rumble on. The fact that senior people are still at the company while this reserve issue was going on is obviously important."

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