Home Complaints database SEW and Stroitel vs. Shell
Complaint

SEW and Stroitel vs. Shell

Shell & 3 UK banks link with violations Sakhalin II complex

Date filed
31 July 2012
Keywords
Countries of harm
Current status
Rejected
Sector
NCP

Allegations

Complainants, on behalf of residents living just 1.2 kilometres from the Sakhalin II Prigorodnoye Production Complex (the “Project”) a highly polluting liquefied natural gas (“LNG”) plant and oil and gas export terminals on Sakhalin Island, Russia allege that Shell and three of the largest UK banks have severely harmed community members, endangering their health, jeopardizing their food security and polluting and destroying local environmental resources. Additionally, their homes have been devalued by the Project to the point that they cannot sell them and buy other homes in safer locations. Despite these significant adverse impacts, community members have not been resettled or justly compensated.

According to the complaint, Shell, RBS, Standard Chartered and Barclays have a business relationship with the project operator, Sakhalin Energy Investment Company (“SEIC”) and have a financial interest in the Sakhalin II project. Each of them failed to use their influence on SEIC to correct the environmental and human rights abuses associated with the Project.

Relevant OECD Guidelines

Outcome

The UK and Dutch NCPs decided to handle the cases separately, with the UK NCP handling the 3 complaints against the UK banks, and the Dutch NCP handling the complaint against Shell.

The UK NCP rejected each of the complaints against the banks. In each case, the UK NCP reasoned that: a) enterprises are not accountable under the new provisions of the 2011 Guidelines for actions they took before those provisions applied, which according to the UK NCP is September 1, 2011; b) the due diligence provision added in Chapter 2, paragraph 10 acknowledges that the nature and extent of due diligence will depend on circumstances and does not oblige enterprises proactively to review all their existing business relationships; and c) the UK NCP therefore looks for evidence that an enterprise should have been prompted to apply the provisions in a specific relationship. This evidence might relate to the enterprises knowledge of an ongoing impact, or to new actions or events that took place after September 1, 2011.

Regarding the complaint against Barclays, the companys response to the complaint indicated that Complainants had named Barclays in reliance on an erroneous report from a Bloomberg database. Complainants did not dispute that the Bloomberg database may have contained an error, of which they were unaware when they submitted the complaint. As a result, the complaint was rejected.

In rejecting the RBS complaint, the UK NCP argued that the necessary business relationship between RBS and SEIC had not been substantiated. Specifically, RBSs response to the complaint indicated that a company it owned jointly with other banks had acquired a Netherlands-based bank in October 2007, which had earlier participated in a syndicate that made loans to Gazprom, a Russian company that became SEICs controlling shareholder around the same time the syndicate made the loans to Gazprom. These loans were corporate loans, which could have been used in the acquisition of SEIC, as alleged in the complaint. Thus, RBS had acquired these loans, but had not been a party to them, nor had SEIC. Moreover, because the loans were corporate loans, Complainants were unable to prove that they had been for the purpose of acquiring SEIC, and RBSs response to the UK NCP indicated that it would not disclose information that was confidential, commercially sensitive and/or protected under contract law. The UK NCP noted that the loans, which RBS said had since lapsed, may have been used to acquire SEIC, but found that RBSs link to SEIC was not substantiated because, at the time the loans were made, the Project was operational, and also because the acquisition occurred before RBS inherited the loans.

The NCP rejected the complaint against Standard Chartered because it found that the actions already taken by the bank to monitor and evaluate SEIC were sufficient to meet its obligations under the Guidelines. The complainants strongly disagreed, arguing that the monitoring reports revealed SEICs failure to implement key recommendations in early reports, but that later reports simply stopped mentioning those issues, inexplicably finding SEIC in compliance with its obligations, despite having never corrected previously identified problems. Under these circumstances, the bank should have done more than rely on the baseless conclusions in these reports.
Overall, although Complainants disagreed with the outcome of the complaints against RBS and Standard Chartered, they appreciated the UK NCPs responsiveness and willingness to consider their point of view. That being said, it took a fair amount of expertise to be able engage in the process, raising a question of accessibility for communities who may not have access to help from sophisticated partners.

In March 2013, the Dutch NCP rejected the complaint against Shell because it felt the issues raised were not material and substantiated and accepting the case would not likely contribute to the purpose and effectiveness of the Guidelines. Significant to the Dutch NCPs reasoning was its unexplained claim that Shells history and present tensions with relevant companies and the Russian government made the NCP believe that Shell lacked the ability to exert substantial influence over the situation despite its 27.5% stake in SEIC. At no point in its initial assessment did the Dutch NCP identify the source of this claim or provide any further substantiating information. The complainants felt that the Dutch NCP failed to apply a fair and predictable standard to all relevant allegations because, while the initial assessment appropriately considered whether the issues raised in the case were material and substantiated, it did not apply the same standard when considering the extent of Shells leverage over SEIC.

The complainants also felt the Dutch NCPs initial assessment was flawed and illogical on numerous other fronts, including decisions that touch on issues as important to the Guidelines as sustainable development, human rights and responsibility for negative impacts throughout business relationships. Particularly difficult to understand was the Dutch NCPs suggestion that allegations of human rights violations must first be litigated in domestic or international court before being brought to the NCP.

Finally, in addition to their strong disagreement with the Dutch NCPs reasoning and ultimate decision, the complainants were disappointed with the Dutch NCPs overall lack of transparency and communication throughout the process. At one point, the complainants requested that the Dutch NCP speak with a partner organization, who they explained had been assisting them throughout the complaint process, and the Dutch NCP refused. Additionally, and in contrast to the complainants experience with the UK NCP, the Dutch NCP failed to provide any acknowledgement of the complainants comments on the draft initial assessment or explanation of its failure to address many of these comments in the final initial assessment. For more information and analysis of the NCPs rejection of the case, see Accountability Counsels report annexed to OECD Watchs submission to the 2013 NCP meeting and on the OECD Watch website.

More details

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