The struggle for control is central to our understanding of the political and economic relationships between the North and South.Footnote 1 The very idea of colonization has been linked to the struggle for the control of African economic resources. It is for instance widely agreed that the advancement of commerce and the flag were entwined.Footnote 2 Although the European flags were withdrawn in the 1950s and 1960s from most African territories, resulting in the emergence of independent African states, the commerce that helped influence colonization in the first place remained. With the attainment of political independence, emergent African states increasingly took charge of their political affairs. The consequence of this was that the ability of the home state to protect the interests of its multinationals was whittled down. This essentially increased the political risks for multinational businesses operating in these newly independent African states.Footnote 3 The loss of political control did not, however, always translate to loss of economic control. Multinationals in many of the newly independent African countries maintained control even after their host countries became independent.Footnote 4
This has led to the emergence of various theories aimed at explaining the phenomenon. One such theory is neo-colonialism.Footnote 5 Given the indirect and subtle operational assumptions of this theory, the documentary evidence necessary for its validation is difficult to come by. The theory has therefore remained mainly speculativeFootnote 6 and it is not surprising that, as a result, the concept has been losing ground. It has, for instance, been dismissed on the grounds that ‘it provided a framework too simple for analysing with precision just what had changed and what had not’.Footnote 7 Such criticisms make sense especially given the fact that most proponents of neo-colonialism theory have relied on secondary and published literature to examine the complex relationships between African countries and the interests of ex-colonial powers.Footnote 8 Unfortunately, such materials mainly document the official strategies and motives of the concerned parties, which are sometimes different from the real ones. The latter are usually concealed in internal records that typically end up in organisational archives.Footnote 9 Despite their promise, archival studies of postcolonial Africa remain uncommon. This is, at least in part, because of the usual practice of allowing considerable time to elapse before archival records are made public. Another reason is the unhealthy state of record keeping and archiving in most postcolonial African countries.Footnote 10 The near absence of archive-based studies has no doubt helped impede our understanding of the nature and dynamics of the relationship between postcolonial African countries and centre countries, and thus the efficacy of the concept of neo-colonialism.
Using newly available materials taken mainly from the British National Archives, London, and the British Petroleum Archives, Warwick, this article explores such a relationship.Footnote 11 Specifically, it documents a landmark dispute between British Petroleum (BP), in which the British government was, at the time, the majority shareholder, and the Nigerian tax authorities. This dispute, which extensively tested the relationship between Nigeria and Britain, was precipitated by the demand in 1975 by the Nigerian tax authorities that BP pay N130 million (£100 million) as capital gains tax to the Nigerian government. The demand arose because of a December 1972 intra-BP Group transfer of its 50 per cent shareholding in Shell/BP Development Company Nigeria Limited. This was purely a bookkeeping transaction aimed at addressing a legal question with respect to ownership of Shell/BP Nigeria that emerged from a BP transaction in Abu Dhabi.Footnote 12 Specifically, as will be seen, the legal question arose because the same BP subsidiary was used to warehouse BP investments in Nigeria and Abu Dhabi. The attempt to sell part of BP's investments in Abu Dhabi, through the part sale of the subsidiary concerned, raised questions about the status of BP's Nigerian investment.
The N130 million demanded represented about 10 per cent of Nigeria's gross revenue and more than twice the yearly cash flow of BP's Nigeria operations at the time.Footnote 13 The request ignited a chain of events and schemes that saw the British government covertly and overtly providing support to BP, with the primary goal of influencing the outcome of the dispute in order to protect its interest and that of BP.
To achieve its aim, the article is divided into four parts. The first part traces the origins of oil production in Nigeria and the emergence of Shell/BP as the dominant oil company in the country. The second documents the origin of the capital gains tax dispute and covers the negotiations and manoeuvring up until the failed military coup of 1976 that culminated in the expulsion of the British high commissioner, who was a key player in this particular dispute negotiation. The third part critiques the consultations and strategising that took place from the time the British high commissioner was expelled to the period after the payment of the entire tax liability; the final part concludes the article.
HISTORY OF OIL PRODUCTION IN NIGERIA
Oil exploration in Nigeria was originally regulated by the British colonial government. The first such regulation was the Mining Regulation (Oil) Ordinance of 1907, which governed oil explorations in Southern Nigeria. Given the entwinement of the British colonial administration and British businesses, it was not surprising that the Ordinance contained an explicit provision disqualifying non-British companies from oil explorations.Footnote 14 Despite this provision, oil exploration in the territory was pioneered by a non-British company. In 1908, the Nigerian Bitumen Corporation, a subsidiary of a German company, commenced explorations along the coast of Southern Nigeria,Footnote 15 explorations that were made possible by a special dispensation granted to the company by the colonial administration.Footnote 16
The German company was, however, forced to withdraw from Nigeria at the onset of the First World War. After the war, oil-prospecting licences were granted to two British companies: D'Arcy Explorations Company and Whitehall Petroleum Corporation. D'Arcy Explorations Company was founded in 1901 by William Knox D'Arcy to exploit a major oil exploration concession in Iran.Footnote 17 In 1905, after unsuccessful explorations, the company was forced to enter into an agreement with a Glasgow-based syndicate, the Burmah Oil Company. In 1908, they discovered oil in Iran and in 1909 created the Anglo-Persian Oil Company (APOC) as the vehicle to exploit this discovery. D'Arcy Explorations Company subsequently became a subsidiary of APOC.Footnote 18 By the time D'Arcy came to Nigeria after the First World War, it had already acquired some useful oil exploration experience in Iran.
The second British company, Whitehall Petroleum Corporation, also had oil exploration experience before coming to Nigeria. The company was founded by Weetman Dickson Pearson, a pioneer of the Great Mexican Oil province. In 1914, Pearson transferred his petroleum operations to a wholly owned subsidiary: Whitehall Petroleum Corporation. Pearson's Mexican interests were bought out by Shell in 1918.Footnote 19 By 1923, both companies had surrendered their licences in Nigeria because they had failed to find oil in commercial quantities.Footnote 20
In 1936, APOC (now AIOC) returned to Nigeria after forging a joint venture with the Royal Dutch Shell Group.Footnote 21 The resultant company, which was named Shell D'Arcy Exploration Parties, obtained an oil explorations licence covering the whole country. In 1941, because of the Second World War, the company temporarily withdrew from Nigeria, returning in 1946. It subsequently, in September 1951, transformed into a new company called Shell D'Arcy Petroleum Development Company of Nigeria. Although the new company was equally owned by Shell and D'Arcy, Shell was fully in charge of operations. In fact, the ‘name D'Arcy meant nothing to the Nigerian’.Footnote 22 In 1956, as a sequel to the renaming of D'Arcy Explorations Company as BP Explorations Company, the company was renamed Shell/BP Petroleum Development Company of Nigeria.
In the same year, the company struck oil in Oloibiri and subsequently in Afam. In 1958, Nigeria became an oil exporter. With the movement towards independence, Shell/BP lost its monopoly position in the Nigerian oil landscape as the market was opened up to other oil companies from other countries. The political influence of the British government was clearly in decline. Despite this, Shell/BP remained the dominant player. By 1970, it controlled 74·47 per cent of Nigeria's oil production.Footnote 23 The country's oil production and export also grew impressively throughout the 1960s, except for temporary glitches in 1967 and 1968, which were a consequence of the Nigerian Civil War (1967–70). Specifically, oil exports rose from 17,000 barrels a day in 1960 to 990,000 barrels a day in 1970.Footnote 24
Although Nigeria gained political independence in 1960, it was the civil war that sensitized its leadership to the need for economic nationalism. Until then, Nigeria had pursued an accomodationist policy towards foreign investments.Footnote 25 The impact of the civil war on Nigeria's economic nationalism has been explained thus:
The Federal Military Government had experienced the consequences of excessive reliance on foreign governments and transnational corporations during the Nigerian civil war. The indecision of transnational oil companies about whether to make payments to the Federal Government or to the Biafran government had a significant impact on the military rulers and created serious doubts about whether transnationals could be trusted … The civil war also encouraged the growth of state involvement in the economy to manage the war effort. The general strengthening of the state increased its confidence against foreign investment in the Nigerian economy.Footnote 26
It was immediately after the civil war, in 1970, that the Nigerian government published its Second National Development Plan. In the plan, the government made explicit its intention ‘to acquire by law if necessary equity participation in a number of strategic industries that will be specified from time to time’. The plan went on to defend the above position on the grounds that
the interests of foreign private investors in the Nigerian economy cannot be expected to coincide at all times and in every respect with national aspirations … A truly independent nation cannot allow its objectives and priorities to be distorted or frustrated by the manipulations of powerful foreign investors.Footnote 27
The plan therefore made explicit the intention of the government to participate in the oil industry. This was justified on the grounds that oil was bound to play a strategic role in the nation's economy.Footnote 28 Nigeria subsequently joined the Organization of the Petroleum Exporting Countries (OPEC) in 1971. OPEC was formed in 1960, mainly by Arab oil-producing countries, with the main objective being to ‘create a countervailing power against the major international oil companies in order to receive higher earnings from the oil in the ground’.Footnote 29 By 1974, the Nigerian government had acquired a 55 per cent stake in Shell/BP, for N131 million.Footnote 30
The consideration for that acquisition, according to a BP annual report, was based on ‘the amounts of unrecovered investments taking inflation into account’. This method, which gave prominence to the use book value in the computation of sales price, was in line with the general position of OPEC member states.Footnote 31 The oil companies no doubt opposed this formula, and made explicit during negotiations that ‘the price the OPEC countries are suggesting they pay to acquire their interest does not remotely approach the true commercial value of their concessions’.Footnote 32 It was, however, shortly after the acquisition of the 55 per cent shareholding of Shell/BP Nigeria that the 1972 intra-BP Group share transfer of its holdings in Shell/BP Nigeria came to the notice of the Nigerian tax authorities.
THE CAPITAL GAINS TAX DISPUTE
As already mentioned, the capital gains tax dispute between BP and the Nigerian government resulted from complexities of multiple country investments by BP. Specifically, BP's investment vehicle at the time – BP Exploration Company (Associated Holdings) Limited – which held 50 per cent of the shares of Shell/BP Nigeria, also held another investment on behalf of the BP Group: shares in Abu Dhabi Marine Areas Limited. In 1972, BP decided to sell part of its interest in the Abu Dhabi Marine Areas limited to Overseas Petroleum Corporation (OPC), a Japanese company. To effect this transaction, BP had to sell some of its shares in BP Explorations Limited to OPC, which then assigned its rights to the Japanese Oil Development Company Limited (JODCO), of which it was one of the shareholders.Footnote 33
Because of this transaction, BP (Associated Holdings) changed its name to BP JODCO, and it was in response to a legal question on the ownership of BP's stake in Shell/BP Nigeria, arising from this same transaction, that BP, on 29 December 1972, transferred its interest in Shell/BP Nigeria from BP (Associated Holdings) to BP Exploration (Barbican) Limited, which was also a UK-registered company wholly owned by BP. The book value of this transaction was £25 million.Footnote 34
In undertaking the above transaction, BP did not take notice of the fact that the Nigerian government had, in April 1972, while announcing the federal budget for the fiscal year 1972/3, made explicit its intention to amend its Capital Gains Tax Decree of 1967 to include transfer of shares.Footnote 35 The Finance (Miscellaneous Taxation) Provisions Decree Number 47 of 1972 (which was subsequently published on 23 December 1972 and took retrospective effect from 1 April 1972) extended capital gains tax in Nigeria to transfer of ‘stocks and shares of every description’.Footnote 36 Such negligence on BP's part was perhaps because the company underestimated the technical capacity of Nigerians to make their own laws. This may have been so, especially given the fact that such a transaction, as the British high commissioner noted in a confidential telegram, ‘would not attract tax under the UK law on which the Nigerian law is based’.Footnote 37
Despite the fact that the share transfers took place in 1972, it was not until 1974 that the transaction came to the attention of the Nigerian Federal Board of Inland Revenue (FBIR).Footnote 38 From that time, BP realised that, because of the wording of the Nigerian capital gains tax law, its intra-group share transfer was taxable. It believed, however, that it was inequitable to apply such a law to a purely bookkeeping transaction.Footnote 39 The company therefore subsequently objected to any form of Nigerian tax liability on this transaction. On 13 May 1975, Mr Gordon Smith of BP London, while on a visit to Nigeria, delivered to the Chief Inspector of Taxes, Mr Odueyungbo, a formal note of objection to the assessment. From the very beginning, BP suspected that some FBIR officials were ‘playing for bribe’.Footnote 40 However, the company was determined not to settle the matter through unorthodox means.Footnote 41 On 21 May 1975, Odueyungbo responded to BP's objection by raising a capital gains tax assessment of N130 million on the disputed transaction.Footnote 42
It was at this stage that BP sent its tax expert, Mr Willingale, to Nigeria to tackle the matter. While in Nigeria, he consulted with the tax authorities and with Frederick Rotimi Alade Williams, a leading Nigerian lawyer.Footnote 43 At first, Rotimi Williams ‘produced a long legal opinion on which BP could base their objections to the Capital Gains Tax assessment’.Footnote 44 He later, however, ‘at an embarrassingly late moment, changed his mind and advised BP that their subsidiary was not subject to the jurisdiction of the Nigerian Courts’ and that by lodging a ‘formal objection to the assessment, they might concede jurisdiction’. Given the lateness of the advice, BP was left with very little time to decide on what to do. The result was that the company lodged a formal objection to the assessment but at the same time also made clear their reservations on the issue of jurisdiction.Footnote 45 In two letters, dated 16 and 19 June 1975, Willingale submitted that the assessment was ‘invalid and/or excessive and/or without good ground in law’. His position was based on the following grounds:
(i) The transferor and the transferee are both resident in the United Kingdom and thus outside the scope of the Nigerian tax.
(ii) There has in substance been no change of ownership which would give rise to a charge to tax, and;
(iii) In the theoretical event of such a charge, it would be unconscionable for the Government, in determining the open market value of the shares in the Shell/BP, to ignore the price at which it acquired its 55% interest shortly after the relevant date [N131 million].Footnote 46
It was at this stage, after a ‘fierce letter’ was received from the Nigerian inspector of taxes that BP decided to send one of its directors, Mr Sutcliffe, to Lagos to raise the issue of the tax assessment ‘to a political level’. He met Alhaji Shehu Shagari, the minister of finance. Shehu Shagari's response was ‘sympathetic’. Sutcliffe subsequently sent Shagari a letter ‘urging him to take a broad rather than a legalistic view of the question’.Footnote 47
From the beginning of the dispute, BP kept the British government informed of the difficulties it was having with the Nigerian tax authorities with respect to the BP JODCO share transfer. On 7 May 1975, for instance, BP raised the matter with M. E. Heath of the Foreign and Commonwealth Office (FCO). At that meeting, BP made clear their intention ‘to resist the Nigerian demand to the point of withdrawal from Nigeria’. The company was, however, willing to pay a fairly substantial sum – about 5 per cent of the total demanded – in an out-of-court settlement.Footnote 48 But the Treasury counselled against making any such payment, arguing that at ‘a time when sterling is under pressure, we could ill-afford a claim of this kind’.Footnote 49 The Treasury took a keen interest in this matter because, at the time, Nigeria was the biggest holder of sterling balances. The Treasury was therefore ‘much concerned about any developments which could affect this position’.Footnote 50 The interest of BP and the British government was put above that of the Nigerian government, and this was so despite the fact that the British government internally conceded that ‘the assessment of this share transfer for capital gains tax is proper under Nigerian law’.Footnote 51 It also acknowledged that BP's failure ‘to spot the piece of Nigerian legislation [was] responsible for this catastrophe’.Footnote 52
The Treasury initially wanted the prime minister to raise the matter with the then Nigerian head of state, General Gowon, who was to visit Britain shortly. However, BP counselled against this because they were handling it locally with their Nigerian advisers.Footnote 53 Shortly after Gowon's visit to London (and Sutcliffe's visit to Lagos) Gowon was overthrown in a military coup and Brigadier (later General) Murtala Muhammed became the new Nigerian head of state. In the ensuing cabinet reshuffle, Mr Ekukinam replaced Shehu Shagari as the minister of finance. This change of government was greeted with ‘dismay and alarm in Britain’Footnote 54 but, despite these events, the British government continued to explore ways of intervening at the political level.
On 3 September 1975, Mr Derek Mitchell of Her Majesty's Treasury handed over an aide-memoire on the subject matter to Mr Damcida, who was the new permanent secretary of the Nigerian Ministry of Finance. He ‘gave Mr. Damcida the impression that the matter was enveloped in a fishy smell’ and made it clear that ‘this was a matter of concern to the Chancellor’.Footnote 55 Soon after this, on 12 September 1975, Damcida was compulsorily retired by the new military junta in Nigeria.Footnote 56
On its own side, BP continued to debate the matter with the Nigerian tax authorities. On 19 September, Willingale again wrote reiterating the position of BP on the matter. He re-emphasised his argument that, even if Nigeria had jurisdiction, the starting point must be the value that Nigeria paid for the acquisition of 55 per cent shareholding in Shell/BP in 1974. Based on the above, he provided his own calculation of the capital gains tax liability of Shell/BP, which showed that the transaction resulted in a capital loss and thus was not liable to capital gains tax.Footnote 57
In his response to the above letter, dated 10 October 1975, Odueyungbo of the FBIR rejected the calculation arguing that the market value of the shares should be determined on the basis of the price to earnings (after tax) ratio. He again demanded payment of the tax, failing which he ‘would have no alternative … than to issue a notice of refusal to amend, unless new facts are made available for my consideration’.Footnote 58 On 7 November, the FBIR issued a notice of refusal to amend the capital gains tax liability of Shell/BP. The notice also gave BP thirty days to file an appeal. Given the urgency of the situation, the British government raised the matter with Colonel Joseph Garba, the then external affairs commissioner for Nigeria, to no avail.Footnote 59
At another level, Her Majesty's Treasury requested the British high commissioner in Lagos to write to the finance commissioner on the subject matter. Although the letter was written by the high commissioner, Martin Le Quesne, on 15 October 1975, there had been no response by the time the notice of refusal to amend the capital gains tax liability of BP was received.Footnote 60 Ideally, it would have made sense to wait for Ekukinam's reply before filing the appeal. However, BP and the British government were mindful of the fact that they had a limited time to file the appeal and did not want to be denied their right to appeal on technicalities. They therefore filed the appeal on 5 December 1975, which was the very last day given for the appeal to be lodged.Footnote 61
Ekukinam replied to the high commissioner's letter on 11 December. His letter concluded that ‘it appears to me that the tax is properly assessed under the existing law’. He, however, advised the company ‘to take up this matter again directly with the Federal Board of Inland Revenue for settlement’.Footnote 62 Unsatisfied, the British high commissioner informed the FCO of his intention to respond to Ekukinam's letter in order to point out that the main crux of the letter from the high commissioner – the issue of reasonableness of the Nigerian law – remained unaddressed. Mr Callaghan of the FCO concurred.Footnote 63 The high commissioner also documented that he had ‘in mind other informal lines of approach to the federal govt, but before taking any further action … would wish to have a preliminary discussion with Rotimi Williams’.Footnote 64 This was in order to seek ‘tactical advice … aimed at securing the settlement of the matter out of court’.Footnote 65
Despite its whittled-down influence in post-Independence Nigeria, the British government covertly considered various indirect and sometimes questionable ways of assisting BP and influencing the outcome of this dispute. For instance, it toyed with the idea of pleading sovereign immunity, since Her Majesty's Government was the majority shareholder in BP.Footnote 66 Mrs E. Denza, the legal counsellor to the FCO, was not, however, optimistic about the prospects for such claim, at least in part because ‘of the position taken in previous cases in English courts’.Footnote 67 The British government also considered the possibility of using the Bank of England to hold up the remittance of such tax ‘on exchange control or balance of payment grounds’, in the event that BP was forced to pay.Footnote 68
On 7 January 1976, Rotimi Williams met with representatives of BP and the British high commission in Lagos. During that meeting, he advised that the appeal should be withdrawn. He argued that it was not possible for the federal government to enforce a judgement against BP JODCO by sequestration of the assets in Nigeria of Shell/BP or BP Nigeria, unless the law were changed with retrospective effect to include the effective date of the BP share transfer.Footnote 69 This was consistent with his revised position in June 1975 before the initial objection was filed by BP. The British high commissioner, however, disagreed with this advice on the grounds that ‘the rule of law is not absolute in Nigeria’. Therefore, should the case develop to the point at which judgment was given against the company, Shell/BP ‘could find life becoming very unbearable’.Footnote 70 Mr Quenton Morris of BP also questioned the wisdom in Rotimi Williams's advice on grounds that the Nigerian Companies Income Tax Act made explicit that, on such discontinuance of any appeal, ‘the amount or revised amount of the assessment, as the case may be, shall be deemed to have been agreed between Board and the Company’. Despite that, Morris concluded that the appeal should be withdrawn, especially given the fact that they were ‘not prepared to pay’.Footnote 71
Before the appeal could be withdrawn, BP received a letter dated 7 February 1976, from the secretary of the Body of Appeal Commissioners, informing it that, pursuant to the letter received from the chairman of the FBIR, the hearing of the appeal had been adjourned for some time to allow for the possibility of a settlement with the Board. The letter went on to state that, if no settlement was arrived at within a reasonable time, the case would be relisted for immediate hearing.Footnote 72 The letter from the chairman of the FBIR was an apparent response to a letter from Sutcliffe requesting further negotiations in line with the advice of the commissioner for finance in his letter of 11 December 1975 to the British high commissioner.Footnote 73 BP decided not to react to the secretary's letter. The British high commissioner suggested that the matter ‘would simply be forgotten’.Footnote 74
The suggestion of the British high commissioner did not, however, materialise. Nor could he remain as Britain's chief diplomat in Lagos to direct the British strategy and possibly pursue the ‘informal’ channels to which he had earlier alluded. This was as a consequence of an unsuccessful military coup on 13 February 1976, during which the then head of state, General Murtala Muhammed, was killed.
CAPITAL GAINS TAX DISPUTE AFTER LE QUESNE
The assassination of General Muhammed further raised the level of anti-British sentiments in Nigeria. This was because of widespread insinuations at the time that the British government had a hand in the failed coup. The following students' demonstrations resulted in damage to properties of the British high commission in Lagos, for which the British high commissioner demanded compensation from the federal government. Instead of compensation, he was expelled from Nigeria on 4 March 1976, because of ‘his insensitivity to the feelings of a nation mourning the loss of its Head of State’.Footnote 75
The exit of Le Quesne was obviously an upset to BP in its negotiations with the Nigerians. The British high commission, however, did not relent in its support of BP. On 9 April 1976, the matter was again raised by the FBIR.Footnote 76 BP again sent Sutcliffe to Lagos in May. During the visit, he held negotiations with the Chairman of the FBIR, Vincent Ogunba. During his numerous meetings with Ogunba, his proposal that BP pay N2·7 million was rejected. A revised proposal to pay N10 million ‘in the interest of the Company's relations with Nigeria’ was also rejected. Ogunba then showed him a ‘short manuscript note to the effect that a settlement was necessary and that an intermediary was essential as a catalyst’. Sutcliffe, however, ‘decided that it was impossible for BP to contemplate irregularities of the type envisaged by Mr. Ogunba and at the conclusion of the meeting said that the law would have to take its course’.Footnote 77
It was at this stage that BP, on 26 May 1976, formally withdrew its appeal against the decision of the FBIR.Footnote 78 On 16 June, Odueyungbo of the FBIR wrote to BPN appointing them agents for BP JODCO and demanding payment for the N130 million capital gains tax liability. Specifically, BPN was required to pay this ‘from any moneys which may be held by your company for, or due or to become due by your company to the above named company or any of the members of the BP Group of Companies as a result of the shares held in your company’.Footnote 79
In light of this development, Mr Grassick, BP's finance director, travelled to Lagos to intervene in the matter. Following a meeting with Mr Awoniyi, permanent secretary of the Ministry of Petroleum and Energy, who was ‘pretty high-powered and generally well disposed to Britain’Footnote 80 and the Chief Inspector of Taxes, it was agreed, subject to the approval of the chairman of the FBIR, that ‘a further round of private discussions should be held with a view of reaching a compromise settlement on the tax claim’.Footnote 81 Both parties also agreed on 15 November 1976 as the deadline to reach an agreement or return to status quo.
This negotiation was to take place between Mr Owodunni, finance director for BP Nigeria, and Odueyungbo. Sims, the managing director of BP Nigeria, was to accompany Owodunni during discussions because ‘Ogunba's desire to negotiate with … [Owodunni] (a close friend of his) was suspect’. Owodunni was also ‘told categorically that there can be no question of conducting the negotiations by unorthodox means’.Footnote 82 During the subsequent negotiations, BP was able to negotiate the tax liability down to N53 million. The Board of BP, however, regarded the sum as ‘wholly unacceptable’.Footnote 83 Not satisfied, BP, against the advice of Ogunba, decided to enlist the support of Akintola Williams, ‘a leading chartered accountant and highly respected figure in the Lagos establishment’, in the matter.Footnote 84 The British high commission commented that this ‘seemed a good move’.Footnote 85 Akintola Williams was of the view that legal arguments would not succeed and that their real chance was to question the basis of the valuation. BP subsequently held its board meeting on 21 October 1976, where it resolved officially to ask Akintola Williams for a formal assessment, which was expected to be around N18 million.Footnote 86
The involvement of Akintola Williams was no doubt a turning point in the negotiations. Ogunba refused to see him, and his valuation report – which showed a capital gain of N85·4 million and tax liability of N17·1 million – was instantly rejected by the FBIR.Footnote 87 The FBIR also rescinded the moratorium that they had granted to BP on the agency letter in order to allow for negotiations. Specifically, the earlier agreed date of 15 November 1976 was set back to 31 October.Footnote 88
BP London again sent Grassick to Nigeria. His visit yielded little, as even Awoniyi refused to see him.Footnote 89 Concerned by the above development, BP decided to relist its appeal that it had earlier withdrawn. The secretary of the FBIR instantly declined the request by BP on grounds that the appeal was out of time. BP was advised, however, that the secretary had no executive authority and therefore could not refuse to relist the appeal, and in practice could be compelled to do so by the chairman of the Appeal Commissioners. The advisers were also confident that the case would get a sympathetic hearing, especially given the facts that the sum involved was substantial; that the valuation was done by a non-expert; and that there was evidence of meaningful negotiations before the current deadlock.Footnote 90 The above confidence may have been based on the fact that Akintola Williams had the support of the chairman of the Appeal Commissioners, with whom he was ‘in close contact and liaison’.Footnote 91 It all culminated in an exchange of letters between Rotimi Williams and the secretary of the FBIR, who later backed down.Footnote 92
The issues that were to be determined by the Appeal Commissioners were whether the BP JODCO appeal was still admissible, the legality of appointing BP Nigeria agents for the payment of BP JODCO disputed tax, and the breadth of this appointment. The FBIR demanded, however, that BP should first pay the undisputed portion of the tax. At this stage, Akintola Williams, who had ‘spoken to the Chairman Appeal Commissioners’, advised that paying the amount was likely to have a favourable impact on the case. This was immediately agreed to and the payment was made.Footnote 93
BP's covert strategy for fighting the case was explicitly documented in a confidential memo of the FCO thus:
Mr. Grassick and Mr. Ravenscroft of BP came in on Friday afternoon to talk over the matter informally … The efforts of their high powered Nigerian advisers, Mr. Akintola Williams … and Mr. Rotimi Williams … have been directed to softening up the members of the Appeal Board whilst at the same time discreetly blackening the name of the [chairman] … of the Board of Inland Revenue who had at an earlier stage demanded a very substantial bribe in return for settling the case.Footnote 94
Coincidentally, at the time, Ogunba was under open investigation by the chairman of the Public Service Commission in connection with irregularities involving senior staff appointments. Akintola Williams saw this as an opportunity to ‘have a private and privileged discussion with the Chairman Public Service Commission who is his close friend’. Williams was confident that the ‘matter could be kept private but that chairman would take [it] into account when making decision on Ogunba’. The chairman of the Appeal Commissioners was of the view that the investigation of the appointments irregularities could lead to the removal of Ogunba. He therefore advised that BP ‘allow time for case to conclude as replacement would almost certainly be more reasonable’.Footnote 95
The allegations against Ogunba by BP subsequently reached the head of state, Olusegun Obasanjo, and he immediately summoned Akintola Williams to a meeting where he made explicit his distrust of multinational companies, partly because of their neo-colonialist tendencies.Footnote 96 In a confidential telegram dated 15 March 1977, Mr Ravenscroft reported that:
O approaches disclosed by AW has reached Head of State and resulted in AW being summoned to H of S last night and to a difficult two hours meeting. It is clear that BP's past actions have created in minds of Nigerian Government grave suspicions of BP's motives and considerable resentment. There can be no question of relying on technical arguments as to basic liability to tax or to jurisdiction and any suggestion that BP JODCO will not immediately settle assessment based on valuation determined as a result of hearing is in our view impossible … Accusations against O will be examined by top level inquiry irrespective outcome of tax case and BP will be required to substantiate its disclosures.Footnote 97
Shortly after this meeting, Akintola Williams held another with Obasanjo. At the end of the meeting, which was described as ‘non-aggressive and cordial’, the head of state was of the opinion that there were two distinct issues involved in the matter: the valuation and the allegations against Ogunba.Footnote 98
With respect to the appeal, Akintola Williams and Rotimi Williams met with Sims, the managing director of BP, on 13 April 1977. During the meeting, Akintola Williams reported on the private discussion held by one of his confidants with the chairman of the Body of Appeal Commissioners: ‘While nothing positive has been said, Chairman's comments suggest he supports a decision to allow the appeal to go forward.’ The chairman was, however, having difficulty justifying ‘this on strict legal grounds. He is currently researching to study other cases for support.’ While it was clear that BP had the support of the chairman, ‘he must be very sure of his legal ground to avoid any smear of involvement in the unusual Nigerian scene’.Footnote 99
Not surprisingly, the Appeal Commissioners, on 19 April 1977, gave judgement in favour of the FBIR, by ruling that the appeal was not admissible on legal grounds. They therefore refused to consider the merits of the valuation.Footnote 100 However, the Appeal Commissioners agreed with BP Nigeria that the letter of agency appointment could not be applied to payments due to other members of the BP Group.Footnote 101 In other words, BP Nigeria was released from its agency appointment for the BP Group as a whole. Its appointment as agents for BP JODCO was upheld but in practice this meant little, since no payments were made by BP Nigeria to BP JODCO.Footnote 102
On 25 April, BP received a letter dated 20 April 1977 from the FBIR demanding payment of the outstanding amount within one month from the date of the service of the letter, failing which the statutory penalty of 10 per cent of the amount would apply.Footnote 103 At this stage, BP had come to the conclusion that ‘the decision of the Revenue Commissioners … made it less likely that further legal action will produce a satisfactory outcome for BP’. The company also realised that it did not ‘have the option to walk away as recovery of tax could still be enforced through Shell/BP by amending legislation’.Footnote 104 The company therefore started to explore alternative means of reaching an acceptable outcome.
On 6 May, Rotimi Williams met with General Obasanjo on the matter. This meeting did little to help the BP case.Footnote 105 The British high commission then enlisted the support of Mr M. D. Yusufu, the then Inspector General of Police. Yusufu met Obasanjo on 9 May and recommended that BP should be asked to pay N53 million in all to meet the tax problem.Footnote 106 This was the amount earlier agreed but rejected by BP during its negotiations with Odueyungbo of the FBIR. Obasanjo's attitude was that BP should pay the full sum; however, he promised to think about it. At this stage, it became clear to BP that Yusufu was their last chance of getting a reduction from the Nigerian government. According to a secret telegram from Mr Falle to the FCO dated 19 May 1977:
Obasanjo has categorically and flatly rejected two approaches: one from Rotimi Williams … and the other from another senior Nigerian called Douglas connected with BP Nigeria. Yusufu is a different kettle of fish, and our present assessment is that he is influential within the SMC [Supreme Military Council], and with Obasanjo. Yusufu seems well disposed to HMG and to BP … That having been said, my guess is that there is a 30 to 40 percent chance of Obasanjo agreeing to Yusufu's recommendation … I do not think Obasanjo would be likely to give way to any kind of overt pressure from HMG through official channels. He does not wish to show himself particularly friendly either to an ‘imperialist’ oil company or to HMG.Footnote 107
As already mentioned, the idea of a legal appeal was not considered viable by BP at this stage. The company also feared that such an action could prejudice chances of a favourable review of their case by Obasanjo. Despite this, the British high commissioner was of the opinion that, unless a decision was taken by Obasanjo, BP should not pay by the 24 May deadline, since this could be taken to mean that they were no longer serious with their protests. He held this view irrespective of the fact that, after that day, they would be required to pay a 10 per cent fine.Footnote 108
On 25 May, Sutcliffe reported that the head of state had ‘finally ruled that BP must pay balance of [the N]130 million in full’ and counselled that BP should proceed to pay immediately rather than ‘wait to have this sum plus penalty extracted from us’. On the same day, Sutcliffe saw Odueyungbo to inform him of the arrangements that BP was making to pay the balance of the tax. He ‘confirmed payment arrangements were satisfactory. No mention of penalty’.Footnote 109 The payment was subsequently made and BP received a letter from the FBIR acknowledging receipt of the payment and stating that ‘your appointment as agent under section 41 (1) of CITA (1961) for the payment of the said tax is hereby revoked’.Footnote 110
The Supreme Military Council subsequently ordered an inquiry into the allegations against Ogunba. This was believed to be a necessary step that would precede the revaluation of the capital gains tax assessment appraisal.Footnote 111 A special team from the Supreme Military Headquarters (SMHQ) was appointed to handle the matter. Akintola Williams was interviewed on 9 June 1977 with emphasis on quantum of assessment. Sims was taken to the SMHQ for a ‘long interview’ that focused mainly on the Ogunba allegations. During his interview, it became clear that Owodunni had already been interviewed and that he had contradicted Sims's evidence with respect to approaches from Ogunba through Owodunni. The questions being asked suggested that Owodunni had counterclaimed that Sims tried to use him and that the bribe offers were actually made to Ogunba by BP.Footnote 112
The investigation team also sent a Mr A. George to London to interview Sutcliffe. After the interview, a pleased Sutcliffe was hopeful that Mr George would ‘submit a fair report’. This was so despite the fact that George, during the meeting, ‘indicated that it was his own assessment that it would turn into one man's word against another's’.Footnote 113
On 21 June 1977, the secretary to the Federal Military Government, Mr Ciroma, wrote to Rotimi Williams declaring the matter closed. His letter also asserted that the assessment should have been N206 million rather than N130 million. This was because the FBIR erroneously used after-tax profits rather than pre-tax profits in arriving at the price to earnings ratio used to compute the initial liability. The head of state directed, however, that the error be overlooked as BP had settled the initial assessment in full.Footnote 114 In his response, dated 12 July 1977, Rotimi Williams protested the contents of the letter, which went against the original idea of the head of state to appoint a panel of experts to consider the assessment. He also requested the secretary to the Federal Military Government to grant audience to him and Akintola Williams to discuss the matter further.Footnote 115
The request was granted, and the meeting was scheduled for 11 August. In attendance at the meeting were Mr Bello, permanent secretary of the Ministry of Finance; Mr Marinho, managing director of the Nigerian National Petroleum Corporation; and, to the surprise of Akintola and Rotimi Williams, Ogunba. During the meeting, the claimed FBIR error that should have led to increased tax liability for BP became the main issue of contention between Akintola Williams and Ogunba.Footnote 116 Although the meeting ended without any clear conclusions, it was obvious that Ogunba (who, judging from the deliberations, was ‘actively involved in advising Ciroma and the Ministry of Finance’ on this matter) had successfully blocked the idea of establishing a panel. In fact, both Ciroma and Bello wondered if the FBIR ‘were precluded from raising an additional assessment of N76 million consequent on discovery of an error in the calculation of the P/E Ratio and were told by Mr. Ogunba that there was no reason why such an additional assessment should not be raised’.Footnote 117
Not satisfied with this outcome, Rotimi Williams immediately petitioned the head of state arguing that that his client BP had paid the tax in the first place on the understanding that a panel of experts would be set up to examine the matter. He also questioned the government's decision to act on Ogunba's advice when it was he whose competence and actions were being challenged.Footnote 118 This protest came to nothing, however. It was then recognised that ‘unless Mr. Ogunba falls, there is little hope that BP will ever recover any of the N130 [million]’.Footnote 119
By the beginning of 1978 it had become clear to BP that its chances of recouping some of the paid tax were fast receding. In a letter to the chairman of the company, Sutcliffe advised that the company should seriously consider closing the matter and that ‘it would be wrong to indicate in our Report and Accounts for 1977 that the matter was still under discussion with the Nigerian Authorities’. He further stressed that:
Ogunba … seems to have survived the enquiry into his attempt to procure bribes from BP. I understand from a reliable source that the Head of State minuted on the report of the enquiry ‘there is no case for this man to answer’ … Furthermore, there is believed to be a strong possibility that if we formally address a letter to the Head of State requesting a review this would be interpreted as a reopening of the case on our part and would lead to a revised assessment of about Naira 200 million against the Naira 130 million in the original assessment … However one or two people suggested that it was conceivable that the civilian government which is due to take over the country at the end of 1979 might seek to investigate the wrongdoings of the existing regime but it was felt that they would hardly be prepared to be seen to treat an international oil company less firmly than the present government.Footnote 120
BP never got the chance to make its case to the civilian government that was sworn in on 1 October 1979. This was because, in July 1979, the Obasanjo government unilaterally decided to take over BP's exploration and production interests, as well as its marketing company in Nigeria, with effect from 1 August 1979. This was for reasons unrelated to this dispute and thus beyond the scope of this article.Footnote 121
CONCLUSION
This article, using archival materials that have only recently become available, has examined the nature of the relationship between Nigeria and British economic interests in the postcolonial era. It shows how BP and the British government sometimes employed questionable methods in their attempts to influence the resolution of BP's capital gains tax dispute with the Nigerian tax authorities. This was despite the fact that BP and the British government internally acknowledged that the ‘tax is proper under Nigerian law’ and that it was the failure of BP ‘to spot the piece of Nigerian legislation’ that was responsible for the ‘catastrophe’. Neo-colonialist attitudes ensured, however, that those facts were downplayed. Protecting UK sterling balances and BP's interest were the primary concerns of BP and the British government. Despite this, the Nigerian government, increasingly distrustful of the motives of the British government and BP, insisted that the tax be paid. The Nigerian government made it explicit that there was no chance of BP using technicalities to evade the tax, as it was willing to amend legislation to ensure that the tax was recovered from BP interests in Nigeria. Despite the remarkable triumph of Nigeria in this episode, the evidence here suggests the usefulness of the concept of neo-colonialism in analysing economic relations between post-independence African states and centre countries. It demonstrates that past criticisms and the near disappearance of that concept were based on incomplete evidence and, thus, premature. In spite of the attainment of political independence by African states, the struggle for the continent's economic spaces and resources has persisted. Political independence, however, has ensured that such struggles have become more covert. Consequently, evidence of such scheming has moved from published material and reports to internal organizational and government documents that normally end up in archives. To make meaningful progress in understanding economic relationships between post-independence African states and centre countries, we need more studies deeply rooted in archival research and unpublished sources.
