Monday, February 03, 2003

The Thomas Kean conflict story (background here, here, here, here and here) has made it to Fortune. Here is the interesting part:

"Kean, who was unavailable for comment, may not have been aware of the Mahfouz connection. But Hess spokesman Carl Tursi did reveal another interesting coincidence: Three weeks before Kean's appointment, Hess severed its ties with Delta."

This raises some issues:

  1. Henry Kissinger was appointed chairman of the commission on November 27, and resigned on December 13. Kean was appointed chairman on December 16. It appears that the connection between Hess and Delta may have been severed in anticipation of Kean being appointed a member of Kissinger's commission, as it would have occurred almost exactly at the time of Kissinger's appointment (the alternative is that this is just another big coincidence). If it did occur in anticipation of Kean serving on the commission - and it would make sense for Bush, struggling to find someone in a hurry, to elevate someone to the chairmanship who had already been selected to be a member of the commission - this indicates that Kean felt that this relationship with bin Mahfouz/al-Amoudi would cause trouble.

  2. If the connection to Delta was severed on behalf of Kean, isn't this just another example of the cozy crony capitalism that we've seen too much of, where the interests of the corporation and its shareholders take a back seat to the personal interests of the directors? Of course, the directors could just argue that making Kean happy would make Bush happy, a happiness that could only benefit the corporation in the long run.

  3. What does "Hess severed its ties with Delta" mean? It is not clear what the actual corporate structure of the Hess/Delta joint venture was. Did Hess sell its interest to Delta? Did Delta sell its interest to Hess? Did one or the other sell to a third party? Is Hess still involved in the project? Is it possible that Hess made some contractual arrangement, perhaps in the form of an option, whereby it will be able to buy back into the project after this embarrassing incident with Kean's chairmanship is over? I find it amazing that Hess would enter into this much discussed project, the oil exploitation joint venture agreement of which was called "the contract of the century", part of one of the great hydrocarbon developments of our time (particularly the Azeri-Chirag-Gunashli development, which is in itself the reason for building the BTC pipeline), and simply walk away from it (see the history of the development here; Hess bought Ramco's interest and then combined its interests in the project, in a still mysterious way, with the interest of Delta to form the joint venture). I note that an Azerbaijan directory of businesses in Baku still has a web page for the Delta Hess Alliance (see also here at 13). Hess's website still shows its 2.72% interest in the Azeri-Chirag-Gunashli fields, which may indicate that it is Delta that has left the project. On the other hand, Hess's News Release dated January 30, 2003 stated: "In the fourth quarter, the Corporation also recorded a gain from the sale of an interest in two small producing properties in Azerbaijan."

  4. Even severing the ties with Delta won't help Kean's conflict problem as a director of Amerada Hess. If he is chairman of the 9-11 investigation commisssion, his commission will still have an obligation to examine sources of financing for the terrorism, which will lead directly to an examination of bin Mahfouz and al-Amoudi. Since Kean still owes a duty to Hess, and Hess was doing business with Delta, Kean's proper investigation will be likely to breach his duties to Hess. The fact that Hess has terminated its relationship with Delta doesn't change the fact that Hess was doing business with Delta at a time that Delta was owned by people who may have been financing terrorism. Whatever the strict legal position, the public relations aspects of a proper investigation of bin Mahfouz and al-Almoudi should deeply trouble Kean.

  5. These is also the small matter of the trillion dollar law suit of the families of the victims of 9-11 against a number of parties, including bin Mahfouz and al-Amoudi. Obtaining a large judgment against bin Mahfouz probably isn't worth very much, as I imagine collecting on it would be impossible. Plaintiff lawyers tend to look for deep-pocketed domestic defendants. Some enterprising lawyer might see in the Delta/Hess joint venture a method by which someone like bin Mahfouz might attempt to launder money that would be use to fund terrorism (the joint venture existed well before September 11, 2001). Any partner of bin Mahfouz might be seen, particularly by one of these notoriously stupid American juries, to be engaged in enabling bin Mahfouz to launder terrorist funds. There would probably be a number of corporate veils to pierce, but the thousands of bodies under the WTC make corporate veil piercing quite easy. I don't know why a completely reputable publicly traded company like Hess would take the risk of doing business with someone with the reputation of bin Mahfouz or al-Amoudi (and why did George Bush do business with bin Mahfouz?). I'm not even going to mention the possibly problematic area of the effect of various amendments in the laws of the United States contained in the USA PATRIOT Act, some of which deal with forfeiture of property and the criminal act of providing material support to terrorists, and which might apply to actions taken in the United States after the act was passed.

  6. Severing the ties with Delta also won't help Kean's conflict problem as the chairman of the commission. Justice has to be seen to be done. How are the relatives of the deceased of 9-11 going to be able to trust an investigation by the chairman of the commission of the owners of a former business partner of a company of which the chairman is a director, especially if it is only a former business partner due to the fact that the business relationship was severed in anticipation of the fact that the chairman would be a member of the commission doing the investigation? It is difficult to imagine how anyone could be in more of a conflict of interest situation.

  7. Fortune says that "Kean . . . may not have been aware of the Mahfouz connection . . . ." Even in these days of amazingly lax standards of corporate governance, I find it impossible to believe this.

There is absolutely no reason to doubt the integrity of either Amerada Hess or Thomas Kean (though I have to say I doubt the business sense of dealing with a company owned by people involved in something like BCCI and who have been accused of funding terrorism). This whole mess is caused by the unfortunate connection between Hess and Delta. Part of the problem could be dealt with by the termination of the relationship with Delta. The other part of the problem can only be dealt with by the resignation of Thomas Kean as chairman of the commission.