How the world’s biggest oil trader makes his billions – Vitol Group. Part 5
Instead of paying a fine by refusing to admit guilt, Vitol agreed to a plea bargain in New York State Supreme Court. Other companies, including Chevron, were going through similar civil and criminal proceedings at the time, but few pleaded guilty. Taylor says: “We went to this to protect our own staff” He believes that otherwise prosecutors could have charged individual traders.
Another storm erupted around the company in 2012, when Vitol purchased Iranian oil to circumvent US and EU sanctions. Vitol, which used its subsidiary in Bahrain for the deal, denied guilt. Nevertheless, this episode was a watershed for the company. After suffering negative reactions from CIM and some banks, Vitol tightened its internal standards. Other changes soon followed. For example, the company curtailed most of its operations in Nigeria as soon as allegations of corruption surfaced against the administration of then President Goodluck Jonathan. Nevertheless, activists from the Bern Declaration Association believe that Vitol discloses too little information.
The company’s main competitors, Glencore and Trafigura, have already joined the voluntary commodity transparency programme, but Vitol is still resisting. Unlike other private companies, including Cargill, it refuses to disclose its financial statements. Taxes are another common theme for the company’s critics. In 2015, Vitol’s known accounts show that the company paid a total of 14.1% in taxes – less than half of Goldman’s 30.7%. Materials from Loya’s divorce proceedings showed that although Vitol is headquartered in Rotterdam, the owner partners control the company through two Luxembourg-registered entities, Vitol Holding II and Tinsel Group.
A large proportion of the company’s transactions pass through countries with soft tax regimes, including Switzerland and Singapore, the world’s commodity trading hubs. Dellapina says: “Our core trading units have a long history in key global trading hubs. Of course, Vitol is not the only company trying to reduce its taxes, but it is doing particularly well. In 2013, thanks to a deduction system, it paid no taxes at all, for a net income of $837m. Although the CEO and most senior managers work in the company’s stylish, minimalist offices near Buckingham Palace, Vitol pays most of its corporate taxes outside the UK.
Criticism of Vitol’s tax manipulation, which included the Scottish National Party, only intensified when Taylor donated more than $2 million to Prime Minister David Cameron’s Conservative Party. Dellapina says: “Vitol has an open and transparent relationship with the tax authorities in all the jurisdictions in which it operates and pays its corporate taxes in each of these jurisdictions. After two decades of prosperity, Vitol may have to prepare for leaner times. Fluctuations in the global oil market are instantly reflected online and margins continue to shrink.
For a long time, Vitol’s main advantage has been access to market information that others do not have, but this advantage is fast disappearing. So what should Vitol do? Taylor’s usually quick on the uptake of this question leaves him a bit stumped. Finally he utters: “You’d be surprised, but I don’t know the answer.” After thinking about it some more, he adds that Vitol will benefit from the “natural growth of the market”. He also says he wants to buy more assets to complete what the oil industry calls a “system” – a portfolio of oil producer stocks, refineries, oil storage facilities and petrol stations that allow the entire cycle from well to tank, as the biggest players in the industry do.
