DOWNSTREAM OIL THEFT

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This report is the first comprehensive study of the theft of refined oil products around the globe. It provides insight into the modalities and trends in oil theft, the culprits responsible, the stakeholders affected by illicit activities, and recommendations that could change the dynamics. It is divided into three parts. Executive Summary......................................................................................................................Page i Part I: Culprits, Modalities, and Amounts........................................................................... Page 3 Part I focuses on refined oil theft in ten case studies: Mexico, Nigeria, Ghana, Morocco, Uganda, Mozambique, Thailand, Azerbaijan, Turkey, and the European Union (including the United Kingdom). Together, these cases illustrate the nature and scale of illicit activities that take place on a global basis. Part II: Trends in Illicit Hydrocarbons Activity...............................................................Page 79 Part II analyzes the myriad methods of stealing refined oil products and considers a taxonomy to group them by trends. Not every form of theft is indicative of a trend and not all the groupings are discrete, but this undertaking frames the activity of refined oil theft in a way that enables some of the dynamics that underpin it to be better understood. Part III: Stakeholders and Recommendations..............................................................Page 93 Part III concentrates on who has the power to change the status quo and how they might go about doing so. By identifying the stakeholders who have an interest in refined oil theft, we are able to see who might alter the dynamics of downstream illicit activity. This part also reviews some of the recommendations others have made in the past, and offers a series of recommendations for how to address some of the exigent issues presented in Parts I and II of the report. Appendix........................................................................................................................................Page 109
Downstream Oil Theft: Global Modalities, Trends, and Remedies EXECUTIVE SUMMARY At peak prices, tapping a Mexican pipeline of refined oil for only seven minutes could earn a cartel $90,000. In 2012 alone, hydrocarbons fraud cost the European Union €4 billion in lost revenues. In Nigeria, 30 percent of all hydrocarbons products are smuggled into neighboring states. An estimated 660,000 cars in Morocco and Tunisia run all year long on fuel smuggled from Algeria. In its first year, a fuel marking and vehicle tracking program in Uganda reduced the amount of adulterated fuel from 29 percent to as little as 1 percent. But at the same time, the regulators who test the state’s fuel marking program routinely steal 22 liters per truckload, amounting to 1.2 million liters per year at one border crossing alone. Theft, fraud, smuggling, laundering, corruption. Hydrocarbons crime, in all its forms, has become a significant threat not only to local and regional prosperity but also to global stability and security. Combating this pervasive criminal activity is made only more difficult by the reality that many of those in a position to curb hydrocarbons crime are the ones benefiting from it. This is the first major study of refined oil theft around the globe, and while Part I provides only a limited snapshot of the problem, it offers useful insight into the modalities of theft, the culprits responsible, the stakeholders who suffer, and the approaches that could change the illicit dynamics. Part I examines the contours of illicit hydrocarbons activity in ten case studies: Mexico, Nigeria, Ghana, Morocco, Uganda, Mozambique, Thailand, Azerbaijan, Turkey, and the European Union (including the United Kingdom). The modalities of theft across these geographically and contextually disparate cases range from low-level tapping, siphoning, adulteration, and smuggling to extremely sophisticated maritime operations involving extensive networks of actors to brazenly corrupt dynamics in which states lose billions of dollars per year while their officials profit from those losses. Illicit activity is highest in states where oil is refined, but the most common determinant of oil theft is a significant price discrepancy between one state and its neighbor. Other factors in neighboring states— instability, currency imbalances, and lack of border controls—also impact the extent to which a state experiences downstream illicit activity. Areas where there are few fuel distribution centers are particularly ripe for organized criminal groups to fill the void. At the same time, security forces, regulatory authorities, company insiders, terminal workers, and officials at every level are all potential participants in illicit hydrocarbons schemes that rob governments of revenue and enrich the individuals involved. Some mitigation efforts—most notably fuel marking and vehicle tracking—have proved extremely useful in efforts to stem illicit activity and regain lost tax revenue. But others, including closing borders, have had little, if any, effect. This report is divided into three parts. The first focuses on the culprits, modalities, and amounts of downstream illicit hydrocarbons activity. It details each of the case studies and examines the forms of hydrocarbons crime, highlighting who benefits, who suffers, and, to the extent possible, how much is being lost by governments in the process. Part II draws on the details of the case studies to analyze trends in the global illicit market. Part III then focuses on the various stakeholders and their reasons and opportunities for mitigation, and provides concrete recommendations about what might be done. Fuel is vital to human life, and everyone wants a discount. Across the globe, people are willing to break the law in order to pursue that discount. The global scourge of illicit downstream hydrocarbons activity remains relatively invisible. This study, in shining a light on it, constitutes the first step toward effectively addressing this pervasive, yet unrecognized threat to global security, stability, and prosperity. ATLANTIC COUNCIL i
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Atlantic Council Board of Directors
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DOWNSTREAM OIL THEFT

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