Tory MEP kept energy share options secret
A frontbencher claimed to be an unpaid director despite receiving a lucrative package from a shale gas mining group
A frontbench Tory MEP secretly received share options worth up to £500,000 from a controversial “fracking” company but failed to declare them to the European parliament.
Charles Tannock, the Conservative foreign affairs spokesman, consistently claimed he was “unpaid” by the company, 3Legs Resources, based in the Isle of Man.
When the parliamentary authorities were alerted to the MEP’s secret options they found there were no clear rules to deal with such a case.
It highlights the lax governance in the parliament which critics fear will lead to further scandals, despite recent attempts to reform the rules.
3Legs was set up to extract supplies of shale gas and oil in Europe using the contentious hydraulic fracturing method, nicknamed fracking. Critics allege the technique pollutes water with carcinogens.
Tannock, a psychiatrist turned London MEP, declared his position as a non-executive director but failed to mention his lucrative share options.
Meanwhile, he has used his role as a politician to call on Europe to lessen its reliance on Russian oil and gas in favour of other energy sources. 3Legs has 11 exploration licences in Poland and Germany.
Financial documents show that 3Legs awarded Tannock 215,884 share options, worth about £500,000, at the peak of the market in July. The MEP was also allowed to buy 160,000 shares for just £400 and sold half of them for a six-figure profit when 3Legs floated on the Alternative Investment Market (AIM) in June.
Tannock denies any conflict of interest as he has never specifically spoken in favour of “fracking” in parliament.
However, anti-lobbying campaigners criticise his failure to disclose his large financial gains from a controversial industry.
“He should have been open about the sums involved in his shareholding. His failure to do so raises significant questions about conflicts of interest,” said Vicky Cann, of the Corporate Europe Observatory.
Tannock was brought into the 3Legs group in 2007 by his friend Robert Jeffcock, a colourful oil and gas tycoon. Speaking from his home in Monte Carlo, Jeffcock said: “We felt we would benefit from having someone with political savvy, as opposed to everyone being technical experts . . . frankly I thought he would look good on the board.”
Despite his low profile in Britain, Tannock is well known in Europe for his network of contacts in eastern countries such as Ukraine and Poland.
After buying 160,000 shares in 3Legs, Tannock’s 2007 declaration of interests stated he had become a “small founder shareholder and . . . non-executive director”. In subsequent declarations he removed all mention of these shares and said he was “unpaid”.
He was awarded options to buy a further 215,884 shares at 13p each in 2009, but still did not update the register.
He resigned from 3Legs in December 2010 but pocketed £152,000 by selling half his shares at £1.90 when the company floated on the AIM. When the price peaked at £2.60 in July, Tannock’s remaining shares and options were worth about £740,000. Yet he still failed to declare the holding.
The Jeffcock family made £11.5m from selling part of their holding during the float only for the share price to collapse to 50p after the firm admitted disappointing drilling results. It has now rallied to 85p, meaning Tannock’s remaining shares and options are worth more than £200,000.
Tannock’s holding in 3Legs came to light after the firm found itself at the centre of protests in the summer over its application for a drilling licence in southern France. British expats involved in the anti-fracking campaign uncovered the MEP’s shares and options as they trawled through company documents.
They wrote to Jerzy Buzek, president of the European parliament, pointing out that Tannock had failed to declare his shares. The parliament’s rules require MEPs to make a “detailed declaration of their professional activities and any other remunerated functions”.
Tannock had declared 3Legs under the section for paid functions on the declaration of interests form, but contradicted this by saying he was “unpaid”.
Buzek’s hands were tied. He wrote back to say he had no powers to “intervene over the veracity or completeness” of members’ declarations. “I do not consider the current arrangements to be entirely satisfactory,” he added.
Tannock referred himself to the European parliament’s financial watchdog, the quaestors. Bill Newton Dunn, the Liberal Democrat MEP and quaestor, ruled that Tannock had not contravened any existing rules as the shares were investments, not salary.
However, on Friday Newton Dunn explained that the quaestors had been “in the dark” because there are no rules in place to deal with financial declarations by British MEPs: “We weren’t given full details [of Tannock’s shares] and even if we had been there would have been absolutely nothing we could have done.”
Tannock updated his declaration in October to state that he owned shares and options in 3Legs but still did not reveal how many. However, when MEPs voted on a stricter code of conduct this month, Tannock tried unsuccessfully to amend the rules so members would have to declare only shareholdings worth more than £70,000.
Under the new rules MEPs will have to declare relevant shareholdings but it is unclear whether they will be forced to reveal their value.
Tannock continues to promote the extraction of shale gas and oil as an “exciting” alternative energy source, despite growing opposition to fracking. France banned the technique in July, scotching 3Legs’ drilling plans.
On Friday Tom Greatrex, the shadow energy minister, demanded a public inquiry into fracking after a US government report linked the method to water pollution.
Tannock insisted that shale gas could provide clean, safe and cheap energy but denied using his influence as an MEP to promote it. He said he had “frequently promoted the idea of energy diversification” but was motivated solely by Conservative and EU foreign policy.
He added: “I have never sought to enhance a direct financial interest or enrich myself or the companies I was director of by participating in foreign policy debates.”
He said he did not consider share options as remuneration and so did not feel it was necessary to declare them. But a leading tax expert said: “Someone who is granted share options in this way would be regarded by the UK tax authorities as effectively receiving earnings.”
Insight: Heidi Blake and Jonathan Calvert