Shell's efforts to improve its image as a socially responsible company have suffered a major blow after the charity it set up was rapped over the knuckles by the official watchdog.
The criticism from the Charity Commission came after the Guardian revealed that the charity, the Shell Foundation, jointly lobbied a cabinet minister with the head of the multinational's UK commercial operations.
Shell insists that the foundation is independent and in no way helps the company to accumulate profits. But documents obtained by the Guardian showed that the director of the charity, Kurt Hoffman, and the chairman of Shell UK, James Smith, discussed one of Shell's major commercial projects, the £11bn Sakhalin scheme, at a private meeting with Hilary Benn, the secretary of state for international development, in January this year.
After the Guardian's article last month, the Charity Commission conducted an inquiry and concluded that the foundation "has fallen short of the good governance and decision-making that we expect from large charities".
In a letter to Mr Hoffman, Kenneth Dibble, the commission's director of legal and charity services, wrote that "in our view it would be most exceptional for the charity to be present at a meeting with the company and a third party".
Mr Hoffman admitted it was a mistake that damaged the charity's reputation.
The charity was established six years ago by Shell as a way of polishing its image in the wake of two damaging controversies in the 1990s - the dumping of the Brent Spar oil rig and the execution of Ken Saro-Wira in Nigeria. The charity - given £ 130m by the company - is responsible for giving grants to community groups and small businesses to promote sustainable development and energy, and alleviate social problems in poor areas.
Mr Hoffman told the commission that he had attended the meeting with Mr Benn to discuss an initiative known as the Investment Climate Facility for Africa, which is funded jointly by Shell and the charity "to promote a better investment climate across the continent".
In his letter, Mr Dibble wrote: "Any discussion of commercial projects such as Sakhalin-2 was, from the foundation's point of view, incidental to this and [Mr Hoffman's] comments in the meeting were given in the context of the foundation's general commitment to involving companies such as the Shell Group in the wider issue of sustainable development.
"It is important for any charity that is wholly or substantially financially supported by a commercial entity, particularly if their activities have commonality, to ensure that its purposes and activities promote the charity's interests and not the commercial interests of the profit-making entity.
"In particular the foundation needs to be acutely aware of the potential criticism that it is in effect the corporate social responsibility programme for the Shell Group and part of its public relations strategy.
"We expect a charity such as the foundation to have robust procedures in place to ensure that it is able to maintain and clearly demonstrate its independence."
According to the minutes of the meeting, Mr Hoffman told the minister that "Shell hoped to turn their experience of Sakhalin-2 into a learning opportunity and in future to work with progressive partners to assess the impacts of their work on the environment and local communities".
The Sakhalin project has been heavily criticised by environmentalists.
Greg Muttitt, of the Platform group that monitors Shell, said: "When the Shell Foundation was set up, it was suspected that it was a front to benefit the company. This episode seems to confirm that suspicion. It is inappropriate for the charity to help the commercial activities of a multinational corporation."
Mr Hoffman said last night: "Our intentions in relation to the meeting with the secretary of state were entirely legitimate: to discuss the Investment Climate Facility for Africa, one of the most promising outcomes of the Commission for Africa and something I am proud to say we are heavily involved in."
Shell will be frustrated that its careful attempts to improve its image have been set back - especially at a time when Sakhalin-2 remains a sensitive issue.
Shell and BP have both been working hard to develop a more sensitive approach to dealing with the environment - and local communities - at a time when oil companies are under increasing public attack over their contribution to the greenhouse effect.