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USA/Africa: Two to Tango
AfricaFocus Bulletin
Feb 8, 2010 (100208)
(Reposted from sources cited below)
Editor's Note
Corruption is not a solitary activity, and the networks that
promote corruption are rarely confined to one country or one
continent. For corruption in Africa, countries outside the
continent enter the picture not only when foreign companies pay
bribes for access. They are also a preferred location for stolen
wealth. A newly released investigative report from a U.S. Senate
Subcommittee provides four detailed case studies of funds from
Equatorial Guinea, Gabon, Nigeria, and Angola, tracing connections
to U.S. banks, lawyers, real-estate agents, financial institutions,
and even a university.
This AfricaFocus Bulletin contains the executive summary and
recommendations from "Keeping Foreign Corruption out of the United
States: Four Case Histories," released in hearings held last week
by the Permanent Subcommittee on Investigations, Committee on
Homeland Security and Governmental Affairs. The full 330-page
report is available in PDF format on the Committee website
(http://www.hsgac.senate.gov.; direct link:
http://tinyurl.com/yglq55v)
In the London Times for February 8, 2010, Richard Dowden critiques the
settlement in the acknowledged bribery czse of the British company BAE Systems,
See
http://www.timesonline.co.uk/tol/comment/columnists/guest_contributors/article7018476.ece
For an earlier report on the case of Riggs Bank and money
laundering for political leaders of Equatorial Guinea, see
http://www.africafocus.org/docs04/eq0407.php
Other previous AfricaFocus Bulletins focusing on corruption, with
additional references, include:
Kenya: Corruption Fight Stalling, Feb 11, 2005
http://www.africafocus.org/docs05/ken0502.php
UK/Africa: The Damage We Do, July 5, 2005
http://www.africafocus.org/docs05/ras0507.php
Kenya: Githongo Report, Feb. 6, 2006
http://www.africafocus.org/docs06/git0602.php
Africa: Stolen Wealth, Apr 14, 2006
http://www.africafocus.org/docs06/corr0604.php
Lesotho: Anti-Corruption Actions, Nov 12, 2006
http://www.africafocus.org/docs06/les0611.php
++++++++++++++++++++++end editor's note+++++++++++++++++++++++
Keeping Foreign Corruption out of the United States: Four Case
Histories
United States Senate, Permanent Subcommittee on Investigations,
Committee on Homeland Security and Governmental Affairs
Carl Levin, Chairman Tom Coburn, Ranking Minority Member
Majority and Minority Staff Report Permanent Subcommittee on
Investigations United States Senate
Released in Conjunction with the Permanent Subcommittee on
Investigations February 4, 2010 Hearing
http://www.hsgac.senate.gov [Follow Link to "Subcommittees," to
"Investigations"]
[Executive Summary only. The full 330-page report is available in
PDF format on the Committee website; direct link:
http://tinyurl.com/yglq55v]
This Report examines how politically powerful foreign officials,
their relatives, and close associates - referred to in
international agreements as "Politically Exposed Persons" or PEPs
- have used the services of U.S. professionals and financial
institutions to bring large amounts of suspect funds into the
United States to advance their interests. Using four case
histories, this Report shows how some PEPs have used U.S. lawyers,
real estate and escrow agents, lobbyists, bankers, and even
university officials, to circumvent U.S. anti-money laundering and
anticorruption safeguards. This Report also offers recommendations
to stop the abuses.
I. Executive Summary
Combating corruption is a key U.S. value and goal, due to its
corrosive effects on the rule of law, economic development, and
democratic principles. In 2001, the Patriot Act made the acceptance
of foreign corruption proceeds a U.S. money laundering offense for
the first time, and required banks to apply enhanced scrutiny to
private banking accounts opened for senior foreign political
figures, their relatives, and close associates. In 2003, the United
States supported the United Nations Convention Against Corruption,
now ratified by over 140 countries. Also in 2003, U.S. Immigration
and Customs Enforcement (ICE) formed an investigative group
dedicated to combating foreign corruption by PEPs. In 2004,
President Bush issued Presidential Proclamation 7750 denying U.S.
visas to foreign officials involved with corruption, and Congress
later enacted supporting legislation. A 2009 study sponsored by the
World Bank analyzed PEP controls worldwide and recommended stronger
measures to reduce corruption.
The Permanent Subcommittee on Investigations (Subcommittee)
initiated this investigation to learn how U.S. laws apply to PEPs
utilizing the domestic financial system, and examine how foreign
senior political figures, their relatives, and close associates may
be circumventing or undermining AML and PEP controls to bring funds
that may be the product of foreign corruption into the United
States. It is the latest in a series of Subcommittee hearings
examining foreign corruption and its U.S. aiders and abettors.
During the course of its investigation, the Subcommittee staff
conducted over 100 interviews, including interviews of lawyers,
real estate agents, escrow agents, lobbyists, bankers, university
professionals, and government officials. The Subcommittee issued
over 50 subpoenas and reviewed millions of pages of documents,
including bank records, correspondence, contracts, emails, property
records, flight records, news articles, and court pleadings. In
addition, the Subcommittee consulted with foreign officials,
international organizations, financial regulators, and experts in
anti-money laundering and anti-corruption efforts.
The Subcommittee has developed four case histories that expose some
of the tactics being used by PEPs and their facilitators to bring
suspect funds into the United States, and identify some of the
legal gaps, poor due diligence practices, and inadequate PEP
controls that, at times, have made these tactics possible.
Obiang Case History.
From 2004 to 2008, Teodoro Nguema Obiang Mangue, son of the
President of Equatorial Guinea, has used U.S. lawyers, bankers,
real estate agents, and escrow agents to move over $110 million in
suspect funds into the United States. Mr. Obiang is the subject of
an ongoing U.S. criminal investigation, has been identified in
corruption complaints filed in France, and was a focus of a 2004
Subcommittee hearing showing how Riggs Bank facilitated officials
from Equatorial Guinea in opening accounts and engaging in suspect
transactions.
Two lawyers, Michael Berger and George Nagler, helped Mr. Obiang
circumvent U.S. anti-money laundering ("AML") and PEP controls at
U.S. financial institutions by allowing him to use attorney-client,
law office, and shell company accounts as conduits for his funds
and without alerting the bank to his use of those accounts. If a
bank later uncovered Mr. Obiang's use of an account and closed it,
the lawyers helped him open another. The U.S. shell companies they
formed for Mr. Obiang included Beautiful Vision Inc., Unlimited
Horizon, Inc., Sweetwater Malibu LLC, Sweetwater Management Inc.,
and Sweet Pink Inc.
Two real estate agents, Neal Baddin and John Kerrigan, helped Mr.
Obiang buy and sell high-end real estate in California including
his purchase of a $30 million Malibu residence with funds wire
transferred from Equatorial Guinea, operating without any legal
obligation to inquire into the source of his funds. Mr. Obiang also
used a U.S. escrow agent to purchase a $38.5 million U.S.-built
Gulfstream jet. When one escrow agent, McAfee & Taft, as a
voluntary antimoney laundering precaution, refused to proceed
without information about the source of the funds for the purchase,
another escrow agent, International Airline Title Services Inc.,
stepped in and completed the transaction with no questions asked.
U.S. law currently exempts both escrow agents and realtors from the
Patriot Act's requirement to establish anti-money laundering
programs.
Mr. Obiang also brought large amounts of suspect funds into the
United States by taking advantage of banking systems that were not
programmed to block wire transfers bearing his name.
Bongo Case History.
From 2003 through at least 2007, Omar Bongo, President of Gabon for
41 years until his death in June 2009, employed a U.S. lobbyist,
Jeffrey Birrell, to purchase six U.S.-built armored vehicles and
obtain U.S. government permission to buy six U.S.- built C-130
military cargo aircraft from Saudi Arabia to support his regime.
President Omar Bongo was a focus of a 1999 Subcommittee hearing
showing how he used offshore shell companies to move over $100
million in suspect funds through accounts at Citibank Private Bank.
He has been mentioned in connection with the ELF oil scandal in
France, and has been identified in corruption complaints filed in
France.
As part of the armored car and C-130 transactions, over $18 million
was wire transferred from Gabon into U.S. bank accounts held in the
name of The Grace Group LLC, a U.S. corporation formed by Mr.
Birrell. Mr. Birrell received the funds primarily from President
Omar Bongo and an entity called Ayira. He later transferred $9.2
million of the funds provided by Ayira to a foreign account held in
the name of President Omar Bongo in Malta. He also wire transferred
over $4.2 million to foreign bank accounts opened in the name of a
senior Bongo adviser, and over $1 million in payments to foreign
bank accounts held in the name of various "consultants." Mr.
Birrell's corporate accounts served as a conduit for those Bongo
funds.
In addition, President Omar Bongo provided large amounts of cash to
his daughter, Yamilee Bongo-Astier, who deposited the cash into
bank accounts and safe deposit boxes at U.S. financial institutions
in New York from 2000 to 2007. Ms. Bongo-Astier made multiple large
dollar deposits into her accounts at banks that were unaware of her
PEP status, but knew she was an unemployed student. One bank closed
her account after receiving an $183,500 wire transfer from the
Republic of Gabon; another did so after discovering she had $1
million in $100 shrinkwrapped bills in her safe deposit box, which
she said her father had brought into the United States using his
diplomatic status and without declaring the cash to U.S.
authorities.
Another member of the Bongo family, Inge Lynn Collins Bongo, is the
wife of Ali Bongo, the current President of Gabon and its former
Minister of Defense. In 2000, she formed a U.S. trust, the Collins
Revocable Trust, and opened accounts in the name of that Trust at
banks in California. For three years, from 2000 to 2003, Ms. Inge
Bongo accepted multiple large offshore wire transfers into the
Trust accounts and used the funds to support a lavish lifestyle and
move money among a network of bank and securities accounts
benefiting her and her husband. Due to inadequate PEP lists
prepared by third party vendors, the financial institutions hosting
the Bongo accounts were, more often than not, unaware of their
clients' PEP status and did not subject their accounts to enhanced
monitoring.
Abubakar Case History.
From 2000 to 2008, Jennifer Douglas, a U.S. citizen and the fourth
wife of Atiku Abubakar, former Vice President and former candidate
for President of Nigeria, helped her husband bring over $40 million
in suspect funds into the United States, through wire transfers
sent by offshore corporations to U.S. bank accounts. In a 2008
civil complaint, the U.S. Securities and Exchange Commission
alleged that Ms. Douglas received over $2 million in bribe payments
in 2001 and 2002, from Siemens AG, a major German corporation.
While Ms. Douglas denies wrongdoing, Siemens has already pled
guilty to U.S. criminal charges and settled civil charges related
to bribery and told the Subcommittee that it sent the payments to
one of her U.S. accounts. In 2007, Mr. Abubakar was the subject of
corruption allegations in Nigeria related to the Petroleum
Technology Development Fund. Of the $40 million in suspect funds,
$25 million was wire transferred by offshore corporations into more
than 30 U.S. bank accounts opened by Ms. Douglas, primarily by
Guernsey Trust Company Nigeria Ltd., LetsGo Ltd. Inc., and Sima
Holding Ltd. The U.S. banks maintaining those accounts were, at
times, unaware of her PEP status, and they allowed multiple, large
offshore wire transfers into her accounts. As each bank began to
question the offshore wire transfers, Ms. Douglas indicated that
all of the funds came from her husband and professed little
familiarity with the offshore corporations actually sending her
money. When one bank closed her account due to the offshore wire
transfers, her lawyer helped convince other banks to provide a new
account.
In addition, two of the offshore corporations wire transferred
about $14 million over five years to American University in
Washington, D.C., to pay for consulting services related to the
development of a Nigerian university founded by Mr. Abubakar.
American University accepted the wire transfers without asking
about the identity of the offshore corporations or the source of
their funds, because under current law, the University had no legal
obligation to inquire.
Angola Case History.
The final case history examines three Angolan PEP accounts,
involving an Angolan arms dealer, an Angolan government official,
and a small Angolan private bank that caters to PEP clients, to
show how the accountholders gained access to the U.S. financial
system and attempted to exploit weak U.S. AML and PEP safeguards.
Pierre Falcone is a notorious arms dealer who supplied weapons
during the Angola civil war, a close associate of Angolan President
Jose Eduardo Dos Santos, and the target of lengthy criminal
investigations resulting in his recent imprisonment in France. He
used personal, family, and U.S. shell company accounts at a U.S.
bank in Arizona to bring millions of dollars in suspect funds into
the United States and move those funds among a worldwide network of
accounts. Mr. Falcone was imprisoned in France for one year
beginning in 2000, was a fugitive from a 2004 French global arrest
warrant, and was convicted in France in 2007 and 2009, on charges
related to illegal arms dealing, tax fraud, and money laundering.
He is now serving a six-year prison sentence. Bank of America
maintained nearly 30 accounts for the Falcone family from 1989 to
2007, did not treat Mr. Falcone as a PEP, and did not consider his
accounts to be high risk, even after learning in 2005 that he was
an arms dealer and had been imprisoned in the past. In 2007, after
receiving a Subcommittee inquiry about the Falcone accounts, the
bank conducted a new due diligence review, closed the accounts, and
expressed regret at providing Mr. Falcone with banking services for
years.
Dr. Aguinaldo Jaime, a senior Angolan government official, was head
of Banco Nacional de Angola (BNA), the Angolan Central Bank, when
he attempted, on two occasions in 2002, to transfer $50 million in
government funds to a private account in the United States, only to
have the transfers reversed by the U.S. financial institutions
involved. Dr. Jaime invoked his authority as BNA Governor to wire
transfer the funds to a private bank account in California during
the first attempt and, during the second attempt, to purchase $50
million in U.S. Treasury bills for transfer to a private securities
account in California. Both transfers were initially allowed, then
reversed by bank or securities firm personnel who became suspicious
of the transactions. Partly as a result of those transfers and the
corruption concerns they raised, in 2003, Citibank closed not only
the accounts it had maintained for BNA, but all other Citibank
accounts for Angolan government entities, and closed its office in
Angola. In contrast, HSBC continues to provide banking services to
BNA in the United States and elsewhere, and may be providing the
Central Bank with offshore accounts in the Bahamas.
Banco Africano de Investimentos ("BAI") is a $7 billion private
Angolan bank whose largest shareholder is Sonangol, the Angolan
state-owned oil company. It offers banking services to Sonangol,
Angolans in the oil and diamond industries, and Angolan government
officials. Over the last ten years, BAI gained entry to the U.S.
financial system through accounts at HSBC in New York, using HSBC
wire transfer services, foreign currency exchange, and U.S. dollar
credit cards for BAI clients, despite providing troubling answers
about its ownership and failing to provide a copy of its AML
procedures to HSBC after repeated requests. Despite the presence of
PEPs in BAI's management and clientele, HSBC decided against
designating BAI as a "Special Category of Client" requiring
additional oversight until November 2008, years after the account
was first opened.
Together, these four case histories demonstrate the need for the
United States to strengthen its PEP controls to prevent corrupt
foreign officials, their relatives, and close associates from using
U.S. professionals and financial institutions to conceal, protect,
and utilize their ill gotten gains.
A. Findings
This Report makes the following findings of fact.
(1) Lawyers. Two U.S. lawyers helped Teodoro Obiang, son of the
President of Equatorial Guinea, circumvent anti-money laundering
and PEP controls at U.S. banks by allowing him to secretly use a
series of attorney-client, law office, and shell company accounts
to be used as conduits for his funds.
(2) Realtors. Two realtors helped Mr. Obiang buy and sell
multi-million-dollar residences in California, and a real estate
escrow agent facilitated his purchase of a $30 million property by
handling millions of dollars wire transferred from Equatorial
Guinea, without verifying the source of the funds, since they had
no legal obligation to do so.
(3) Escrow Agents. After one U.S. escrow agent, as an AML
precaution, refused to complete the purchase of a Gulfstream jet
without obtaining information on the source of $38.5 million to be
paid for the aircraft, another U.S. escrow agent stepped in and
completed the transaction with no questions asked. The escrow
agents had no legal obligation under current law to inquire about
the source of the funds.
(4) Lobbyist. A U.S. lobbyist helped President Omar Bongo of Gabon
obtain six U.S.- built armored cars and U.S. government permission
to buy six U.S.-built military cargo aircraft from Saudi Arabia to
support his regime, while allowing his U.S. bank accounts to be
used as a conduit for $18 million in suspect funds in connection
with those transactions, with no questions asked.
(5) Offshore Corporations. Jennifer Douglas, a PEP through her
marriage to Atiku Abubakar, former Vice President of Nigeria, used
a series of U.S. bank accounts to bring over $25 million in suspect
funds into the United States via wire transfers from offshore
corporations.
(6) University. A U.S. university accepted over $14 million in wire
transfers from unfamiliar offshore shell corporations to pay for
consulting services related to development of a university in
Nigeria founded by Mr. Abubakar.
(7) Personal Accounts. Pierre Falcone, a PEP through his close
association with the President of Angola and appointment as an
Angolan Ambassador, was able to use personal, family, and U.S.
shell company accounts at a U.S. bank in Arizona to bring millions
of dollars in suspect funds into the United States and move those
funds among a worldwide network of Falcone accounts, despite his
status as an arms dealer and a long history of involvement in
criminal proceedings in France.
(8) Government Accounts. Dr. Aguinaldo Jaime, using his authority
as head of the Angolan Central Bank, attempted without success, on
two occasions in 2002, to transfer $50 million in government funds
to a private account in the United States.
(9) Correspondent Accounts. Banco Africano de Investimentos, a $7
billion private Angolan bank that caters to PEPs, is not treated as
a PEP client subject to enhanced monitoring by its U.S.
correspondent bank.
(10) Vendor PEP Lists. Some vendors relied on by U.S. financial
institutions to screen clients for PEPs used incomplete and
unreliable PEP lists.
B. Recommendations
This Report makes the following recommendations.
(1) World Bank PEP Recommendations. Congress should enact a law and
the U.S. Treasury Department should promulgate rules implementing
the key recommendations of a recent World Bank study to strengthen
bank controls related to Politically Exposed Persons ("PEPs"),
including by requiring banks to use reliable PEP databases to
screen clients, use account beneficial ownership forms that ask for
PEP information, obtain financial declaration forms filed by PEP
clients with their governments, and conduct annual reviews of PEP
account activity to detect and stop suspicious transactions.
(2) Real Estate and Escrow Agent Exemptions. Treasury should repeal
all of the exemptions it has granted from the Patriot Act
requirement for anti-money laundering (AML) programs, including the
2002 exemption given to real estate and escrow agents handling real
estate closings, and sellers of vehicles, including escrow agents
handling aircraft sales, and use its existing statutory authority
to require them to implement AML safeguards and refrain from
facilitating transactions involving suspect funds.
(3) Attorney-Client and Law Office Accounts. Treasury should issue
an AML rule requiring U.S. financial institutions to obtain a
certification for each attorney-client and law office account that
it will not be used to circumvent AML or PEP controls, accept
suspect funds involving PEPs, conceal PEP activity, or provide
banking services for PEPs previously excluded from the bank; and
requiring enhanced monitoring of such accounts to detect and report
suspicious transactions.
(4) U.S. Shell Corporations. Congress should enact legislation
requiring persons forming U.S. corporations to disclose the names
of the beneficial owners of those U.S. corporations.
(5) Immigration Restriction. Congress and the Administration should
consider making significant acts of foreign corruption a legal
basis for designating a PEP and any family member inadmissible to
enter, and removable from, the United States. (6) Visa Restriction.
The State Department should strengthen its enforcement of the law
and Presidential Proclamation 7750 denying U.S. visas to foreign
PEPs involved with corruption, and law enforcement agencies should
increase the assistance they provide to State Department
investigations of PEPs under review.
(7) Professional Guidelines. Professional organizations, including
the American Bar Association, National Association of Realtors,
American League of Lobbyists, and American Council for Education,
should issue guidance to their members prohibiting use of any
financial account to accept suspect funds involving PEPs, conceal
PEP activity, facilitate suspect transactions involving PEPs, or
circumvent AML or PEP controls at U.S. financial institutions.
(8) FATF Recommendations. The United States should work with the
international Financial Action Task Force on Money Laundering to
amend its existing 40+9 Recommendations to strengthen
anti-corruption and PEP controls.
AfricaFocus Bulletin is an independent electronic publication
providing reposted commentary and analysis on African issues, with
a particular focus on U.S. and international policies. AfricaFocus
Bulletin is edited by William Minter.
AfricaFocus Bulletin can be reached at africafocus@igc.org. Please
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