World

Angola, Russia, corruption and a world in crisis

By Khadija Patel 17 April 2013

A new report from the London branch of Corruption Watch, on an allegedly dodgy debt repayment deal between Russia and Angola, better befits the plot of a Hollywood action blockbuster. But in between the thrill of guns, lies and secret documents lie the ultimately more important questions about the pitiful state of global governance. By KHADIJA PATEL.

The reality is that governance globally and political processes globally are in a crisis,” Andrew Feinstein, the director of Corruption Watch, told Daily Maverick from London on Tuesday. Feinstein, a former ANC MP and the author of The Shadow World was speaking after the launch of a spectacular, new report from the anti-graft lobby group alleging that Angolan and Russian officials colluded to defraud citizens of millions of dollars in a debt repayment deal that ensnared two governments, opportunistic middle men and the global banking system.

The report, “Deception in High Places: The Corrupt Angola-Russia Debt Deal”, alleges that senior Angolan government officials, including President Jose Eduardo dos Santos received millions of dollars in kickbacks in the late 1990s, in a suspicious debt repayment deal between Angola and Russia. The report itself reads like the script of a Hollywood blockbuster. There certainly are guns aplenty – the original debt incurred by Angola was for the procurement of arms from the former Soviet Union. Unlike the silver screen though, this story does not end when the credits roll. The effects of the deal are felt by the people to whom this money rightly belongs, the people of Russia and Angola.

Suspicion of the Angolan debt repayment deal is not new. In 2004, Human Rights Watch (HRW) said in a report on issues relating to the transparency of Angola’s oil revenues that there had been “a questionable series of transactions to repay Russian debt”.

In 1996, a “secret” rescheduling of Angola’s $5 billion debt to Russia was negotiated between the Angolan and Russian governments. The debt was largely related to arms purchases made between 1980 and 1991. The debt rescheduling reduced the debt to $1.5 billion. Angola would pay off the debt over 15 years beginning 2001 (together with $1.39 billion in interest for the period through 2016) through a series of 31 promissory notes payable to the Russian ministry of finance and issued by the Banco Nacional de Angola (BNA), the Angolan central bank.

Russia then engaged an intermediary, Abalone Investments, described by Corruption Watch as “entirely unnecessary”. This company was based in the Isle of Man and purportedly set up purely to service this deal. Abalone arranged to buy the debt from Russia for only $750 million (with no interest payment), but to complete purchase of the debt by 2006. However, Angola paid Abalone the full $1.5 billion to write off the debt – with the extra funds being corruptly siphoned off to the people involved in Abalone, senior Angolan officials and others. Abalone was set up by Arcadi Gaydamak and Pierre Falcone, two well-connected and controversial businessmen who had close links with Angolan officials thanks to their involvement in what would become the Angolagate arms and oil scandals. These two businessmen in turn, paid Russia $4.5 million for the right to set the deal up.

The report alleges, “Angola gave Russia 31 Promissory Notes (IOUs) worth $1.5 billion, which it planned to buy back over 15 years from 2001-2016. Instead, Abalone would buy them from Russia over 7 years, from 1997 to 2004, at half price. But Angola paid Abalone the full amount to write off the IOUs, with payments coming from Angola’s state oil company, Sonangol.”

To keep the deal and the payments afloat, Gaydamak opened a new account using the name Sberinvest at the Russian Commercial Bank, in Cyprus. Corruption Watch says its evidence suggests that Gaydamak opted to call the Cyprus account Sberinvest to fool the Angolan government into believing that funds transferred to the account were actually going directly to the Russian government, instead of Gaydamak’s pocket. The deception, however, does not cease there.

Gaydamak allegedly also fooled his partners, Falcone and Malkin. Both Falcone and Malkin would later sue Gaydamak, claiming that he had effectively cut them out of the deal.

Corruption Watch alleges that Abalone provided no service whatsoever to justify its $750 million “profit”. The deal could have been done directly between Russia and Angola.

Of the money paid to Abalone, Corruption Watch alleges that $311 million went to Gaydamak and Falcone (about 22% of the total funds); $36m went to Angolan President dos Santos and about $38 million went to four other senior Angolan officials. Another $48 million went to Vitaly Malkin, a Russian oligarch and senior member of the Russian parliament (the Duma) who had secured a 25% stake in Abalone.

A further $500 million has not been accounted for.

But in between this highly convoluted drama are questions about the accountability of governments, people who do business with governments and the financial institutions that made it all possible.

The complex cast of characters and the multiple transactions related to this deal tend to obfuscate the central point: a number of individuals made vast profits on the repayment of debt at the expense of the citizens of Angola and Russia alike,” the Corruption Watch report says.

When the International Monetary Fund (IMF) first asked the Angolan government to provide details of the Russian debt transactions in mid-2001, the government refused. According to one participant in those meetings quoted by HRW, every time an IMF official asked for details, the government official would look through documents that appeared to have contained many of the details of the transactions, but provided only cursory information. The IMF official abruptly ended the meeting and left out of frustration over the lack of disclosure.

After details of the Russian debt transactions were widely reported in the French and Portuguese press in early 2002, however, the government was more forthcoming with the IMF. Still the Angolan government was cagey, refusing to hand over documentation “because it would infringe on national sovereignty.”

Corruption Watch was able to pursue its investigation after being approached with “a cache of documents” related to the deal.

Feinstein insisted that Angola has to become more transparent.

Angola is trying to clean its image up especially regarding fiscal management. If Angola is serious about cleaning up its financial management it has to, firstly, become more transparent about it and then it must put in place vigorous checks and balances.

And then it must separate the different roles of the state, the ruling party and the ruling family.

Angola needs to come clean about its history and accept that mistakes were made and this was one of the primary mistakes made,” Feinstein said.

Russia’s involvement in this deal is, however, not as easily explained.

Corruption Watch admits that there is no obvious explanation for why Russia would accept only half of the agreed payment when Angola was clearly prepared to (and did pay) the full amount. The report says it is unclear why Russia would involve Abalone as an intermediary when the company offered no real service to Moscow and took on no risk.

According to Human Rights Watch, one of the businessmen involved in the deal told the French newspaper Le Monde that the operation was favourable to Russia because it recovered debt and Angola because its debt was reduced.

In late 2000 and early 2001, France issued warrants of arrest for Gaydamak and Falcone relating to the investigation into the Angolagate arms and oil corruption scandals. Switzerland was running its own parallel investigation and, in February 2001, accounts relating to the deal were frozen in Geneva. The Abalone account was only unfrozen in 2004 on the order of the Geneva courts. Corruption Watch is now asking Swiss prosecutors to reopen the investigation.

Last week, four Angolan citizens presented a Denonciation Penale (criminal denunciation) to Swiss federal prosecutors in Berne, calling for criminal investigations into Falcone, Gaydamak, Malkin, Elisio de Figueiredo (Angolan ambassador without portfolio to France), Joaquim Duarte da Costa David (director- general of the Angolan state oil company Sonangol until 1998; thereafter minister of industry), Jose Leita da Costa e Silva (minister in the office of the Angolan presidency), and three senior employees of the UBS bank – who are alleged to be complicit in the deal.

The legal frameworks are inadequate,” Feinstein lamented.

He believes that even the addition of legal safeguards against the manipulation of financial systems and the abuse of political power is not enough to prevent such crimes from recurring in Africa, or anywhere else in the world.

Even if you have the right laws in place there has to be the political will to implement them vigorously and without fear or favour,” Feinstein said.

The significance of the report then is not confined to Russia and Angola.

This is an example of a ruling elite basically defrauding their own country and its citizens for personal gain,” Feinstein said.

The report reflects how easy it is for ruling elites together with very dodgy businesspeople, facilitated by massive financial institutions, in this case the Swiss bank, UBS, are able to effectively perpetrate crimes against their own citizens.” DM

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Photo: Angola’s President Jose Eduardo dos Santos (C) addresses the media after casting his vote during national elections in the capital Luanda, August 31, 2012. REUTERS/Siphiwe Sibeko

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