Select Committee on International Development Minutes of Evidence

Memorandum submitted by Global Witness


Introduction—background to Global Witness

  Global Witness is a not-for-profit London based NGO, which focuses on the role of natural resources in the funding of conflict.

  Today, Angola provides one of the worst examples of state plunder anywhere in the world. It is a country with greater than three million people entirely dependent on emergency food relief—this at a time when US$ billions have been and continue to be siphoned off by the country's elite. The situation is made all the worse, given that this huge level of corruption does not centre only around Angola's oiligarchy—as Global Witness have named them; in reality, the rip-off of the Angolan State is as much an international scandal of complicity (to various degrees) with enormous private and state vested interest due to oil playing a key role.

  There are always two sides to corruption—the corrupted and the corrupter, and many of the corrupters in Angola are the very same individuals and companies which have operated in a similar fashion in countries such as Gabon, Congo-Brazzaville, Cameroon, and Nigeria, etc. Angola also provides upwards of 8 per cent of US oil imports (set to rise massively over the next few years), and so it is of immense strategic value to the United States, and also to those European countries with significant oil interests. In addition, it is important that the issues raised in this document, though of course relating to Angola, are not considered solely as Angolan problems. This is due to the fact that the war economy is intimately connected to corrupt deals, which in turn likely play a significant role in the capacity and rationale for Angolan military involvement in the Democratic Republic of Congo (DRC), and in Congo-Brazzaville.

  Global Witness has considerable information relating to the role of certain key individuals and companies in this situation. Members of the Committee will doubtless be aware of the recent arrest and detention of Jean-Christoph Mitterand in Paris. He is but a component (by no means the key player) of a complicated web of individuals which were involved on the one hand in the provision of oil backed loans (ie a process of oil mortgaging against oil not yet extracted—Angola currently has the next 3-4 years of its share of oil production mortgaged against such loans), and subsequently the provision of weapons with the funds raised. At the time of writing, it is not clear to what extent it will be possible to be fully candid about individuals involved—this is due to the potential for legal process and also safety considerations. At the time of the enquiry hearing, within limits, it would be good to expand this discussion.


  In December 1998, Global Witness published the report "A Rough Trade", focusing on the role of the international diamond trade in the financing of UNITA's war in Angola. As many of you will know, this report with its key finding that UNITA generated a conservative US$3.7 billion between 1992 and 1998, and subsequent press coverage was a major precipitator of significant International Community focus on the issue of "conflict diamonds". International attention and focus on this issue then received a major boost through the very pro-active involvement of both the US and UK Governments, which in turn took on a greater urgency following the events of early 2000 in Sierra Leone itself.

  In December 1999, Global Witness published "A Crude Awakening", which sought to examine the other side of the Angolan conflict; the role of massive corruption on the government side, and the effect of a considerable lack of transparency on behalf of the oil companies operating in Angola, and lastly the role of the international banking industry which has provided numerous loans, against future oil extraction. In the latter case, the resultant monies being subject the same lack of transparency, and being passed through opaque channels, resulting in funds being siphoned off through secret arms deals. It is this corruption aspect of the Angolan tragedy which is not only key to the conduct and outcome of the war, but also which has been significantly affected by developed world foreign policy to Angola.

  In late 1997, or early 1998 (the exact timing is not clear), the contract for arms procurement for the Angolan Armed Forces (FAA) was removed from an Angolan parastatal company known as Simportex and given to a private company—company X. At roughly the same time the contract for food supplies to the FAA was given to another company—Company Y—which is a sister company of Company X. This decision was made by the highest level officials in the Presidency, known as Futungo.

  Companies X and Y are subsidiaries of a company connected to certain individuals who have been instrumental in the provision of oil-backed loans—these individuals have been implicated in the recent scandal which surrounds the arrest of Jean-Christoph Mitterand. These same individuals also organised the "lifting" of the oil (in order to pay back the loans) by a very well known oil trading company that was notorious during the 1980s as a leading oil sanctions buster to Apartheid South Africa. These same individuals, who have been the quasi-monopoly weapons suppliers to Angola since around 1993/4 through Simportex, are now supplying both the financing and weapons, and food and in fact all supplies required by the FAA through companies X and Y.

What are the implications of this new arrangement?

  This new method of supply has resulted in a number of changes. Whereas, the suppliers referred to above previously benefited from large kick-backs sometimes amounting to 30-40 per cent and which were shared with top-level officials, the margin of profit has escalated. This is because whilst previously they profited from the kick-backs alone, they now benefit from both these kickbacks and the profits generated from their joint ownership with Angolan officials of Companies X and Y.

  This removal of the contract from the Angolan parastatal to Company X represents a de facto privatisation of the current phase of Angola's civil war. This is because every item from bombs and bullets to clothing and food generates money for those who are involved in Companies X and Y. If, as most objective commentators once again recognise, there is no military solution to the current conflict in Angola, then the current scenario represents a serious conflict of interest, given that those who should be seeking a peaceful outcome to the war, are in fact making money from its very continuation. A subsidiary of company X for example received more than US$1 billion in kickback revenue during 2000 alone and this is not the only vehicle for capital flight from Angola.

  It is clear that frequently supplies of weapons and other commodities purchased through these individuals, both prior to and after the involvement of Companies X and Y, were not always up to the job. There have been many occasions where weapons including tanks and other heavy weaponry were literally dragged off the supply ships, because they were unable to be driven off under their own power. This purchase of inadequate military equipment has made up a significant percentage of overall supply in recent years, and is consistent with imports of other commodities, such as rotting meat from Portugal, which appear to have been obtained for the commission alone.

  The mid 1999 successes of the Angolan Armed Forces in part relate to the fact that these and other suppliers finally delivered weaponry (involving the same kickbacks) of sufficient quality and quantity to do the job.

  Whilst it is obvious that the war in Angola has been a massive drain on the State's finances, and hence capacity for development, it is also very clear that corruption has taken a vast percentage of potential State income, of which in recent years, over 90 per cent of been derived from oil. Given that oil (in fact all state natural resources) is enshrined in Angola's Constitution as belonging to the people of Angola, it is very difficult to see where any benefit has been derived by Angolans from their resource. This is clearly illustrated by Angola's free-fall from position 73 (out of 172 countries assessed) in the UN's Human Development Index (HDI), when daily production was 482,000 barrels, to position 160 by 1999, when production had reached 770,000 barrels per day. It should be noted that the volume of oil production in Angola has since increased, with no appreciable change to the country's HDI position—see Appendix.

  The capital, Luanda, is a vastly over-populated (due to the influx of war refugees) sprawl, which some describe as the second most expensive city in the world. It is a city of utter squalor, mixed with a smattering of very expensive boutiques, available only to the elites. Whilst hordes of children sift through the garbage, the elites sometimes drive past in their limousines; or as many do, en route to the airport for a spot of shopping in Lisbon for the weekend. Many of the other major towns in the countryside resemble Dresden after World War II.

What is the value of oil to the Angolan Economy?

  Angola is sub-Saharan Africa's second largest oil producer, following Nigeria, with recent discoveries suggesting it soon become the largest. Oil revenue makes up some 90+ per cent of state income. One might presume that for such a significant sector, it might be relatively easy to determine the actual dollar value of this resource to the economy - this of course would not be difficult in any developed country. But in the Angolan case, as for many developing countries where resource revenue is siphoned off to benefit an elite class, the lack of transparency makes this task almost impossible.

  Global Witness conducted investigations in an attempt to uncover raw data to calculate the dollar contribution of oil to the Angolan economy. The results, not only demonstrate the difficulty of such a task, but also clearly indicate the difference between the access provided to civil society in developed countries regarding transparency of tax contributions of major business' to developed country economies, and the lot meted out to Angolans. I will return to this theme later.

From the best available data, Global Witness calculations indicate that Angola generated between US$1.8 billion and US$3.0 billion annually for the period 1990-1999. Clearly there is considerable variation year on - some of which is reflected in global oil price fluctuations, but a significant source of this variation is due to the lack of available and accurate data. In other words, this estimate is not one that should be considered as particularly accurate. In contrast, by late 1999, analysts were predicting an annual income from oil of US$2.9 to US$3.2 billion for the years 2003 through to 2010, with other forecasts suggesting that the industry is set to invest some US$18 billion over the next four years in Angola.

  Global Witness has also made its own calculations of estimated income from oil in Angola over the period 2000 through to 2006. This forecast is based on analysts' predictions for oil volume extraction compared to two different, but conservative estimates of global oil price—of US$ 12 and US$ 18 per barrel. Given these current forecasts, we estimate that Angola will receive between US$1.4 billion and US$2.7 billion annually respectively over the next six years. It is worth pointing out that for much of 1999 and 2000, the global price of oil has hovered at or above the US$30 per barrel level (it has only recently fallen to a value in the low US$20s). Clearly, it is unrealistic to suggest that this price will be maintained in the long term (as we may be seeing now), but it is worth noting that such high levels and therefore higher than estimated income levels have been maintained for a significant proportion of the period we are looking at.

The role of civil society in Angola

  Angola's growing civil society is gradually escalating its opposition to the war, and is also seriously questioning the scale of corruption that is governing the country. However, NGOs and the press in Angola are facing an enormous up-hill battle against seemingly impossible odds. Those that have dared to challenge the current situation, and who have publicly voiced their concern over corruption by state officials have been ruthlessly dealt with—perhaps the best known case is that of Rafael Marques who has been tried for "defaming" President dos Santos because he accused him of corruption. His case should in no way be considered in isolation, and the response has been to pursue such cases on a criminal basis, rather than through the civil courts. Although there is a growing independent press in Angola, they are severely limited in their capacity to cover contentious issues—Folho 8, which attempted to cover the launch of Global Witness' "Crude Awakening" report in December 1999, found its printer threatened, which then refused to print the first four pages of the paper—the banner headline front page leads with the launch of the report, but inside, the reader is treated to four pages of blank columns interspersed with photographs of oil rigs.

  It is very clear that in addition to the almost complete lack of available data concerning the true value of oil production to the Angolan State, it is also not possible for Angolans to question any of the decisions of the state, as to its conduct of the war, or the economy. Despite the constraints placed on a state at war, this situation is clearly unacceptable, especially given the implications for the Angolan people and the vast benefit being generated by the elite few through the continuation of current practices, at the expense of the population. There is no accountability of government in Angola today, and the scale of looting is approaching that of Abacha in Nigeria, and Mobutu in former Zaire.

The role of oil companies in Angola

  Currently, there is no significant transparency by the oil companies in Angola. In stark contrast to the availability of tax and royalty data to the general public in developed countries, through the standard process of filing annual accounts by companies and other such reporting requirements, such data is not available in Angola. Given that Angolans have no recourse to the data that they would require to at least begin the process of holding their government to account for its use of this resource, this situation of lack of oil company transparency is also clearly unacceptable.

  In July 1999, the three oil companies BP-Amoco, Elf (now TotalFinaElf) and Exxon, finalised their agreements with government for the three ultra-deep water oil blocks, respectively Blocks 31, 32 and 33. The three companies paid a total of US$870 million dollars in signature bonus', of which Global Witness estimates that between US$4-500 million was "disappeared" through the Presidency. Not only have the above companies not published details about these payments, but in effect they went along with the Angolan Government's desire to keep these payments covered up by signing confidentiality clauses.

  Global Witness believes, due to the lack of company transparency, that the oil companies that are operating in Angola are complicit in the plunder of Angola by the country's elite. This is not to say that the companies are directly involved in the paying of bribes, though some clearly are. But, it is saying that the companies are playing the key role in the provision of over 90 per cent of Angola's State income, and given that it is this income which is being stolen, they cannot absolve themselves from that relationship and responsibility without taking every step to ensure that it is as hard as possible to siphon off such revenue. It is therefore clear that the companies can only escape from such a charge through all the companies collectively publishing all payments they make to government (taxes, royalty and signature bonus payments etc) just as they already do in developed countries, such as the US, UK, Holland and Norway.

The role of the banking sector

  The international banking sector has played a key role in the provision of short-term, high interest loans, which have severely exacerbated the effect of oil price fluctuations on Angola's economy, and which have significantly increased the national debt.

  Many of these loans have been negotiated in secret, and the resultant monies have been utilised through the same opaque system as oil-derived state income. The value of the loans which have been provided against future oil extraction have been so vast that by 1998-99, Angola actually derived little physical income from the volumes of oil production, because the vast bulk of this revenue was needed to service the expanding debt. Of course, the conduct of the war, required continued funding, and so new loans have continued to be negotiated, greatly assisted by the high oil price; many of the negotiations involving the same individuals already referred to above, who are intimately involved in the supply of weapons to Angola.

  The Angolan parastatal oil company Sonangol is one of the main routes of loan repayment, often involving the direct selling of oil, with resultant revenues being directed through off-shore accounts. One of the implications of such a significant proportion of state revenue being directed via off-shore financial systems, is the development of a set of parallel financial systems within the Angolan economy. This simply adds to the lack of state transparency, providing ample opportunity for further misappropriation. It has also allowed for Sonangol to discount its tax liability to treasury, with the result that a large proportion of the Angolan economy being run through a set of foreign bank accounts—this set of off-shore parallel finances being controlled by the various elites within Angola, with the vast bulk by the Presidential clique.

  Given not only the scale of the loans which have been provided, but also the level of secrecy surrounding their negotiation and the subsequent control which is being exercised by the elite over the off-shore repayment structures, there is clear complicity of those international banks which are involved, in the plundering of Angolan state revenue. As for the oil companies, the international banks should publish full details of existing and any new loans that are made available, and they should insist that full transparency concerning future loans be a condition of agreeing further financing. Given the risk of providing loans to Angola, it would also be in the interest of banks considering loans to Angola, to insist on a radical change in the level of transparency exercised by Angolan State institutions.

The role of the IMF and the World Bank

  For some time the IMF has been trying to restart a programme in Angola. It came close to an agreement with the Government in 1998, when the international oil price fell below US$10 per barrel. This was because Angola was close to defaulting on its international debts due to the low oil price. The Government was becoming desperate to secure new and preferential rate loans, which would only become available through an IMF agreement. In early 1999, the government did make some positive changes to the state financial systems, by posting Aginaldo Jaime as the new head of the National bank of Angola (BNA). This was a significant improvement, because the BNA had been a major partner in the system of state robbery, and Mr Jaime appears to be well respected in the international community.

  However, despite the improvements that Mr Jaime continues to implement to the operation of the BNA and various other structural changes, there are still significant improvements required. These concern not only the fact that a vast percentage of Angola's economy (as already described) takes place entirely off-shore, but also the role of both Sonangol and the role of the Presidency in the deployment of state revenue.

  In April 2000, the IMF finalised its "Staff Monitoring Programme" (SMP) agreement with the Angolan Government. This agreement is a positive step forward that Global Witness welcomes as a useful first stage towards improving transparency in Angola. However there are serious flaws in what is being proposed. These include:

    1.  There is no provision for any significant retrospective analysis of the oil accounts and subsequent expenditure for the period 1998 to the present day—perhaps the worst period for massive corrupt arms deals, involving both oil and loan revenue, in Angola's history.

    2.  The agreement appears to be only contemplating an analysis (from July 2000 onwards) of oil revenue to government—as far as the treasury—with no analysis of subsequent expenditure.

    3.  This analysis (known as the oil diagnostic) was originally intended to run until the end of 2000 - for six months only. This now appears to be extended until late 2001. However, there appears to be no consideration as to what happens after that.

    4.  Given that a vast proportion of plundered revenue has been siphoned off through a convoluted system of off-shore companies and accounts, it is extremely doubtful if the team hired to do the oil diagnostic will be able to deal with this problem; meaning that the structures which have served the purpose of state robbery so well, will likely remain in place.

  In fact, the auditing company KPMG have now been hired to undertake this project. To date, the international community has been keen to promote the IMF programme as an "audit" of the oil accounts, and as the start of a clean up process. This now seems extremely unlikely, given the fact that even KPMG staff have been keen to stress that this work does not constitute an audit. A spokesman recently even stated that he could not confirm whether their work would lead to a greater level of transparency in the future - begging the question as to what this work is really intending to achieve?

  The World Bank had pulled out all its country staff in 1999, leaving a token office representation in Luanda. The Bank was recently tasked to hire the international accountancy company for the "oil diagnostic" (KPMG—see above), according to the IMF's SMP agreement. It seems likely that once the diagnostic team is operational, that the Bank will resume its activities in Angola.

  It is imperative that international pressure is brought to bear to ensure that the IMF's SMP programme is truly a programme worth having. Global Witness appreciates that there is a balance to be drawn between having the programme, and pushing too hard and losing it all—however, if the price of having the programme is such that it will not deliver transparency, that it remains severely compromised as described above, then it seems likely that the IMF's programme will be insufficient for the job required.

  This is of major concern, because if the Angolan Government does perform according to what is required of this flawed programme, leaving significant areas of corrupt activities in place, which the diagnostics team is simply going to miss, then the logical next step is a likely resumption of international aid, where we can envisage a scenario where the international donor community pump US$ millions into redeveloping the country, whilst the country's elite continue their looting. Whilst in the long run, Angola does desperately need international assistance, Global Witness believes that such an outcome will send the wrong message and will allow for a continuation of current practices.

The role of the UK and the International Community

  It is very hard to be precise about the role of the UK in the continuation of current corrupt practices in Angola. On the one hand the UK Government, together with the US, has played a very valid role in pushing the "conflict diamond" issue to date. Here congratulations are certainly due. This is of course another area where corruption is also an issue.

  There is a very strong perception amongst the NGO community and beyond, that the US and other governments with oil interests in Angola (especially France which fits into a category all of its own), because of the nature of oil, will make all the necessary "token" noises about corruption, how bad it is, etc, but in the end will do nothing, because they do not want to upset the elite in Luanda, which may have repercussions for oil companies. The US-Angola chamber of Commerce, which could be seen ostensibly as a positive vehicle, may in fact be contributing to the impression that the primary concern appears to be business interests regardless of other factors.

  Despite having had the opportunity to brief IMF officials directly involved in the SMP negotiations with Angola as to some of the essential areas which desperately need addressing on no less than three occasions prior to the signing of the SMP agreement, and having similarly done so with the other key oil interest countries, all of whom have significant influence at the IMF Board, Angola is now left left with an SMP agreement which is flawed and deeply inadequate, as described above. To what extent, if any, the country's policies, or their lack, may have led to this situation is not clear.

What next—solutions to the current situation

  Regardless of what may or may not have been undertaken by the various governments involved in the past, there is an area which I have briefly focussed on which has not yet been tried out. This involves all the major oil companies that are present in Angola. It is an initiative which has been started by the UK Government and which, I hope, can also include a significant involvement from the US Government, together with the initial moves which are being made by the UK Government, and which will hopefully also involve other governments as the strategy moves forward.

  As I have already described above, there is clear complicity of the oil companies in Angola in the looting of state assets. Many of the companies are clearly and genuinely concerned about this situation, I think both in terms of the implications for the Angolan people, but also because it does not make sound business sense to be operating in an utterly corrupt environment. There are others, unfortunately who are directly involved in this problem, and I would like to provide more detail in private.

  The key for the companies to escape this charge of complicity is that they need to publish all payments they make to government in all the countries of operation. Effectively, they already do this across the developed world - so why not for all countries. It is clear that for companies that are not involved in illicit payments that this should not be a problem.

  If the companies were to adopt such a change across all countries of operation, the result would be to "de-Angolanize" the issue—the companies could then easily explain their move as part of a global move to reform accountancy practice to adopt highest standards in order to act as "responsible global citizens" regarding issues of corruption and lack of transparency. If such a move was adopted, no one country could blame a company for its actions, since these would take place internationally. It is certainly clear that a similar move would be of immense value in countries such as Nigeria, Gabon, Cameroon, Congo-B, and the DRC, to name just those in Africa.

  I hope this is a strategy which appeals to the International Development Committee and that Global Witness might be able to ask for your assistance to take this forward. Angola desperately needs a radical change, and although this will not cure the ills, such a move would provide the necessary data (at no cost to the companies), which would at least allow Angolans to start the process of holding their Government to account for its actions. In addition, I strongly believe that genuine transparency on behalf of the companies, together with a real focus on this issue from the international community would be a major help to the IMF in its efforts through the SMP and any subsequent agreements.

Simon Taylor, Global Witness

January 2001

  For further information regarding this issue, the following documents will be useful:

  "A Crude Awakening"; Global Witness; December 1999. Available at:

  "A Rough Trade"; Global Witness; December 1998. Available at

  The New Yorker; August 14, 2000—Page 46-59—"Letter from Angola—Oil and Blood" by Jon Lee Anderson.

  "The International Monetary Fund's Staff Monitoring Program for Angola: The Human Rights Implications"; A Backgrounder by Human Rights Watch—June 22, 2000—updated and available from:

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