Memorandum from Global Witness
EXECUTIVE SUMMARY
1. The Treasury Select Committee is soliciting
submissions on various transparency issues in relation to offshore
financial centres. However, these questions do not mention the
crucial role of offshore financial centres in facilitating corruption
and mismanagement of public revenues in developing countries rich
in natural resources, and consequently their negative impact on
development objectives and poverty reduction.
2. Global Witness believes this is a serious
oversight, given that the UK has made a strong commitment to address
transparent and accountable management of public revenues from
natural resources in its foreign and development policies, and
we hope our submission will encourage the Committee to include
the facilitation of corruption in its survey of the impacts of
offshore financial centres.
3. Our submission outlines one specific
country study illustrating the crucial role of offshore mechanisms,
including UK offshore centresbut also UK onshore entitiesin
providing the means for mismanagement and looting of state oil
revenues in the Republic of Congo (Congo).
4. This case study details three aspects
of how such offshore structures were used, namely:
How oil-backed loans were contracted
in contravention of agreements with the IMF and disbursed through
untransparent offshore structures, in several cases with the assistance
of Western banks and international oil companies.
How senior Congolese officials diverted
oil revenues using discounted sales through offshore shell companies
in a complex structure that at one point involved a UK registered
company (Sphynx UK), and the role played in this structure by
French bank BNP Paribas and international oil traders.
How state oil revenues channelled
through these offshore structures appear to have been transferred
to shell companies owned by the President's son and subsequently
used to pay his personal credit card bills.
5. We suggest that the UK government's commitments
to development and poverty reduction are meaningless, and the
money being spent on development wasted, if in practice offshore
financial centres are being used to structure transactions that
permit public officials in countries such as Congo to hide lending
from international financial institutions, disguise ownership
of assets, evade creditor judgments, and divert public revenues
into private hands.
6. Finally, we suggest some specific steps
the UK government could take to improve the transparency of offshore
transactions and hence begin to address the abuse of such structures
by irresponsible or corrupt officials.
INTRODUCTION
7. Global Witness investigates the link
between natural resources and the funding of conflict and corruption
(see www.globalwitness.org). We aim to promote improved governance
and transparency in the natural resource sector to ensure that
revenues accruing from resources such as oil, gas, mineral and
forests are used to promote peaceful and sustainable development.
Our work was a driving force behind the Kimberley Process, which
aims to curb the trade in conflict diamonds, and the Extractive
Industries Transparency Initiative, which sets a global standard
for greater transparency in the extractive sector by encouraging
companies to publish revenue flows to governments and governments
to disclose what they receive.
8. Global Witness was co-nominated for the
2003 Nobel Peace Prize for its leading work on conflict diamonds,
and awarded the 2007 Commitment to Development Ideas in Action
Award, sponsored by Washington DC-based Center for Global
Development and Foreign Policy magazine.
9. For many of the poorest countries in
Africa, South America, and Asia, the biggest inflow of wealth
for the foreseeable future will be payments for oil, minerals,
and other natural resources. In 2006, according to the World Trade
Organisation exports of oil and minerals from Africa were worth
roughly $249 billion, nearly eight times the value of exported
farm products ($32 billion) and nearly six times the value of
inflows of international aid ($43 billion), according to the UNDP.
With the price of oil and many other minerals reaching record
highs, this gap will only widen over the next decade.
10. This huge transfer of wealth could be
one of the best chances to lift many of the world's poorest and
most dispossessed citizens out of poverty. Yet in the countries
where Global Witness has workedsuch as Angola, Sierra Leone,
Liberia, Republic of Congo, DR Congo, Cambodia, Kazakhstan and
Turkmenistannatural resources have led to impoverishment,
rent seeking and greater institutional corruption, authoritarian
government, and in some cases, conflict.
11. What unites all these resource-rich
countries is the emergence of a "shadow state"; one
where public office becomes the means to personal self-enrichment
and where state institutions are subverted to maintain the power
of a corrupt elite. Behind the façade of laws and government
institutions lies a parallel system of rule by patronage and crony
capitalism. Through the wholesale subversion of civic institutions
and the use of coercion, the leaders of such states divert state
wealth for personal gain or use it to fund a bloated military
and security apparatus.
12. Kleptocratic elites generate much of
their illicit wealth by the expropriation of the natural resource
wealth which belongs to the country's population, with catastrophic
long term impacts on the country's economy. Asset stripping at
this level is thus not just a criminal activity but a violation
of the basic human rights of the population, as social and economic
breakdown inevitably follow when vast amounts of capital are siphoned
off by unaccountable officials into overseas private bank accounts.
Mismanagement and outright looting of natural resources fundamentally
undermines the ability of the state to provide basic services
for its people, diverts funds that should go towards economic
and social development, and destabilises whole societies. In the
worst cases, it leads to conflict and failed states.
13. In its 2006 report The Other Side
of the Coin, the Africa All-Party Parliamentary Group recognised
the role of developed country economies and financial systems
in contributing to corruption in the developing world. Private
sector banks play a role but an equal part is played by offshore
financial centres, which provide a crucial "veil of secrecy"
behind which corruption can flourish.
14. The submission to this inquiry from
our colleagues at the Tax Justice Network (TJN) sets out in detail
the various mechanisms by which offshore financial centres contribute
to corruption and poverty. Our submission should be read in conjunction
with TJN's, providing analysis of a specific example of how use
of offshore mechanisms lies at the heart of oil sector mismanagement
in one African resource rich country. The Republic of Congo is
a clear example of the way mismanagement of oil wealth not only
leads to lack of economic and social development, but can entrench
corruption, lack of democratisation and instability.
15. Finally, we suggest some steps the UK
government could take to ensure that its Overseas Territories
do not provide safe haven to looters of public assets.
The role of offshore financial centres in facilitating
mismanagement and diversion of Congo's oil revenues
16. Congo is Sub-Saharan Africa's fourth
largest oil producer, with estimated earnings from oil of around
$3.6 billion dollars in 2006.[393]
It is a classic petro-dictatorship whose current leader, President
Denis Sassou Nguesso, who first came to power 1979 and, after
a brief period of democracy from 1997, was returned to government
after a brutal civil war in 1997.
17. Corruption and mismanagement in Congo's
oil sector is well documented. Despite decades of oil production,
it remains one of the poorest and most indebted countries in the
world, and the struggle to control its oil wealth has been a major
factor in the country's several bloody civil wars.[394]
It is also one of the countries most associated with the "Elf
system", a series of corruption mechanisms instigated by
the ex-French state oil company (later privatized as part of oil
company Total) designed to maintain its control over the leaders
of African oil producers.[395]
18. In March 2006, the country was controversially
granted access to debt relief through the Heavily Indebted Poor
Countries (HIPC) programme. This was despite what the IMF and
World Bank called "serious concerns about governance and
financial transparency" focused on mismanagement of its national
oil company, Société Nationale des Pétroles
du Congo (SNPC).
19. Ironically, SNPC was created in 1998
to market oil on behalf of the state and to represent Congo's
interests with the private operators more effectively.[396]
However, lack of transparency and accountability at SNPC has led
not to improved management of the country's oil but to strong
suspicions that public wealth is being transferred to private
hands.
20. Global Witness and Congolese anti-corruption
activists have long campaigned for reform of SNPC, because its
opacity raises the risk of Congo's oil wealth being mismanaged
and misappropriated. In return for debt relief, reform of the
oil sector was put at the top of Congo's development agenda. The
country explicitly committed to "bringing the internal controls
and accounting system of [SNPC] up to internationally recognized
standards; preventing conflicts of interests in the marketing
of oil; requiring officials of SNPC to publicly declare and divest
any interests in companies having a business relationship with
SNPC".[397]
21. In fact, since 2003, there have been
some improvements in transparency. SNPC has, under pressure from
the IMF and civil society, published a large amount of data describing
its management of the country's oil wealth.[398]
However, issues of the accuracy and completeness of data provided
to independent auditors remain. What the increased scrutiny has
revealed, in fact, is huge amounts of state revenue unaccounted
for.[399]
It is telling that auditors KPMG, while finding improvements in
SNPC's accounting standards, will still not sign off on SNPC's
accounts, despite several years of audits.[400]
For the last year of published accounts, 2005, auditors still
had no access to the books of Cotrade, SNPC's marketing arm. Cotrade
is cited as having a lack of internal controls, lack of documentation
for most commercial operations, lack of supervision, governance
and reporting structures, with a subsequent risk of fraud. Overall,
the auditors found it "impossible" to understand the
revenue flows to the state.[401]
22. Congo's record on oil sector governance
remains poor: the country has failed to meet the targets of the
HIPC programme and still has not performed well enough to get
back on track with an IMF programme. Much of the poor performance
relates to the country's failure to implement agreed transparency
reforms in oil sector and public revenue management, including
huge budgetary overruns and the racking up of hundreds of millions
of dollars in new debt.[402]
23. In fact, many of the discrepancies and
questions concern the black hole of Cotrade, and the poor performance
of SNPC in marketing the state's oil, which has been sold consistently
at a large discount to the market price. Moreover, both the government
data and evidence from court cases taken by litigating creditors
suggest that Congolese officials use offshore centres to structureor
obscureoil sales and associated lending. This not only
prejudices the public purse but also reveals officials reaping
personal benefit, aided and abetted by commercial actors in the
North.
24. Such were the concerns raised when Congo
was due to receive debt relief that the international financial
institutions insisted on an independent diagnostic of SNPC's method
of marketing oil, as one of their key conditions. In June 2008,
the IMF summarized the findings thus: "As for SNPC, a diagnostic
of its marketing operations shows institutional and procedural
deficiencies that have led to substantially lower oil revenue
over the recent past, and raises serious governance concerns".[403]
The analysis confirmed that for the period 2003-05 Congo's oil
was sold at an exceptionally low price and estimated the use of
pre-payments or short term advances on cargos from buyers with
very high rates of interest and fees to have cost Congo 13.1%
of its net oil revenues, just over US$533 million (225.8 billion
FCFA).
25. This case study details the use of such
offshore structures, namely:
How oil-backed loans were contracted
in contravention of agreements with the IMF and disbursed through
untransparent offshore structures.
How senior Congolese officials diverted
oil revenues using discounted sales through offshore shell companies
in a complex structure that at one point involved a UK registered
company (Sphynx UK), and the role played in this structure by
French bank BNP Paribas and international oil traders.
How state oil revenues channelled
through these offshore structures appear to have been transferred
to shell companies owned by the President's son, Denis Christel
Sassou Nguesso and another top official, and were subsequently
used to pay credit card bills used to purchase designer goods.
Disbursement of oil-backed loans through untransparent
offshore structures
26. A major factor in Congo's huge indebtedness
is its use of oil-backed loans. These are loans given by commercial
banks to governments or parastatals (such as state oil companies)
that are repaid from the revenues from future oil production.
The IMF and World Bank have condemned such lending, since it contributes
to the opacity of the government's fiscal management, usually
has high associated costs and fees, and because fluctuations in
oil prices can render oil-backed loans a very bad deal for the
country concerned.[404]
27. Oil-backed lending was first instigated
in Congo under the Elf system (see para 17) in order to create
conditions of deliberate indebtedness that increased the company's
leverage over political leaders. Ultimately such lending destabilized
the country's fiscal management and even financed civil conflict.[405]
The main lender to Congo more recently has been the French bank
BNP Paribas: between 1999 and 2003 it has been estimated that
loan agreements with BNP Paribas totaled $650 million, costing
Congo $1.4 billion in repayments.[406]
28. Offshore tax havens appear to be integral
to oil-backed loans given that the revenues usually flow into
an offshore account outside the borrower country. One reason may
be the tax planning requirements of the lender, but this offshore
structure also means that such loans are inherently open to abuse
by borrower countries because of their opaque nature, falling
outside any public oversight afforded by the normal budgetary
process.
29. Under numerous IMF programmes, Congo
repeatedly promised not to contract any new oil-backed loans (with
"loans" being defined in this case as any debt that
is contracted but not repaid within the same calendar year).[407]
Congo also claimed to have ceased short-term pre-financing of
oil sales ("prepayments") in July 2004.[408]
However, according to analysis by KPMG, such prepayments continue
unabated despite Congo's promises.[409]
30. The inclusion of prepayments is important
because such short-term loans have extremely high associated costs
in interest and commissions, as successive audits and the marketing
diagnostic found. In 2004 alone, for instance, comparing data
published by the Congolese Ministry of Finance with loan data
analyzed by the independent auditor (KPMG), Global Witness estimated
that the annualized cost of such short-term advances to Congo
was 40%. In 2003, the cost was even steeper, a staggering 170%,
with an average loan term for both years of approximately 27 days.
31. Analysis by GW has also revealed a pattern
of increasing secrecy and complexity in the structures through
which both long and short-term oil-backed loans are routed, with
funds often being channelled through shell companies or Special
Purpose Vehicles (SPVs) registered in offshore financial centres.
This complexity appears partly to have been an attempt to avoid
Congo's assets being seized by aggressive private creditors (pejoratively
termed "vulture funds") who bought discounted sovereign
debt and then pursued their claims through the UK, US and French
courts.[410]
Most of these creditors have now settled with Congo but the litigation
they initiated has brought into the public domain an additional
wealth of information about mismanagement of Congo's oil wealth.
32. Indeed, apart from their high costs,
such inherently opaque lending arrangements greatly increase the
risk of public revenues being mismanaged and misappropriated.
Pre-paid oil sales, as will be seen below, are being routed through
offshore shell companies controlled by Congolese officials, with
evidence of personal enrichment by the officials in question.
Thus in terms of both cost and governance risks, there appears
little commercial justification for such long or short term loan
structures.
33. Congo's oil marketing practices will
be discussed further in the next section. This section raises
questions regarding the use of offshore structures for long-term
oil-backed lendinginstigated when Congo had on paper committed
to ceasing such borrowingand whose negative impacts on
Congo's public finances are still being felt today.
The Likouala deal: use of offshore structures
to shift assets off-balance sheet and hide oil-backed lending
from public scrutiny?
34. In 2003, Congo reached a global settlement
with French oil company Total over a longstanding dispute (the
"Accord Général Transactionnel" or AGT
in its French acronym). Part of the settlement involved transfer
of Total's 65% interest in the Likouala oilfield, valued at $160
million, to Congo. However, the interest was then immediately
transferred on to a shell company, Likouala SA, registered in
Congo, which paid the government $80 million with the option of
a further $80 million for the asset. These funds were provided
to Congo via an oil-backed loan taken out by Likouala SA. At the
time, the Congo had committed to the IMF to abstain from contracting
any new long-term oil-collateralized debt.[411]
It is clear that if Congo were the owner of Likouala S.A., then
this deal would have directly contravened the country's commitments
to the IMF not to seek any further oil-backed loans.[412]
35. However, the lack of transparency and
public information about the deal raised governance concerns.
Firstly, it still remains to be determined whether the original
valuation of the oilfield share at $160 million was correct. Secondly,
there is also no public information about what revenue flows are
being used to service the loan taken out by Likoula SA, nor what
the total value of all the revenues from the Likouala shareholding
are, and finally there are questions over the destination(s) of
this revenue stream, given the fact that the ownership of Likouala
SA is unclear.
36. According to a Congo government press
statement,[413]
Likouala SA was not a standalone company but belonged to either
to Congo, SNPC or Total. If this is correct, it would not be an
independent private company and this deal cannot have been an
arms-length transaction. For its part, Total stated that it had
"assigned its 65.0% interest in the Likoula concession"
its 2003 Annual Report[414]
and in its submission to the US Securities and Exchange Commission
for the year ending 2005 stated that "[u]nder an agreement
signed in 2003 with the Republic of Congo, Total sold its 65%
interest in the Likouala concession".[415]
The company later confirmed by letter to Global Witness that it
"holds no interest in Likouala SA".[416]
37. At the time, Global Witness believed
that these statements by the Congolese government and Total suggested
that the Congolese government must be the owner.[417]
Additional support for the hypothesis that the loan to Likouala
SA was really a loan to the Congo government comes from a draft
of the agreement between Total, Congo and Likouala SA obtained
by Global Witness. This draft states that Congo's share of excess
oil has been assigned to Likouala SA for the purposes of repaying
this loan.[418]
38. Nevertheless, the deal was done with
the knowledge of Total, the original shareholder. Indeed, Total
continued to be operator of the field, and a Total employee, Andre
Bahoumina, was appointed Sole Managing Director of Likouala SA.
39. Further investigation by Global Witness
leads us to believe that the Likouala transaction was structured
through companies based in offshore financial centres, including
the UK offshore centres Jersey and the BVI. Given that the questions
about the Likouala deal which Global Witness identified in 2004
have still not been resolved, including who the beneficial owner
of Likouala SA is, we believe it is imperative to find out what
exactly these offshore structures were, and what role they played
in the deal.
Using offshore structures to market the state's
oil
40. In 28 November 2005 in the "Nordic
Hawk" case, the UK High Court issued a judgment in favour
of a US creditor of Congo, Kensington, which was attempting to
seize proceeds of an oil cargo in payment of their debt.
41. The case revealed that senior Congolese
officials, including the head of SNPC, Denis Gokana, and the President's
son, Denis Christel Sassou Nguesso (head of Cotrade, the marketing
branch of SNPC) were involved in selling the state's oil through
an elaborate web of offshore trading companies. According to the
judgment, at least US$472 million of Congo's oil revenues had
passed through two shell companies, Sphynx Bermuda and Africa
Oil and Gas Corporation (AOGC).
42. The sales were under market price and
according to the judgment, the profits ended up in the bank accounts
of AOGC. This system of front companies was single-handedly controlled
by Denis Gokana, both while he was a special adviser to the Congolese
President and in his current position as CEO of SNPC, a blatant
conflict of interests that is prohibited by SNPC's byelaws.
43. The judgement stated that:
"Mr Gokana orchestrated the chain of transactions
between Sphynx Bermuda and SNPC. He had control over all the entities
concerned and directed what should take place, including the creation
of contractual documents and invoices which were intended to present
the appearance of commercial transactions between independently
operated companies. This was a fiction".
44. The judgment found that the primary
aim of this structure was to keep oil revenues out of the hands
of creditors.[419]
However, it also highlighted that "the assets of AOGC, and
particularly its cash assets, remained shrouded in mystery".
Who is benefiting from this "fiction"?
45. However, Global Witness believes there
are two important pieces of evidence that mean that it cannot
be discounted that monies reverting to AOGC from sales through
offshore structures could have been siphoned off for personal
enrichment.
46. Firstly, if the only reason for using
offshore companies was to conceal the sale of oil sales by the
Congolese state from its creditors, then why would it be necessary
to sell that oil to such companies at heavily discounted prices,
which is detrimental to the Congolese state? Why did SNPC not
take the much simpler route of selling the oil to front companies
at a market price? During 2003, Global Witness estimated that
Sphynx paid on average 9.6% below the official Congolese tax price
(resulting in lost revenue of around US$15 million compared with
sales at market price).[420]
47. Indeed, to do so would simply complicate
the return of the funds to the SNPC, which is now audited and
would need to account for the source of this money to its auditors.
As previously stated, the judgment notes the anomalies in price
between the sales contracts produced during the case and the figures
reported to the auditors. Indeed, it is our view that selling
the oil to the shell company at a market price would be an easier
and more effective way to avoid creditors seizing the monies,
whilst ensuring that SNPC got full value for the oil.
48. On the basis of extrapolation from the
profit made on one cargo sold by the SNPC to a Gokana vehicle
which then sold it on to an independent trading company in June
2005, Global Witness estimates some US$30-40 million in value
at least may have been transferred to these companies. In addition,
Gokana-controlled companies made short term loans to the SNPC
at very high costs, further draining the state's resources.[421]
49. Indeed, Gokana himself admitted in his
testimony to personally profiting from the sales, despite his
companies adding no value to the transactions and running no commercial
risks. For instance, in 2003 AOGC generated net earnings of around
$2 million and in 2004, Gokana obtained a return of around 157,800%
on his initial capital investment. Indeed, it was necessary for
Gokana to admit that he personally benefited from these deals
in order to make the argument that the "façade"
was not a state-sponsored mechanism, as was being claimed by the
litigating creditor.[422]
50. Secondly, according to press reports,
AOGC has been awarded a 10% interest in Marine Block XI, an offshore
oil concession in the Republic of Congo. Essentially, Gokana,
head of the national oil company, awarded AOGC, his own private
company, part of a state asset, a blatant conflict of interest.
There is no public information about the terms on which AOGC participates
in the block, which is to be operated by consortium led by the
UK-AIM registered trading company SOCO International. Soco has
a 75% interest in the block and SNPC the remaining 15%.[423]
If the aim of creating a convoluted series of shell companies
is simply to avoid seizure of oil by creditors, it is unclear
why AOGC would be awarded an interest in an oil concession.
51. SOCO will in fact own only 85% of its
75% share in the block through its subsidiary SOCO Exploration
and Production Congo (SOCO EPC). There is no public information
about the beneficial owners of the other 15% of SOCO EPC.[424]
In addition, Soco's press release states that "The Group
is in discussions with various parties to farm-out a portion of
its interests in Marine XI": according to press reports,
this portion could be transferred to Vitol and the Swedish Lundin
group.[425]
52. The Chairman of SOCO International was
the now deceased Patrick Maugein and one of its Directors is Rui
de Sousa. According to SOCO's 2004 annual report, de Sousa is
a director of Quantic Limited (Quantic), registered in the Bahamas.
Maugein and de Sousa each held a 25% shareholding in Quantic,[426]
which is also listed in KPMG's analysis of sales as buying cargoes
at under market price from the SNPC.[427]
53. An audit of the Marine XI concession
and Congo's awarding of concessions in general was subsequently
carried out under the IMF programme. In 2007, the audit report
found a lack of clear regulatory framework, controls and potential
conflicts of interest among SNPC officials.[428]
Gokana claims to have subsequently divested himself of his interest
in AOGC and was never sanctioned by the Congolese government.
Sphynx UK: what is the role in the scheme of a
UK-registered company?
54. A third shell company, this time registered
in the UK, Sphynx UK, also appears to be related the Gokana scheme,
although it appears no transactions actually passed through this
company. Sphynx UK, according to the November 2005 Kensington
judgement, has "earned no revenues since its establishment
but plainly exists for no other purpose than to act as a contact/service
company for Sphynx Bermuda" (para 98). However, "Sphynx
UK never made any charges to Sphynx Bermuda for its services and
its accounts showed loans from Mr Gokana and Sphynx Bermuda"
(para 96).
55. According to its articles of incorporation
listed in Companies House,[429]
Sphynx UK Ltd is a UK-registered company, formed in 2002. Its
beneficial owner as listed in its 2004 Annual Return is Litchfield
Development, a Bermudan company. It was not possible, because
of the offshore ownership structure, for Global Witness to determine
who the beneficial owner of Sphynx is.
56. Sphynx UK's annual returns indicate
no signs of meaningful business activity. Its annual filing at
Companies House indicates that Sphynx UK reported no revenues
and costs of £83,480 in the year to January 2004. The financial
picture in the preceding year was similar, although costs were
higher at £108,627. Because of this, the company has no liability
for UK taxation.
57. Global Witness has documentation (a
Bill of Lading, which certifies that the cargo described has been
shipped) for a 16 June 2004 cargo sold by SNPC to Sphynx UK.[430]
Comparison with the quarterly certifications of oil sales shows
that shipment to have been sold at a significant discount to the
official oil price, or "prix fiscal", demonstrating
that below-market value transactions with Sphynx continued into
2004. Following the pattern of other cargos sold by Sphynx, according
to the certifications for the second quarter of 2004, SNPC reported
to KPMG that it sold the cargo for $23.770/bbl, a huge discount
of $6/bbl below the official tax price of $29.706.[431]
58. Furthermore, although the bill of lading
first cites Sphynx UK as the consignee of the oil it describes
French bank BNP Paribas as the consignee.[432]
The same person, Simon Chaffey is listed as the contact for both
Sphynx UK and BNP Paribas. Chaffey is described in High Court
judgment Kensington as having first worked for SNPC UK, SNPC's
London trading arm then for Sphynx UK.
59. Sphynx UK according to the November
2005 judgment, has "earned no revenues since its establishment
but plainly exists for no other purpose than to act as a contact/service
company for Sphynx Bermuda". However, "Sphynx UK never
made any charges to Sphynx Bermuda for its services and its accounts
showed loans from Mr Gokana and Sphynx Bermuda".
60. Global Witness believes the UK authorities
should investigate the role of Sphynx UK as an apparent front
company doing no legitimate business in the UK. Although it appears
that transactions did not pass through Sphynx UK, its connection
to the wider sales scheme should be investigated.
61. In addition, Africa Oil and Gas, the
Gokana vehicle which received the profits from the under-selling
of state oil through this scheme, is involved in a joint venture
with a UK-AIM registered company, SOCO International.
62. On subsequent cross examination in September
2006, Ike Nwobodo, a Nigerian oil trader at the centre of the
operation, gave evidence to the effect that sales of oil through
intermediary offshore companies under the control of Gokana, and
the receipt of monies upfront in the form of extremely expensive
pre-payments, continued despite the finding against Congo in November
2005. All that changed were the names of the shell companies used.[433]
63. Moreover, in further court actions taken
by Kensington, Congo's main creditor, Kensington alleged that
oil traders were aiding the Congolese to evade the judgment, principally
by setting up their own offshore structures to buy the oil from
the sham Gokana offshore vehicles.
"Our internal deal-churning factory":
active complicity in the offshore marketing scheme by a UK-registered
international oil trader?
64. According to estimates by Kensington,
a creditor of Congo, since 2002, international oil trader Vitol
has purchased nearly US$3 billion of oil from Congo. Evidence
and testimony from the Nordic Hawk case and subsequent cross-examination
of Ike Nwobodo, the trader at the centre of the Sphynx marketing
scheme, suggest that Vitol companies registered in the UK, and
top Vitol employees based in London actively assisted Congo, post
the November 2005 judgment, to maintain its opaque offshore marketing
scam by creating two purpose-built shell vehicles (Vitol Bahrain
and Global Oil Trading Mauritius) to buy oil.
65. Kensington took out several court actions
against Vitol in Geneva and London in 2006-07 on the basis that
it was helping Congo to avoid paying its creditors. On 26 May
2006, a UK High Court judgment found in Kensington's favour: "there
is evidence that Vitol Group (that is, Vitol Broking, Vitol Services,
Vitol SA and other companies in the Vitol Group) [...] has played
a role and a significant role in the dishonest judgment-proofing
scheme".[434]
The judgment refers to documentary evidence including emails between
Vitol employees and Ike Nwobodo referring to the setting up of
shell companies by the Vitol Group to buy from a new Gokana offshore
vehicle, Phenicia: "[Vitol] agreed to deal with Phenicia
without question and promptly changed its own practice by creating
a new vehicle through which to buy the Congo's oil, Global Oil
Trader Mauritius (`GOTM')".
66. In one particular email of 21 February
2006 to Nwobodo, a Vitol employee, Giles Chautard, refers to routing
offshore sales through "our internal deal churning factory
here". The judge finds that "structuring the oil sales
with the use of new companies to replace earlier entities, Mr
Chautard [a Vitol oil trader] and his colleague Mr Lambrosa [Chief
financial officer of the Vitol Group], and thus the Vitol UK Companies
and the Vitol Group, must have appreciated that the purpose of
using these vehicles was in order to prevent detection by the
Congo's judgment creditors of the oil sales".
Payments made by Vitol to Congolese officials
via offshore vehicles?
67. What is of even greater concern to Global
Witness are allegations made by Kensington against Vitol that
corrupt payments were made via a Vitol-owned offshore vehicle
called Peakville into the Hong Kong bank account of Long Beach
Limited, the Anguilla shell company belonging to the President
of Congo's son and head of the marketing branch of SNPC, Denis
Christel Sassou Nguesso.
68. On 15 January 2007, Don Shwarzkopf,
a consultant for Kensington, alleged in an affidavit that:
"[T]here appear to be only two credible
alternative explanations for the payments by Peakville and Vitol
SA into the Long Beach account. Either these constitute monies
paid to and held by Congo for its own convenience, to be hidden
from creditors ....; or, put candidly, they are corrupt kickbacks
or rake-offs in return for the placing of valuable business with
Vitol ...."
69. If Kensington's allegations are correctthis
accusation was not finally resolved due to Kensington settling
its dispute with Congothen it raises further disturbing
questions regarding the use of offshore sales structures.
70. On 7 November 07 three appeals by Vitol
were dismissed in the UK High Court arising out of various proceedings
brought by Kensington. Two of the appeals related to restraining
orders on oil purchases from Congo or orders to disclose information
about specific sales, while the third related to a court order
for the UK Vitol companies and Vitol employees "to disclose
certain information relating to payments said to have been made
in Hong Kong by or on behalf of Vitol S.A. to employees or representatives
of the Congo by way of bribes".[435]
The Vitol companies and employees had resisted disclosure of information
related to these payments by claiming privilege against self-incrimination
under the Fraud Act, which applies when "there are real grounds
for thinking that the information [the person] is being asked
to provide, or the documents he is being asked to disclose, are
such as would tend to incriminate him".[436]
71. The Appeal hearing thus upheld the findings
of Justice Gross in July 2007, who characterized Vitol's case
as follows:
"Faced with such accusations, an obvious
response of a reputable trader might well involve an indignant
root and branch factual refutation of the allegations in question,
perhaps coupled with an expressed willingness to assist the judgment
creditor so far as it was able to do so. That, however, is not
the stance adopted by the Third Parties [Vitol]. To the contrary,
while resolutely making no admissions to any of the allegations
made by Mr. Schwarzkopf, the entire thrust of the Third Parties'
case is that those allegations could, if proved, amount to criminal
conduct under the laws of this country. They go on to assert the
privilege against self-incrimination pursuant to section 14 of
the Civil Evidence Act 1968".[437]
72. Kensington has now reached a settlement
of its debts with Congo, so the Vitol case has effectively been
shelved. However, given the UK courts found that Vitol's UK-registered
and headquartered companies, and UK employees, had aided Congo
to evade a UK court judgement and move money offshore to avoid
seizure by creditors, and given Kensington's allegations of corrupt
kickbacks combined with the fact that Vitol and its employees
resisted testifying by claiming privilege against self-incrimination
on the grounds that "those allegations could, if proved,
amount to criminal conduct under the laws of this country",
Global Witness believes that this case should be investigated
further by the UK authorities.
73. This case again reveals evidence of
public officials, with the aid of UK-registered companies, making
use of offshore structures to deliberately obscure transactions
of state oil, thus evading judgments by UK courts and possibly
facilitating the diversion public revenues into private hands.
The President's son uses offshore structures to
pay for lavish personal spending from funds derived from Congo's
oil money
74. In March 2003, Denis Christel Sassou
Nguesso, son of the President of Congo and the official with overall
responsibility for marketing Congo's oil, set up an offshore company
in Anguilla, a UK Overseas Territory, which was then able to open
an account in Hong Kong at Bank of East Asia. This bank account
received funds, via other shell companies, that appear to be derived
from state oil revenues. Mr Sassou Nguesso's monthly personal
credit card expenses, which ran into hundreds of thousands of
dollars over a two year period, were paid off from this account.
In one month alone, August 2006, Mr Sassou Nguesso spent US$35,000
on designer shopping.[438]
The President's son and other top official set
up offshore vehicles in Anguilla
75. Long Beach was incorporated in Anguilla
in March 2003, although its business address is stated as being
in Hong Kong, the same address as a company services provider
called ICS.[439]
According to ICS documents, Long Beach's shareholders and directors
are Orient Investments Ltd and Pacific Investments Ltd, which
are both Anguilla-based companies in the ICS group that provide
nominee services.[440]
However, a Declaration of Trust document shows that Orient and
Pacific were actually holding the shares in trust for Mr Sassou
Nguesso, who was the ultimate beneficial owner.[441]
76. An identical offshore structure was
set up by ICS in Anguilla on 4 June 2002 for Blaise Elenga, formerly
general counsel for SNPC and now deputy head of Cotrade, Elenga
Investment Limited (EIL). EIL was also used to pay his personal
credit card bills.
Proceeds of Congolese oil cargoes paid into the
Long Beach and EIL shell accounts
77. Long Beach opened a bank account at
Bank of East Asia in Hong Kong in November 2003, account number
015-514-25-10518-6. Orient Investments, based in Anguilla, acted
as the sole signatory on the account.[442]
EIL also had an account at the same bank.
78. Two specific cargos of Congolese oil
are referenced in transfers to Long Beach's account at Bank of
East Asia. A $150,000 payment on 12 April 2005 from Antoine Jadakat,
a name unknown to Global Witness, references the Genmar Spartiate
cargo, sold by Congo on 17 January 2005; and another cargo
shipped on the Tanabe on 21 March 2005 is referenced in a payment
of just over $322,000.
79. Bank of East Asia records also show
payments into Long Beach and EIL from the offshore companies used
to sell Congo's oil opaquely and at a discount, Sphynx Bermuda
and Africa Oil and Gas Corporation (AOGC)[443]
Long Beach received a payment of $299,967 from AOGC on 10 November
2004 while EIL received similar payments from AOGC. On 22 January
2004, for instance, EIL received just under US$50,000 from AOGC
via Banque Belgolaise in Paris.
80. EIL also received payments from a company
called Pan Africa during 2002 and 2003. Pan Africa is yet another
offshore corporate vehicle operated by the same secretarial services
company in Hong Kong that set up EIL and Long Beach. According
to an affidavit by its owner, Jean Yves Ollivier, who describes
himself as "a friend of President Sassou-Nguesso", Pan
Africa "has been involved in organised [sic] oil-collateralised
loans for SNPC" since 2002, and has received payments from
SNPC as "success fees". In 2003, for instance, Pan Africa
received a payment of $1 million into its account at Standard
Chartered Bank in Hong Kong.
81. In a first affidavit, Ollivier states
that "there are no business transactions involving Long Beach,
EIL [...] and Pan Africa" and denies ever having heard of
EIL or Long Beach. In subsequent testimony, after evidence of
payments into EIL accounts emerged, he says his previous affidavit
may be "technically incorrect" and affirms that a payment
of $185,000 in 2002 plus "further funds" were a personal
loan to Elenga.[444]
Payments from the Long Beach and EIL accounts
to settle personal credit card bills
82. Four letters on Long Beach letterhead,
between May 2004 and September 2006, request that Bank of East
Asia arrange for payment, from the Long Beach Limited account,
of Mr Sassou Nguesso's monthly credit card bill.[445]
The letters are signed by Orient Investments on behalf of Long
Beach.
83. The credit card bills themselves, seen
by Global Witness, account numbers 5430 9600 6810 1330 and 5411
2340 4010 1039, are in Mr Sassou Nguesso's name and are addressed
to the Hong Kong address of ICS Trust (Asia) Ltd, one of the ICS
group companies.
Responsibility of the bank
84. There are questions remaining unanswered
relating to the Hong Kong bank, Bank of East Asia, and its policy
of "know your customer" due diligence and account monitoring.
In order to comply with "know your customer" requirements,
the bank should have found out who was behind Long Beach, established
whether the beneficial owner was a politically exposed person,
and if so, should have performed heightened due diligence. This
should have included monitoring ongoing activity on the account
including oil-related payments from companies controlled by public
officials. Global Witness wrote to Bank of East Asia to ask about
its due diligence in this case, but it declined to answer our
questions.
Responsibility of the trust and company service
providers: how was the President's son, with control over the
key source of state revenues, able to set up a shell company no
questions asked?
85. However, the purpose of this story for
this submission is to illustrate the role of trust and company
service providers in a UK Overseas Territory in setting up a company
for a politically exposed person, opening a bank account for him
that received Congolese oil revenues, and providing instructions
to the bank to arrange for payment of his personal credit cards
from this account.
86. Global Witness wrote to ask Orient Investments
what due diligence it had done on its customer Denis Christel
Sassou Nguesso, whether it had established if he was a politically
exposed person, and to request copies of its customer due diligence
policies, but it did not reply.
87. Orient Investments signed, on behalf
of Long Beach, a customer information sheet for Long Beach, which
was held by the Bank of East Asia as part of its customer records.
It describes Long Beach's main business activities as "Trading
crude oil, gas and products (mogas, jet, gasoil, kerosene) in
Congo".[446]
From this it is reasonable to infer that Orient Investments knew
that its client's source of revenue was Congolese oil.
88. Global Witness notes that Republic of
Congo was placed 113 out of 133 countries in Transparency International's
Corruption Perception Index in 2003, the year in which Long Beach
was incorporated and the bank account was opened.[447]
As we have outlined earlier in this submission, international
financial institutions and many other observers, including Global
Witness, had raised in the public domain ongoing and serious concerns
regarding the management of public funds and in particular the
transparency of oil sector transactions in Congo.
89. Global Witness wrote to ask Orient Investments
(as well as Pacific Investments, which held the other share in
trust for Mr Sassou Nguesso) if, against the background of Congo's
standing with the World Bank, and Congo's public reputation for
corruption, enhanced due diligence was warranted on their relationship
with Mr Sassou Nguesso and Long Beach Ltd. They did not reply.
90. In December 2005 Global Witness published
information alleging that the head of the Congolese state oil
company, Denis Gokana, had sold government oil to his own companies
at prices below the market rate in order to profit from subsequent
sales to independent traders, and that these deals had been overseen
by Denis Christel Sassou Nguesso.[448]
This information was reported in the media, including by Dow Jones
on 13 December 2005.[449]
Information was therefore in the public domain raising questions
over Mr Sassou Nguesso's role in the dubious sales of Congolese
oil.
91. Yet Orient Investments, an Anguilla
company, was willing to:
take Mr Sassou Nguesso on as a customer;
hold shares in his company;
open a bank account and act as the
signatory;
declare to the bank that the company
traded Congolese oil; and
arrange for payment of his credit
card bills out of the account.
92. Pacific Investments, another Anguilla
company that is part of the same group, was willing to:
take Mr Sassou Nguesso on as a customer;
and
hold shares in his company.
93. The instructions for payment of the
credit card, sent on Long Beach letterhead by Orient Investments
to Bank of East Asia, mention Mr Sassou Nguesso by name as the
owner of the credit card. Therefore Orient Investments clearly
knew the name of the person it was dealing with. A quick Google
search would have been enough to establish that this was the son
of the President of Congo, and head of Cotrade, marketing arm
of the state oil company, and therefore potentially a politically
exposed person.
94. Global Witness asked Orient Investments
if its own due diligence had revealed that some of Mr Sassou Nguesso's
transactions from the Long Beach account appeared to be in payment
of personal expenditure by Mr Sassou Nguesso himself, and that
this personal expenditure appeared to involve extensive and regular
purchases of luxury goods; and whether this due diligence, against
the backdrop of their knowledge that Long Beach's source of income
was Congolese oil, prompted any further investigation into the
apparent payment, by a company set up to trade oil and gas products,
in respect of luxury personal expenditure by its beneficial owner.
It did not reply.
95. Global Witness has written to the Anguillan
regulator, the Financial Services Commission, to alert it to these
transactions. However, the reason that these offshore structures
were revealed in the first place was not because of regulatory
action, but only because documentation came into the public domain
in mid 2007 through litigation by Kensington over assets in Hong
Kong. Global Witness obtained and published the documents because
they appeared to show a whole circuit of diversion of public funds
all the way from sales of state oil cargoes via shell companies
through transfers of part of the proceeds to an offshore vehicle
beneficially owned by the President's son, Sassou Nguesso and
subsequently to pay for his personal expenditure.
96. In June 2007, Mr Sassou Nguesso attempted
to seek an injunction forcing Global Witness to remove this evidence
of apparent misappropriation of public funds from its website.
A UK High Court judgment in August 2007 dismissed his attempt,
saying that "it is an obvious possible inference that [Sassou
Nguesso's] expenditure has been financed by secret personal profits
made out of dealings in oil sold by Cotrade". Mr Justice
Stanley Burnton continued that the documents, "unless explained,
frankly suggest" that Mr Sassou Nguesso and his company were
"unsavoury and corrupt", and stated that where "there
is good reason to doubt the propriety of the financial affairs
of a public official, there is a public interest in those affairs
being open to public scrutiny." He concluded that "the
profits of Cotrade's oil sales should go to the people of the
Congo, not to those who rule it or their families".[450]
97. What are offshore financial centres
such as Anguillaand the others discussed in the rest of
this case studydoing to ensure that they are not used to
divert public revenues from the public purse, as this case so
graphically illustrates, and what is the UK doing to ensure that
one of its Overseas Territories is not facilitating corrupt activity?
Regulation of the Anguillan financial services industry is the
direct responsibility of the UK-appointed Governor, and thus is
also the responsibility of the UK. As the Committee will be aware,
last year's National Audit Office report, Managing risk in the
Overseas Territories, noted significant concerns about Anguilla's
regulatory capacity, along with that of other Overseas Territories.[451]
98. By failing to ensure that Anguilla is
enforcing appropriate anti-money laundering regulations, the UK
bears some responsibility for Mr Sassou Nguesso's spending of
Congo's oil money on designer shopping sprees.
99. Internationally, company service providers
have been covered by the Financial Action Task Force (FATF) regulations
since 2003. This means that they should be required to do due
diligence on their customers, and apply enhanced measures if they
are Politically Exposed Personswhich Denis Christel Sassou
Nguesso clearly is. However, implementation varies considerably
in practice. One international money laundering expert told Global
Witness, "outside the EU, there is considerable ambivalence
about their inclusion". This seems to be an extraordinary
gap, and one which the UK should tackle.
100. This case study has also shown that
there are third parties, companies and individuals, operating
in the UK itself (not even the UK Overseas Territories), as in
the case of Sphynx UK and the Vitol case outlined above, who appear
to be actively complicit with Congolese officials' use of offshore
structures to obscure transactions involving public funds, at
best depriving the Congolese Treasury of desperately needed funds
for development through mismanagement, and at worst facilitating
their misappropriation.
RECOMMENDATIONS TO
THE UK GOVERNMENT
101. The UK has made strong commitments
to ending corruption by signing the UN Convention on Corruption
and the OECD Anti-Bribery Convention. It has also signalled its
commitment to strengthening the global anti-money laundering framework
through its membership and, this year, chairing, of the Financial
Action Task Force (FATF), which sets the global standard. Most
crucially, it is committed to ending poverty, with the UK spending
£7,487 million a year on development assistance.[452]
102. But these commitments are meaningless,
and the money being spent on development wasted, if the reality
in practice is that offshore financial centres can be used to
structure financial arrangements that permit countries such as
Congo to hide lending from international financial institutions,
disguise ownership of assets, evade creditor judgments, and divert
public revenues into private hands.
103. The UK government should:
Conduct its own examinations to ensure
that its Overseas Territories are both fully compliant with FATF
recommendations, and are implementing and enforcing them effectively.
If Overseas Territories persist in failing to meet the regulatory
standards and enforce them, they should not be allowed to function
as financial centres.
Ensure that the UK itself is fully
compliant with all FATF recommendations (the 2007 FATF mutual
evaluation found the UK to be less than fully compliant on a number
of issues), so that when putting pressure on its Overseas Territories,
it cannot be accused of double standards.
Use its influence within FATF to
push for the following to be added to anti-money laundering framework:
if a government cannot account transparently for its receipt and
disbursement of natural resource revenues, and be independently
audited as doing so, then financial service providers should be
required to exercise extreme caution in doing any business with
that government, its state owned companies, or its officials in
their private capacity, and should be required to explain exactly
how their due diligence has ensured that the money that they are
taking, or loaning, is not coming from, or going to, corruption.
104. The appropriate UK authorities should
take immediate action to investigate the activities of these corporate
actors and individuals registered and/or operating in the UK who
may be complicit with facilitating the mismanagement and misappropriation
of public revenues through offshore structures.
105. We would like to thank the Treasury
Select Committee for this opportunity to make this submission,
which we would be happy to discuss further with you.
June 2008
393 Republic of Congo: Staff-Monitored Program, July
16 2007,
http://www.imf.org/external/pubs/cat/longres.cfm?sk=21190.0; Table
2, p 20. A recent Sunday Times article estimates that at
today's prices, with a production of 250,000 barrels a day, Congo
must be earning around £5.8 billion annually. See "`Vultures'
expose corruption" Sunday Times, June 15, 2008. Back
394
See World Bank Congo Country Brief, April 2005. External debt
stood pre-debt relief at $9.24 billion (end 2004). See IMF, Article
IV Consultation with the Republic of Congo, June 2007, Table 9,
p 32;
http://www.imf.org/external/pubs/ft/scr/2007/cr07205.pdf. Oil
accounts for around 65-70% of Congo's income and in 2006 government
oil revenues reached around $3 billion (1531 billion FCFA). Ibid,
Table 2, p 23. Back
395
See Global Witness, Time for Transparency, March 2004,
pp18-24. Back
396
SNPC website includes a history of the company at www.snpc-group.com.
See also November 2005 Kensington judgment, paras 44-49 and section
on "Société Nationale des Pétroles du
Congo", Congo Chapter in Global Witness, Time for Transparency,
March 2004, which quotes from an interview with Bruno Itoua in
Géopolitique Africaine. 8 May 2003, "Le pétrole,
une chance pour le Congo". Back
397
IMF, "Republic of Congo Reaches Decision Point Under the
Enhanced HIPC Debt Relief Initiative", Press Release No.
06/46 March 9, 2006,
http://www.imf.org/external/np/sec/pr/2006/pr0646.htm Back
398
See http://www.mefb-cg.org/petrole/gouv_transp.htm. This includes
independent audits of SNPC; quarterly certifications of oil revenues
by an independent auditor, including data on SNPC's marketing
of oil; annual summaries of financial transactions undertaken
on behalf of the government; data on financial operations produced
by the Ministry of Finance and "reconciliations" of
the huge discrepancies between the amounts of revenue transferred
to the Treasury from SNPC, according to the certifications and
the Ministry of Finance's own figure. Back
399
In 2005 the Publish What You Pay campaign highlighted its
concerns to the IMF, in particular the apparent US$300 million
shortfall in oil revenue for 2004 received by the Treasury compared
to the income SNPC reported which ought to have transferred according
to KPMG's audits. In short, around one third of Congo's 2004 oil
income appeared to be unaccounted for in the budget. "Has
the IMF dropped the ball on transparency reforms in the Republic
of Congo?" and "Republic of Congo Transparency Scorecard",
15 August 2005 available at
http://www.globalwitness.org/press_releases/display2.php?id=303; Back
400
FG Hemisphere, holder of Congolese debt presented these findings
to the IMF in June 2005. For example, analysis provided to the
IMF by a US creditor of Congo highlighted that approximately $140
million in proceeds from short term loans was not even captured
by KPMG's certifications in 2003 and 2004. The IMF in 2005 admitted
that part of the revenue from loans reported by SNPC was in fact
unaccounted for; see Republic of Congo: First Review Under
the Poverty Reduction and Growth Facility, 25 August 2005,
p 69. Back
401
KMPG report on SNPC consolidated accounts 31 March 2005;
http://www.mefb-cg.net/petrole/dpf/SNPC_2005_Rapport_sign_.pdf Back
402
See IMF Republic of Congo: Report on Progress Toward Meeting
the Completion Point Triggers Under the Enhanced Heavily Indebted
Poor Countries Initiative June 2007;
http://www.imf.org/external/pubs/ft/scr/2007/cr07215.pdf; and
Country Report on Republic of Congo, June 2008,
http://www.imf.org/external/pubs/ft/scr/2008/cr08173.pdf; Box
1, "Performance under the 2007 Staff Monitored Programme",
p 5. Also See IMF Executive Board Concludes 2007 Article IV
Consultation with the Republic of Congo Public Information
Notice (PIN) No. 07/47 April 26, 2007;
http://www.imf.org/external/np/sec/pn/2007/pn0747.htm Back
403
Country Report on Republic of Congo, June 2008,
http://www.imf.org/external/pubs/ft/scr/2008/cr08173.pdf; p. 15,
para.24. Overall, the diagnostic found serious lack of controls
over marketing operations: for 12 transactions chosen at random
for the period 2002-05, there was an almost complete absence of
documentation, leading to "a context of risk in terms of
internal operational controls and commercial documentation and
indeed of highly risk in terms of governance". Most sales
are in fact, done over the phone, 2:3:B, p 22. Back
404
For instance, 2005 IMF Congo Country Report. Back
405
An unpublished IMF report concluded that: "rather than contributing
to the welfare of the Congolese population, the proceeds from
oil-collateralised borrowing may have been used to finance combat
operations during the civil war". See International Monetary
Fund (IMF). 2001. Report on the Republic of Congo. IMF,
Washington, DC. p 39. Back
406
According to a 27 May 2005 RICO complaint filed by Kensington
International Ltd against SNPC, BNP Paribas and Bruno Itoua, former
head of SNPC in the United States District Court Southern District
of New York (05 CV 5101); according to the CONGO authorities,
no loans of over 1 year have been taken out since October 2002,
see Republic of Congo: First Review Under the Poverty Reduction
and Growth Facility, and Requests for Waiver of Performance Criteria
and Modification of Performance Criterion-Staff Report; Staff
Statement; Press Release on the Executive Board Discussion; and
Statement by the Executive Director for the Republic of Congo,
25 August, 2005, p 74. Back
407
See, for example, International Monetary Fund (IMF), 11 April
2003. Republic of Congo: Review of Performance Under the Staff-Monitored
Program and Request for a Three-Year Arrangement Under the Poverty
Reduction and Growth Facility--Staff Report; Staff Statement;
Press Release on the Executive Board Discussion; and Statement
by the Executive Director for the Republic of Congo, p 67,
Appendix I, Attachment III, Technical Memorandum of Understanding,
Quantitative Performance Criteria. Back
408
KPMG audit of SNPC's 2002 accounts, discussing the differences
between traders (Chapter 5, p. 12) and the high level of expenses
(Chapter 5, p 10). They cite "exceptionally large differences"
in the sales prices obtained from different traders and frequent
recourse to oil-collateralized borrowing, the costs of which are
extremely high and where there is inadequate information about
terms of interest, commissions and other expenses. Back
409
See http://www.mefb-cg.org/petrole/certification_concordance.htm.
Under HIPC, any new borrowing by the country has to be sustainable.
According to the latest IMF reports, by end 2006 Congo had already
done new debt deals worth $829 million that "could jeopardize
debt sustainability". $32 million of this new debt, contracted
with the Chinese authorities, went to buy three airplanes on non-concessional
terms-not an obvious priority in terms of poverty reduction. In
the light of this, the IMF "called on the authorities to
adhere strictly to their commitment to control future borrowing".
See IMF Executive Board Concludes 2007 Article IV Consultation
with the Republic of Congo Public Information Notice (PIN)
No 07/47 26 April 2007;
http://www.imf.org/external/np/sec/pn/2007/pn0747.htm Back
410
Global Witness report Time for Transparency March 2004,
discusses a leaked memo prepared by SNPC's Parisian lawyers Cleary
Gottleib on 23 May 2003 to Bruno Itoua (ex-Head of SNPC) in relation
to a proposed US$210 million loan to be routed via a Special Purpose
Vehicle (SPV) in the Cayman Islands: "The choice of legal
structure was made as a result of the following considerations.
In order to protect their rights to the petrol, whose sales revenues
by SNPC will be used to repay the loan, the lenders have suggested
to place between them and SNPC an independent legal entity that
would be the owner of these rights, the SPV. The creditors of
the Republic of Congo and/or SNPC would thus in principal be prevented
from seizing this petrol from the hands of SNPC ..." See
Time for Transparency March 2004, Chapter on Congo. Back
411
See Global Witness, Time for Transparency, March 2004,
pp24-26. Back
412
See IMF Article IV report for Congo, 2004; http://www.imf.org/external/pubs/ft/scr/2004/cr04232.pdf,
Box 4, p 13. Back
413
http://www.mefb-cg.org/actualites/page16.htm Back
414
Total Annual Report 2003, p 65;
http://www.total.com/static/en/medias/topic306/Total_2003_Annual_Report_en.pdf Back
415
Form 20-F, ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 for the fiscal year ended 31 December
2005, p 16. Back
416
Letter from Total to Global Witness, 18 March 2004. Back
417
See Global Witness Republic of Congo Transparency Scorecard,
15 August 2005 and discussion in Time for Transparency,
Chapter on CONGO, March 2004. Back
418
Global Witness documents. See also Time for Transparency,
March 2004, pp 24-26. Back
419
See para 199, Approved Judgement of the Honourable Mr Justice
Cooke between Kensington International and the Republic of Congo
in the High Court of Justice, Queens Bench Division, Commercial
Court, Royal Court of Justice, Strand, London on 28 November 2005.
Case number FOLIO 2002 NOS 1088, 1281, 1282 & 1357. Henceforth
this document will be referred to as "the November 2005 Kensington
judgment" and paragraph references will be included in parentheses
in the text. In its August 2005 report, the IMF referred to the
proceeds of a cargo from March for which payment had not been
received by SNPC in June because it appeared to be subject to
litigation. See IMF, Republic of Congo: First Review Under
the Poverty Reduction and Growth Facility, and Requests for Waiver
of Performance Criteria and Modification of Performance Criterion-Staff
Report; Staff Statement; Press Release on the Executive Board
Discussion; and Statement by the Executive Director for the Republic
of Congo, 25 August 2005, p 70 http://www.imf.org/external/pubs/ft/scr/2005/cr05301.pdf Back
420
GW report The Riddle of the Sphynx: where has Congo's oil money
gone?, December 2005. Back
421
For full details of how this scheme worked, please see GW's report
The Riddle of the Sphynx: where has Congo's oil money gone?,
December 2005. Back
422
Testimony of Denis Gokana in case of Kensington International
vs. Republic of Congo, Day 4, Thursday 27 October 2005, pp 33-37. Back
423
25 August 2005 press release from Soco International, which is
operator with a 75% interest, with SNPC holding 5%.
http://www.socointernational.co.uk/press.php?id=78&d=2005);
"CONGO-B Jackpot pour Soco sur Marine XI?", Lettre du
Continent, No 47, 21/07/2005. Back
424
"CONGO-B Jackpot pour Soco sur Marine XI?", Lettre du
Continent, No 47, 21/07/2005. Back
425
"Qui seront les partenaires de SOCO sur le permis Marine
XI au Congo?", Lettre du Continent, N. 480, 20/10/05. Back
426
See http://www.socointernational.co.uk/downloads/reports/ara2004.pdf,
pp. 22 & 27; See also SOCO International release, "Directors'
Interests", 20 June 2005;
http://today.reuters.com/stocks/QuoteCompanyNewsArticle.aspx?view=PR&symbol=SIA.L&storyID=160385+20-Jun-2005+RNS Back
427
KPMG's "Rapport SNPC 2003-Annexe 4. Mandat de gestion"
describes the sale of four cargoes of Djeno oil to Quantic and
one to Elidovo. Average prices were below Prix Fiscal prices for
both. Back
428
Republic of Congo: 2007 Article IV Consultation, June 2007,
http://www.imf.org/external/pubs/ft/scr/2007/cr07205.pdf, Box
1, p 9. Back
429
http://www.companies-house.gov.uk/ Back
430
Global Witness document and Kensington RICO action, declaration
of Donald S. Schwarzkopf, 2 December 2005. Back
431
See http://www.mefb-cg.org/petrole/dpf/3sur4-Congo%20Attest%20T.2%202004-Annexe%20IId.pdf Back
432
See http://www.mefb-cg.org/petrole/dpf/3sur4-Congo%20Attest%20T.2%202004-Annexe%20IId.pdf Back
433
Testimony of Ike Nwobodo before the UK High Court, Mr Justice
Gross, 12 and 13 September 2006. Back
434
Mr Justice Cresswell, approved judgment of Friday 26 May 2006,
Kensington International vs. Republic of Congo. Back
435
Approved Judgment of Lord Justice May, Lord Justice Carnwath and
Lord Justice Moore-Bick, 7 November 2007; Kensington International
Limited vs Republic of Congo and Vitol Services Limited, Vitol
Broking Limited, Gilles Chautard, Shlomo (Sam) Lambroza. Back
436
Ibid. Back
437
Approved Judgement of Mr Justice Gross, 13 July 2007; Kensington
International Limited vs Republic of Congo and Vitol Services
Limited, Vitol Broking Limited, Gilles Chautard, Shlomo (Sam)
Lambroza. Back
438
See Global Witness press release 26 June 2007, "Congo: Is
President's son paying for designer shopping sprees with country's
oil money?" and court documents on www.globalwitness.org. Back
439
Company Information sheet for Long Beach Ltd states that the company
was incorporated on 3 March 2003, with ICS Secretaries Ltd listed
as the company secretary. The address for Long Beach Ltd is stated
as ICS Trust (Asia) Ltd's address at 8th Floor, Henley Building,
5 Queen's Road, Central, Hong Kong. See company documentation
on www.globalwitness.org. Back
440
According to evidence submitted to Hong Kong court proceedings,
Orient and Pacific are both companies in the ICS group, and provide
nominee services to clients. Paragraph 4 of "Cotrade Asia"
section of Annex to Mr Justice Carlson's judgment of 31 May 2007
in the High Court of the Hong Kong Special Administrative Region,
between Kensington International Ltd and ICS Secretaries Limited,
p 24. Back
441
"Declaration of Trust" on ICS International letterhead,
signed by Orient Investments and Pacific Investments, 24 September
2003. Back
442
Company information sheet for Long Beach Limited. Back
443
Payments to EIL and Long Beach from shell companies selling Congo's
oil called Sphynx Bermuda and Africa Oil and Gas Corporation (AOGC)
first emerged during a High Court case in London in November 2005
(the Nordic Hawk case). See Denis Gokana testimony in the case
of Kensington International vs Republic of Congo in the High Court
of Justice, London, 2005, Day 4, Thursday 27 October, p 44 of
transcript. Gokana confirms a payment of $100,000 to EIL from
Sphynx Bermuda. Back
444
See affidavits on www.globalwitness.org; see also Back
445
The letters are dated 18 May 2004, 14 July 2004, 10 July 2006
and 11 September 2006. Back
446
Mr Justice Carlson, Judgment of 31 May 2007 in the High Court
of the Hong Kong Special Administrative Region, between Kensington
International Ltd and ICS Secretaries Limited, p 26, para 4 (this
annex referred to in main judgment at p 7, para 11 and p 13, para
18). Back
447
http://www.transparency.org/policy_research/surveys_indices/cpi/2003 Back
448
Global Witness, The Riddle of the Sphynx: Where has Congo's
oil money gone? 13 December 2005. Back
449
Dow Jones International News, 13 December 2005, also reported
in Factiva Public Figures and Associates newsletter, January
2006, under the heading "Top PEPs stories: Take the Factiva
challenge: How many of these PEPs would your current system find?" Back
450
High Court Approved Judgment, Mr Justice Stanley Burnton, between
Long Beach Limited and Denis Christel Sassou Nguesso and Global
Witness Limited, 15 August 2007, Case no HQ07X02371. Back
451
National Audit Office, Foreign and Commonwealth Office, Managing
risk in the Overseas Territories, 16 November 2007, pp42-43. Back
452
Statistics on International Development 2007 edition, http://www.dfid.gov.uk/pubs/files/sid2007/key-statistics.asp Back
|