Dirty Money, Murky Deals

Money laundering and tax fraud have become particularly unpalatable, and sometimes embarrassing, to European governments struggling to reduce their deficits.

May 4th, 2013

Money laundering and tax fraud have become particularly unpalatable, and sometimes embarrassing, to European governments struggling to reduce their deficits. Recent developments such as the investigation into former French Minister for the Budget, , the collapse of , and the launch of an  website documenting offshore accounts of prominent public figures, have given  to European Union (EU) legislators working on financial and banking sector regulation.

But strengthening transparency and accountability within EU borders is not just about increasing revenue for European treasuries. It has a significant impact on the populations of non-EU countries as well as the credibility and effectiveness of the EU’s own foreign policies. It is not only Europe’s elites who exploit the loopholes and poor enforcement of EU banking regulation. Europe’s banks also serve as a haven for public funds stolen by the political and business leaders of some of the world’s poorest countries. This undermines the EU’s aid and development policies, and conflicts with the principles of good governance that the EU attempts to promote abroad. 

The recent explosive report , authored by Andrew Feinstein, a former South African member of parliament and current director of , details how corrupt political leaders, civil servants and arms dealers were able to siphon off and hide public funds using European banks.

By 1996, at the end of a two decade-long civil war, Angola had racked up a US$5 billion debt to Russia that it was in no position to repay. Both countries agreed to commute the sum to US$1.5 billion. Such debt restructuring agreements are not unusual in themselves. But the decision to mandate a shell company (Abalone) with no assets and no financial expertise to serve as intermediary in the deal (and created for this sole purpose) is more suspect, particularly considering that the company was founded by  both notorious for their involvement in the '' scandal concerning illegal arms sales.

Deception in High Places outlines how funds for Angola’s debt repayment were paid by its national oil company, Sonangol, to Abalone, which diverted hundreds of millions of dollars via its account at UBS bank in Switzerland (formerly SBS), and later banks based in Cyprus, the Netherlands and Luxembourg. Payments have been tracked to Falcone’s and Gaydamak’s accounts, as well as a to several high-ranking Angolan officials, including President José Eduardo Dos Santos himself, who pocketed over US$36 million of stolen public funds. Furthermore, the European banks involved in the deal failed to conduct the necessary and legally required due diligence investigations into these transactions.

In 2000, the Swiss authorities opened an investigation into this debt deal but this was later abandoned. But in April, Angolan civil society organisations took steps to try and reopen a  against Falcone and Gaydamak, and Angolan politicians as well as senior employees from UBS responsible for the Abalone account. The claim includes allegations of bribery, breach of trust, criminal conspiracy and money laundering.

The diversion of public funds is not to be taken lightly in any context, and much less in a country such as Angola. First, funds systematically diverted from the national treasury diminish public spending on education, health, sanitation, electricity and housing that could (in this case) have benefited both the Angolan and Russian populations. Second, the scandal is fuelling a vicious circle that prevents democratic progress by maintaining a system of corruption among high ranking government officials who have been in power for decades. The list of names included in the allegations is striking. Not only is President Dos Santos involved, but so, allegedly, are Elisio De Figueiredo, former ambassador to France, Joaquim David, Minister of Industry and former Director General of Sonangol, José Paiva da Costa Castro, former Director General of Sonangol UK, and José Leitão da Costa, Minister in the Office of the Angolan Presidency.

The allegations suggest that the top circle of Angolan leaders have been using the European financial system to steal public money. If it is the EU’s policy to promote democratic governance and human rights in Africa, how can it maintain its credibility while aiding corrupt political elites to maintain their hold on power and accumulate illegally acquired wealth?

Several initiatives are currently under discussion at EU level that could make this kind of corruption more difficult. First, the European Parliament and member-states recently reached an  requiring the disclosure of all payments made by EU extractive and forestry companies in third countries. Such transparency would make it easier for national populations to hold their governments to account for how they use income generated from the country’s natural resources. Second, the European Parliament also recently voted on  to disclose all profits made and subsidies received country-by-country, and the European Commission has published a. This legislation will help ensure that European banks and intermediaries involved in such shady deals investigate and report any suspicious activity, and are held accountable through appropriate sanctions where they fail to do so. The Directive should also require that the beneficial owners of companies (the person who ultimately receives the profits) are known, not only to the companies themselves, which is not always the case, but also to governments and to the public.

The EU has to take a strong stand on these new policies and learn its lesson from the various scandals currently tarnishing its image - because the EU is responsible for delivering on its promises, and for turning its declarations of intent in relation to good governance and the fight against corruption into concrete actions for the benefit of the people of Europe and Africa.



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