Where did all the money go?

Angolan anti-corruption campaigners are taking legal action in Switzerland and Angola over a debt deal with Russia that robbed the country of over US$700 million. Some of the money was diverted into the pockets of President dos Santos and other Angolan officials.

Richard Lee's picture


Strategic communications for WWF

April 16th, 2013

Angolan anti-corruption campaigners are taking legal action in Switzerland and Angola over a debt deal with Russia that robbed the country of over US$700 million. Some of the money was diverted into the pockets of President dos Santos and other Angolan officials.

The Angolans have filed a criminal complaint with the Swiss Federal Prosecutor’s Office in Berne, asking it to reopen an earlier investigation into the deal, on the basis of new information contained in a report - - released by Corruption Watch UK and Associação Mãos Livres, an Angolan anti-corruption group.

What was the debt deal?
In 1996 Angola signed a deal with Russia to restructure its $5bn Soviet-era debt, to reduce its debt to $1.5bn; Angola would pay off the debt over 15 years beginning 2001(together with $1.39bn interest for the period through 2016). Russia then engaged an entirely unnecessary intermediary, Abalone Investments, which was based in the Isle of Man and set up purely to service this deal. Abalone arranged to buy the debt from Russia for only $750m (with no interest payment), but to complete purchase of the debt by 2006. However, Angola paid Abalone the full $1.5bn to write off the debt – with the extra funds being corruptly siphoned off to the people involved in Abalone, senior Angolan officials and others. Abalone was set up by Arcadi Gaydamak and Pierre Falcone, two well-connected and controversial businessmen who had close links with Angolan officials thanks to their involvement in what would become the separate Angolagate arms and oil scandal. (They paid Russia $4.5m for the right to set the Deal up).

How did the deal work?
Angola gave Russia 31 Promissory Notes (IOUs) worth $1.5bn, which it planned to buy back over 15 years from 2001-2016. Instead, Abalone would buy them from Russia over 7 years, from 1997 to 2004 at half price. But Angola paid Abalone the full amount to write off the IOUs, with payments coming from Angola’s state oil company, Sonangol. So Abalone made a 50 per cent mark-up, with no significant risk. Indeed, with no risk since it only bought the IOUs from Russia after it had received payment from Angola. In fact, Abalone provided no service whatsoever to justify its $750m ’profit’.  The deal could have been done directly between Russia and Angola.

Why would anyone want to set up a Deal like that?
There is no obvious explanation for why Russia would accept only half of the agreed payment when Angola was clearly prepared to (and did pay) the full amount. It is also unclear why Russia would involve Abalone – an unnecessary intermediary, which provided no real service and took on no risk. However, in December 1999, Vitaly Malkin, a Russian oligarch and senior member of the Russian parliament (the Duma) secured a 25 per cent stake in Abalone.

What happened to the ‘profits’?
Of the money paid to Abalone, $311m went to Gaydamak and Falcone (around 22 per cent); $36m went to President dos Santos of Angola, and around $38m went to four other senior Angolan officials. $48m went to Vitaly Malkin. $500m has not been accounted for.

What was Glencore’s role in the Deal?
The Swiss-based oil and commodity trader was already involved in buying Angolan oil. It helped set up a financing arrangement guaranteed by oil sales that would in turn guarantee Sonangola’s payments to Abalone. There would have been a fee associated with this.

And how did UBS become involved?
Deals like this need a third party to hold the money in an escrow account, to ensure that everyone pays when they are supposed to. Glencore introduced the Swiss Bank Corporation (SBC - now part of UBS) into the deal. SBC held the original 31 Promissory Notes. Its job was to oversee the incoming payments to Abalone from SONANGOL and make sure the corresponding payments went out on schedule to Russia; and at the same time to return the Promissory Notes to Sonangol for cancellation.

Shouldn’t UBS have smelt a rat?
Of course. SBC, and later UBS, executed the transfers out of the Abalone account held at the bank in Geneva. It does not appear that these transfers were subject to substantial internal review, or reported to the authorities, despite the obvious criminal risks attached. (From the documents available, it appears that UBS legal advisor Alain Zbinden, Abalone account manager Yves Lehur, and a Mr. Fleury, who approved many or all of the payments from the Abalone account, were the UBS personnel most familiar with the Abalone transactions).

Did the deal go smoothly?
For a while. In August 1999, it became more complicated, when Russia bizarrely agreed that Abalone could pay off the Promissory Notes with other debt notes (that is, IOU’s representing debt owed by Russia), rather than real money. Then, in October 1999, Russia opted to terminate its Escrow Agreement with UBS, and wrote a letter asking UBS to return the Notes in its possession to Russia. This, it appears, was not done. Instead of using UBS as the Escrow Bank, Abalone was directed to make repayments to Russia through Russia’s nominated bank, Sberinvest Moscow. However, UBS continued to receive money from Sonangol and to distribute money from the Abalone account to Gaydamak and Falcone and to other accounts they designated (and release Promissory Notesto Sonangol) until July 2000.  By that date, Sonangol had paid Abalone $774,193,548.32.

More complications:
In late 2000 and early 2001, France issued warrants of arrest for Gaydamak and Falcone in the investigation into the separate Angolagate arms and oil corruption scandal. Switzerland was running its own parallel investigation and, in February 2001, accounts relating to the deal were frozen in Geneva. The Abalone account was only unfrozen in 2004 on the order of the Geneva courts.

So that was it?
Not quite. To keep the deal and the payments afloat, Gaydamak opened a new account using the name Sberinvest at the Russian Commercial Bank, in Cyprus. Later evidence suggests that Gaydamak opted to call the Cyprus account Sberinvest to fool the Angolan government into believing that funds transferred to the account were actually going directly to the Russian government, instead of Gaydamak’s pocket.Remarkably, Gaydamak undertook this ruse without the knowledge of either Falcone or Malkin. Both Falcone and Malkin would later sue Gaydamak, claiming that he had effectively cut them out of the deal from this point onwards.

And what did the Angolans do?
They kept paying. A deal is a deal. Between March and August 2001, Sonangol transferred an additional $618,235,483.25 to the Sberinvest Cyprus Account, making for a total payment to Abalone by Sonangol of $1,39bn. This should have more than entirely extinguished Angola’s debts. But Gaydamak had stopped transferring the payments to Russia. This swindle was only fully uncovered in 2005 during a meeting between Angolan and Russian officials. It turned out Angola still owed $387m.

Who lost out?
If Angola had paid the funds directly to Russia on the same terms as Abalone was able to buy the Notes from Angola, it would have saved at least  $823 million, and maybe even as much as $1.029 billion:  more than 13 per cent of the country’s entire GDP in 1996. Similarly, if Russia had dealt with Angola and directly received all the funds that were paid by Angola to Abalone, it could have made an additional $750 million. In either scenario, one of the treasuries – as well as the citizens of that country – were significantly prejudiced by the insertion of Abalone Investments into the deal.

And who made money:
Incomplete list of known or estimated receipts from the Debt Deal to various traceable participants. Substantial additional sums could only be traced to unnamed accounts


Role in the Debt Deal Transaction

Amount US$


37½% owner of Abalone Investments; architect of the Debt Deal



37½% owner of Abalone Investments; architect of the Debt Deal



25% owner of Abalone Investments


José Eduardo dos SANTOS

President of Angola



Angolan Ambassador without portfolio to France


Joaquim Duarte da Costa DAVID

Director General of Sonangol until 1998; thereafter Minister of Industry



Director General of Sonangol UK


José LEITÃO da COSTA e Silva

Minister in the Office of the Angolan Presidency





Associação Mãos Livres is a human rights organisation created in 2000. Based in Luanda, Angola, with offices in Cabinda and Huambo, Mãos Livres offers legal and human rights advice and training, and also litigates important cases in the Angolan courts relating to human rights violations and corruption.

Corruption Watch UK is a London-based anti-corruption organisation founded in 2009, which reports on the impact of bribery and corruption on democracy, governance and development, by tracking and monitoring major bribery and corruption cases, pushing for effective enforcement of global and national anti-corruption regulation, and building an international network of anti-corruption partners and activists. 



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