

A newly published report on a corrupt deal for the repayment of the Angola debt to Russia in the early 1990s was presented in the European Parliament yesterday (23 April) as a vivid example of the plundering that can take place in developing nations with the complicity of European banks and tax havens.

Portuguese MEP Ana Gomes (Socialists and Democrats) and the Open Society Foundation hosted the public event where the report – “Deception in high places: the corrupt Angola-Russia debt deal” – was presented.

The report is authored by Andrew Feinstein, a former member of the South African parliament and current director of Corruption Watch UK. Gomes praised Feinstein for producing the report despite potential legal challenges, and said that his Angolan partners took “serious personal risk”.

The report provides a detailed account of the web of financial transactions involving Angola’s $5-billion debt to Russia which evolved into the diversion of hundreds of millions of dollars of public funds to middlemen and senior government officials.

Millions of dollars were transferred through banks based in Switzerland, Luxembourg, Cyprus, the Netherlands, the British Virgin Islands and the Isle of Man to the benefit of powerful Angolan and Russian figures, the report shows.

President of Angola gets the cash

As Feinstein explained, it had been much easier to trace the Angolan officials who benefitted from the criminal transaction.

The biggest alleged beneficiary is José Eduardo dos Santos, who has been the Angolan president since 1979. Documents show that Dos Santos received $36.25 million from the diverted funds and four other Angolan officials named in the paper took between $3.35 million and $13.25 million.

The deal was intended to clear the debt owed to Russia for support provided by the Soviet Union during Angola’s 1975-1990 civil war. In 1996 Russia decided that Angola would not be able to repay the entire $5 billion debt, agreeing to accept $1.5 billion instead.

While it is not uncommon for a creditor to engage a financially reputable middleman to collect debts, the report says that in this case the intermediary chosen was a company specially set up for the occasion, Abalone Investments, with no assets and registered on the Isle of Man.

Abalone was owned by two businessmen with a history of making money in shady deals with Angola: Arcadi Gaydamak and Pierre Falcone. They opened an escrow account at the Swiss bank SBS, which later became UBS, Switzerland’s largest bank.

In Feinstein’s words, UBS seemed to execute the transfers from Abalone’s account without subjecting them to any meaningful internal review, or without referring them to the authorities, despite the potential illicit risks involved.

In the first phase of the operation, between October 1997 and July 2000, Angola transferred $774 million to Abalone’s UBS accounts. Of that money, Gaydamak received $138 million and Falcone $124 million. UBS used this account to pay Angolan official José Leitão da Costa $3.35 million.

“This raises the question why UBS didn’t flag or report this obviously suspicious payment,” Feinstein said.

Cypriot account named after Russian bank

Even though Abalone took no risk with the operation, the Russian side accepted far less of the agreed debt, leaving more money in the hands of the middlemen, the report says. On one occasion, Russia asked that Angola pay its debts directly to the Russian bank Sberinvest. So Gaydamak opened an account in Cyprus to which he gave the name “Sberinvest” and the Angolan money went there, even without the knowledge of Falcone.

Angolan officials transferred $618 million to the Sberinvest Cyprus account, believing they were paying the Russians. Together with the earlier transfers of funds to the Abalone UBS account, these amounts should have erased Angola’s debts.

But that didn’t happen, Feinstein claims, because significant amounts remained with the middlemen, the Angolan beneficiaries and others who are not yet identified.

Both Angola and Russia lost from the operations. In the second phase of the debt repayment operation, Abalone was paying Moscow with Russian debt instruments at their face value, even though their market value was ten times lower than face value.

“The central point is that a number of individuals, some of which have not yet been identified, made vast profits at the expense of the people of Angola and Russia,” Feinstein said.

He added that it was thanks to the facilitating role of banks, tax havens and the veil provided by front companies that national resources were stolen from the poorest citizens with impunity.

The author makes a series of recommendations to Angola, to Switzerland, to the EU and its member states, and to the financial sector to initiate investigations and take legal measures to prevent further wrongdoing. In particular, he advocated that the EU’s accounting directive, which will require reporting of payments to governments in the extractive and forestry sector, be extended to include the banking sector.

Gomes said she would send a copy of the report to EU foreign affairs chief Catherine Ashton, and another one to Commission President José Manuel Barroso.