In its financing attempts that brought the resource-rich country to become indefinitely indebted for a long time, the Government of Angola sought a US$15 billion loan from China (one of many) last May. Just as this latest round of financing commenced, Standard and Poors downgraded Angola’s sovereign credit rating to B- due to concerns about “the rising debt service costs and weak economic prospects.”
The latest move is part of another debt trap through which the new government uses oil-backed loans at high interest rates, yet financed through opaque and unaccountable offshore structures. This comes at a time when Angola’s banking sector is weak and some important state banks are undergoing restructuring processes; posing contingent risks to government.
Manuel Vicente has remained a ruthless fixture of Angolan politics for over three decades. Today, as the “most wanted by Portuguese authorities” and an advisor to Joao Lourenco (who almost made it to the Presidency), Vicente has been at the forefront of the landmark exploitation of the resource-rich Portuguese colony since his appointment as Chairman of Angola’s state oil company, Sonangol EP. By the time he left his position in 2012, Vicente had proudly created complex, personally profitable, and self-rewarding mechanisms to leverage the nation’s resources for the profit of a small cartel, spanning well-known illustrious names in Africa and the world, ranging from organized crime to Wall Street. He purposely transformed the looting which decimated the West African nation during its brutal civil war into the merciless leveraging of state assets under the guise of ‘development’ for over sixteen years (and still ongoing).
Under the leadership of Vicente, or as one would call it, “Politically Exposed Person” (PEP), Sonangol gained an unusual degree of autonomy. In the world of financial regulation, PEP is a term describing someone who has been entrusted with a prominent public function and presents a higher risk for potential involvement in bribery and corruption by virtue of his/her position and the influence held. Vicente successfully resisted efforts of government institutions, such as the Ministry of Petroleum and the National Bank of Angola (BNA), by curbing their power and oversight functions; simply through instilling watchdogs that he would reward handsomely.
As the civil war ended in 2002, Angola’s relationships with the IMF and the World Bank had deteriorated serendipitously, with a golden opportunity that coincided with Chinese President Jiang Zemin’s initiation of his grand “Look to the West” strategy. Chinese interests in Angola were particularly attractive to Vicente (with the development of his own sphere of influence) as the offered funds had far fewer transparency requirements to traditional Western lenders. In June 2004, China Sonangol Asia Limited was formed as the first public-private consortium to turn the new geopolitical paradigm into private profits. It was registered in Hong Kong and owned entirely by Lo Fong Hung, Wi Yang, and, naturally, Manuel Vicente, unbeknownst to the then leadership. In the weeks following China Sonangol’s incorporation, Vicente and the 88 Queensway Group incorporated nine subsidiaries of China Sonangol, with Pierson Asia acting as its primary financial consultant. The firm would help Vicente and his Chinese partners to create a complex network of financial subsidiaries to extract, divert, and embezzle funds.
Vicente’s influence, along with Chinese capital, positioned these newly-created firms to dominate the finances of Angola and the majority of investments in the country through two small and nebulous companies: China International Fund Limited (responsible for US$2.9 billion in construction projects), and, China Sonangol International Holdings Limited (responsible for the energy sector—notably obtaining three oil blocks and establishing a joint venture with Sinopec for oil exploration in Angola).
The vehicles for the embezzlement of such funds are the product of an idea developed in the 1990s, known as “prime bank schemes,” through which Vicente and his son would set up pop-up corporations for the collection and transfer of assets. The same entities would be used for the purchase of more than US$300 million in U.S. treasury bills on behalf of Angola’s national bank, Banco Angolano de Investimentos (BAI)—formerly Banco Africano de Investimentos—and enjoyed absolute authority to manage major portions of BNA’s funds under the direct, repeated permissions of the then-governor of Angola’s central bank, Aguinaldo Jaime (1998-2002). Jaime, in his capacity as governor, signed a “letter of authority” informing HSBC that BNA “will supply, on behalf of the Angolan Government, a US$50 million treasury bill to be used as a collateral by MSA Inc” to raise funds for Angolan ‘development projects.’ Another example of the prime bank scheme was the creation of the sister bank, HSBC Equator Bank plc in 2006—nothing to do with the HSBC that we all know—which earned in excess of US$80 million from revolving short-term trade finance lines, serviced by an assignment of oil proceeds afforded through a nebulous relationship with BAI.
The central paradox for the people of Angola is the calculus of BAI in taking on such unfavourable terms and failing to execute its fiduciary duty. This paradox is resolved when we consider the true nature and ownership of BAI, which is in fact a private bank. As per a U.S. Senate Committee investigation, in March 16, 2006, HSBC received a list of BAI’s shareholders, which included three private corporations, each of which would turn out to be a special purpose shell corporation: Arcinella Assets, Sforza Properties, and Dabas Management. BAI currently has assets with a total value of over US$7.6 billion which alerted and instigated the investigation. And following the implementation of the Patriot Act, HSBC expended its efforts to determine the true owners of BAI. The subsequent disclosure, under the PEP/anti-money laundering (AML) protection, revealed that the beneficial owner of Dabas Management is Jose Paiva (former board director of Sonangol) and the beneficial owner of the shell company, called ABL, is Manuel Vicente (PEP from 1999-2012). Today, each personally owns 5% of BAI through these special purpose corporations.
Angola continued to have weak AML controls and an ongoing corruption problem. The above history shows how an Angolan PEP (like Manuel Vicente), an Angolan government official (like Aguinaldo Jaime), and an Angolan financial institution (like BAI) have used global banks to gain access to the financial system, often bypassing AML and PEP safeguards. It shows how politically powerful officials, their relatives, and close associates (referred to in international agreements as PEPs) can use the services of global professionals and financial institutions to bring large amounts of suspect funds into different jurisdictions to advance their interests. It also clarifies the need for strengthening PEP controls to prevent such corrupt figures from concealing, protecting, and utilizing their ill-gotten gains; corroding the rule of law, national economic development, and democratic principles. U.S. and EU institutions should consult with foreign officials, international organizations, financial regulators, and experts in AML and anti-corruption efforts in order to expose some of the tactics being used by PEPs and their facilitators.
