By the International Consortium of Investigative Journalists

Follow the Money

Vicente, Sonangol’s chief executive, appears to be a jovial man as he smiles over a drink in the bar of Washington, D.C.’s, swank Four Seasons Hotel. Vicente speaks proudly of Sonangol’s many subsidiaries – including a shipping company, a telecommunications branch and an aviation company – its investments in the oil industries of neighbors such as Cape Verde and Congo, and the inauguration of a “Houston Express” plane shuttle from Houston to Luanda funded by a coalition of U.S. and Angolan businesses.

Vicente admits that Sonangol maintains “around 10” bank accounts in several locations outside Angola, including in Switzerland, Portugal and London. The accounts are affiliated with either Sonangol’s London or New York satellites, established chiefly to facilitate the oil trading done through those offices, he said. “Basic risk management” is what Vicente calls the structure. “You don’t want to have all your eggs in one basket.”

One of those accounts, Vicente says, was established in 1983 with Lloyd’s TSB on the isle of Jersey in the Channel Islands. Jersey is one of the world’s busiest offshore banking havens, known for closely guarding the identities of its depositors and generating criticism from other European nations for not cooperating with investigations into money laundering. Jack Blum, a Washington, D.C., attorney specializing in international fraud and capital flight, points out that since England does not tax bank accounts held by foreign parties, there can be only one incentive for maintaining an account in Jersey rather than London.

“The incentive for keeping money in a place like Jersey can only be secrecy, but a parastatal company should be anything but secret,” said Blum. “When companies ask me about red flags signifying when a payment is suspicious, I say, ‘when they want a large amount of money sent to an offshore account.’”

Sonangol financial information obtained by ICIJ, charting activity from June 1 to Sept. 1, 2000, shows an interconnected web of 14 different Lloyd’s accounts. Some are dormant and collect only small interest payments, some move several million dollars a day. Though they cover only a three-month period, the accounts’ stream of money provides a glimpse of the structure of subterfuge behind which national revenue can hide.

Sonangol, itself, accounted for more than half the traffic: the Jersey accounts saw some $78 million pass through on the way to other Sonangol branches and accounts. The account also received a $330,000 deposit from the national oil company of the West African island-nation of Sao Tome and Principe, of which Sonangol owns a 40-percent stake, and a $60,000 deposit from the Congolese national oil company, in which Sonangol also invests.

Yet aside from these transactions, less than 1 percent of the total paid out went to companies directly involved with the oil industry, such as oil service providers or consultants. The rest went to address government economic priorities, such as servicing debt from oil-backed loans. The fact that government business was conducted through offshore Sonangol accounts – and that Sonangol receipts never made it back to Angola – violates a 1995 Angolan law requiring all foreign currency receipts and government revenue to pass through the central bank.

When Angola’s financial instability led creditors to demand more concrete forms of collateral, it turned to its most valuable resource – oil. Oil-backed loans are repaid with proceeds from oil sales that go directly to creditors, bypassing budget ledgers. Transparency advocates criticize oil-backed loans because they allow money to vanish into what one economist called a “black hole.” Financial institutions like the IMF also frown on them because the high-interest rates of the short-term loans cost Angola an estimated $50 million a year. Global Witness counted seven loans worth $3.55 billion between September 2000 and October 2001 alone, despite Angola’s agreement with the IMF to limit borrowing in 2001 to $269 million.

The Jersey accounts show what a quick and potent injection of cash such loans can bring: Union Bank of Switzerland (UBS) alone pumped $35.6 million into Sonangol in the three-month period, while Sonangol paid UBS only $171,000 in debt servicing. UBS has extended some $1 billion in oil-backed loans to Angola since 1989, including a March 1999 loan providing $575 million.

Aside from money that Sonangol transferred to its subsidiaries during the three-month period, the largest block of cash to leave the Jersey accounts – some $7.2 million – went to construction companies. Some of the global construction industry’s largest names, such as Odebrecht of Brazil, Engil of Portugal and Dar Al-Handasah of Egypt, are deeply involved with the Angolan government’s plan to rebuild the country’s infrastructure. Odebrecht has contracted with the government for a number of major infrastructure jobs, such as constructing the country’s public water and irrigation network. Dar Al-Handasah, which maintains an office in Luanda, built the government’s new administration complex and the city’s water supply system.

Executives from several of these construction companies, as well as oil companies, hold seats on the boards of Fundacao Eduardo dos Santos (FESA), the president’s personal charity foundation, which also received $33,333 from the Jersey accounts. Charitable organizations are another “black hole” in Angola’s financial galaxy into which millions of dollars have allegedly disappeared. The Angolan government requires most foreign investors to contribute money to social development projects, such as rebuilding schools or roads, according to oil industry sources. Sonangol created a “social bonus fund” to receive this money, though the number of bank accounts linked to the fund have reportedly mushroomed to more than 20, and the boundaries between them and Sonangol’s myriad other accounts are unclear. For example, $100,000 left the Jersey accounts in August 2000 for the Vatican, which directed it toward a branch of the Capuchin Order, based in Luanda, to build a social activity center.

Neither the government nor Sonangol will divulge how much money these “social bonus fund” accounts contain, though the figure has been estimated at $60 million to $200 million. Some $150 million in payments to secure contracts, known as “signature bonuses,” reportedly found its way into another fund named the Fundo de Desenvolvimento Economico e Social in 1999, though the government will not reveal how or where the money was spent.

The foundations tasked with carrying out the projects have also been tainted by allegations of corruption, particularly FESA. The foundation describes itself as a government partner in initiatives ranging from professional training to building universities and orphanages. Critics, however, call it a personal slush fund for Dos Santos that fortifies his myth by crediting him for projects such as building schools that should be funded by the state anyway. Executives from Odebrecht, Dar Al-Handasah, U.S. oil company Texaco, Norwegian oil company Norsk Hydro, Israeli security company Long Range Avionics Technologies and several Sonangol executives sit on FESA’s general assembly and project boards. (ICIJ sought to interview Dos Santos about FESA and other matters, but a request to the Angolan Embassy in Washington, D.C., went unanswered.)

Close presidential relationships are in evidence in other account transactions as well: On June 5, two payments totaling $2.4 million went to Teleservices, a private security firm that guards diamond mines and oil-storage facilities in Soyo and Cabinda. Teleservices’ principal shareholders are Gen. Antonio dos Santos Franca, a former military chief of staff and Angolan ambassador to Washington, and former Angolan Chief of Staff Joao Baptista de Matos. On Aug. 15, 2000, $2.2 million was paid out to Banco Africano de Investimentos (BAI), Angola’s first private bank, in which Sonangol is also a 17.5 percent shareholder. Other shareholders include a company owned by Pierre Falcone, an alleged arms dealer arrested in 2000 in connection with the French oil-for-arms scandal known as Angolagate, whose trial is ongoing. (Attempts to reach Falcone for comment through his lawyers were unsuccessful).

Two of the largest payments – $1.6 million and $3.9 million, each on Aug. 2, 2000 – went to Concord Establishment. Concord Establishment is the Liechtenstein-based parent company of Catermar, which provides catering and other support services to the oil industry. Catermar, based in Lisbon, has worked with Sonangol for more than 20 years, and recently entered into an agreement with Sonangol to operate a chain of supermarkets in Luanda. Catermar CEO Luis Correa de Sa says the large payment went toward several outstanding bills Sonangol had accumulated.

The significance of the Sonangol transactions lies not in any single one, but in their indication that large amounts of oil wealth are moving through accounts and settling government business out of the purview of budgetary monitors. Under Angolan law, all government revenue, including Sonangol receipts, should be channeled through the central bank. CEO Vicente says Sonangol reports on income from each barrel of oil to Angola’s Parliament at quarterly meetings and directs all of the profits remaining after the company pays its bills to the central bank as required by law (though the company does collect a fee for oil trading). However, when asked why an outside contractor such as Teleservices, which provides services in Angola, was paid from an outside bank rather than the central bank as required by law, Vicente qualified the payment as a “mistake.” “We had a lot of weaknesses and problems here two years ago, but we have made an agreement with the government to restructure the company,” Vicente claimed, maintaining that the discontinued IMF program was part of that effort.

The Signature Bonus

Amid the stream of executives rolling their overnight cases in and out of Washington’s Four Seasons Hotel in December 2001 were lawyers for some of America’s largest corporations – Conoco, General Electric, Enron and Boeing, among others. They were in Washington to attend “What Every In-House Counsel Should Know About the Foreign Corrupt Practices Act,” an annual conference organized by the American Conference Institute to boost U.S. companies’ awareness and enforcement of the act. Attendees listened as representatives from the U.S. Justice Department and Transparency International spoke on topics such as “Dealing With Corruption by Foreign Competitors in International Markets” and “Accounting and Record Keeping: What’s Required and the Implications of Getting it Wrong.”

The oil industry became almost synonymous with bribery in 1973 when Gulf Oil admitted funneling more than $10 million to U.S. and foreign politicians over several years. When the Securities and Exchange Commission responded with a questionnaire asking American corporations if they paid bribes, more than 400 corporations – including major oil companies like Exxon – acknowledged making questionable payments to foreign government officials, politicians and political parties. The result was the passage in 1977 of the Foreign Corrupt Practices Act – the world’s first, and toughest, anti-bribery legislation.

U.S. businesses complained that the law put them at a competitive disadvantage against companies from countries such as France, which once considered bribes a tax-deductible business expense. Andre Tarallo, a former executive with the French state-owned oil giant, Elf Aquitaine, which merged with TotalFina to form TotalFinaElf in 2000, testified in July 2001 before French prosecutors that Elf Aquitaine had skimmed pennies off every barrel of African oil since the 1970s to maintain secret slush funds in Liechtenstein and Switzerland for payouts to African leaders. The beneficiaries included heads of state from Gabon, Congo-Brazzaville, Cameroon, Nigeria and Angola.

The FCPA does contain some significant loopholes, such as the exemption for “facilitating payments,” defined as “payments to facilitate or expedite performance of routine governmental actions.” These actions include processing of permits, licenses or visas, but “do not include any decision by a foreign official to award new business.” Yet, according to Phillip Urofsky, an attorney at the U.S. Justice Department – the agency charged with criminal enforcement of the act – the exemption also covers one of the most nebulous transactions in the oil business, the signature bonus.

Signature bonuses are lump sums companies pay foreign governments upon signing a contract licensing them to explore and pump oil from a specified area, or “block.” The amount of the bonus varies according to the block’s size and prospective wealth. In recent years, the size of signature bonuses has skyrocketed in hot markets such as Angola. The $870 million bonus paid by BP-Amoco, TotalFinaElf and Exxon for the ultra-deepwater blocks 31, 32 and 33 in 1999 set an industry record, and the $300 million signature bonus paid by four partner companies for block 34 kept the bar high. Among the largest transfers into Sonangol’s Jersey island accounts during the third quarter of 2000 was the $13.7 million from Marathon Oil – just one-third of the signature bonus the company had agreed to pay for the opportunity to share in Angola’s oil wealth.

The amount of the bonuses are set in a two-tiered bidding process: all of the companies selected by the host government to share ownership of the block submit a “base bid,” the amount of which is widely known within the industry. Companies then submit a second bid to determine the size of their share, an amount that is tightly guarded. “It’s far from bribery – it’s a very normal practice around the world,” said Knud Schlosser, vice president of Norsk Hydro, which holds shares in four Angolan blocks. “It’s a very clean business.”

In his testimony before the French magistrates, however, Elf’s Tarallo used another term for the practice. “All international oil companies have used kickbacks since the first oil shock of the 1970s to guarantee the companies’ access to oil,” Tarallo said, according to news reports at the time. “You have official ‘bonuses’ as part of a contract: the company seeking to exploit an oil field commits itself to building a school, a hospital or a road. Then you have ‘parallel bonuses,’ which can be paid to increase the likelihood of obtaining the contract.”

Another difficulty in determining the “cleanliness” of the bonus system is that payments rarely appear in corporate annual reports or financial filings. While a few countries, such as Norway, require companies to detail their accounts in a state registry, most do not. In the United States, the most detailed financial information a publicly traded oil company must release to the public appears in its shareholder reports. Companies may break down expenditures in annual reports by region, but provide little detail beyond that. For example, the 1998 annual report for Chevron said only that the U.S. oil company spent $87 million on property acquisition, $329 million on exploration and $584 million on development in Africa in 1998. The industry publication Offshore said Chevron had spent $400 million in 1998 on developing a deep-water oil field off the coast of Angola, but whether that figure was included in the company’s development total was unclear.

As long as oil companies keep the size of the signature bonuses they pay a secret, the potential for diversion from Angola’s budget is huge. Only half of the $870 million signature bonus for blocks 31-33 appeared on government ledgers, and Angola’s former Foreign Minister Venancio de Moura acknowledged in December 1998 that the funds were earmarked for the “war effort.” Some economic reports have estimated the amount of oil revenue missing from Angola’s 2000 budget at $1 billion – a sobering figure considering that the bulk of Angola’s budget is funded by oil and that the country is expected to receive some $23 billion worth of investment in its oil and natural gas sectors by 2007.

Transparency advocates such as Global Witness say oil companies must assume responsibility for their contribution to corruption by releasing details of their payments to foreign governments to the public. Such challenges, combined with public relations debacles such as that of Shell in Nigeria, have resulted in projects like the United Nations’ Global Compact, in which several oil and mining companies, including British Petroleum (BP) and Shell, agreed to a set of principles intended to safeguard human rights while protecting employees and property in remote parts of the world. Chevron, Shell, Texaco, U.S. company Occidental Petroleum and Norway’s Statoil have all signed the Sullivan Principles, based on a 1977 code of conduct authored by American minister and activist Leon Sullivan for companies operating in South Africa, which declare signatories’ intent to “not offer, pay or accept bribes.”

Yet adopting a code of ethics doesn’t guarantee it will be followed. “Let us be realistic,” Ho Wang Kim, the Angola officer at Energy Africa, told ICIJ when asked whether his company followed a code of ethics. “No oil company seeking ventures in Africa practices a noble and transparent code of ethics and principles [in order] to have a competitive edge over its competitors.”

Just the Standard’

In October 2000, British Foreign Office Minister Peter Hain convened a private meeting attended by representatives of several of the largest oil companies active in Angola, including BP, Exxon and Chevron, together with advocacy groups including Global Witness and Transparency International. The purpose of the meeting was to persuade oil companies to publish financial data on their Angolan operations, which would allow Angolan citizens to know how much money was being sucked away by government corruption. Two months later, in February 2001, BP sent financial records, disclosing a $111.7 million signature bonus the company paid to Sonangol in 1999 for block 31 to Companies House, a British national archive, in the name of furthering transparency. Since BP’s 26 percent share was public knowledge, and contract language stated that oil companies must carry Sonangol’s stake, observers were quickly able to calculate the total signature bonus paid by all the partners in block 31 at $355 million. The company also announced it would annually publish data on oil production as well as any payments or taxes paid under its contracts with the Angolan government.

The announcement was met with applause from human rights organizations, but a disparaging silence from the oil industry, which refused to believe that BP could take such a step without violating the terms of its contract. The sole response was from BP’s block 17 partner TotalFinaElf, which issued a press release promising it had turned over “precise technical and financial information” to the IMF and World Bank, but would not release it publicly. BP answered its critics by noting that after poring over the contract, its attorneys had concluded that the terms did not override a British law requiring companies to report significant payments. "The financial information we have already published did not breach the contract since it was an obligation of U.K. law," said BP spokesman Toby Odone.

Of the 13 oil companies with major stakes in Angola interviewed by ICIJ, all (with the exception of ExxonMobil, Agip and Ranger, which refused comment) claimed that contract confidentiality clauses prevented them from releasing any financial information, and were unwilling to share any details, including the confidentiality clause language, of their contracts. This hesitancy may be partially explained by a Feb. 21, 2001, letter to BP in which Vicente expressed Sonangol’s position on the company’s decision. Headlined “Unauthorized Disclosure of Confidential Information” and copied to several other oil companies, the letter stated, “With great surprise and disbelief, we have read in the press that your company has been disclosing information about your petroleum activity in Angola, including strictly confidential information. … If this can be confirmed, then it is good reason for applying the provisions of Article 40 of the PSA, i.e. termination. Finally … we strongly recommend our partners not to adopt similar attitudes in the future.”

Aside from the government’s strong-arm tactics and contract confidences, many company executives said they would never release financial information for “proprietary” reasons. “Oil companies generally don’t publish what they pay for permits,” said TotalFinaElf spokesman Thomas Saunders. “Whether it’s the oil industry or any other industry, obviously you wouldn’t want your competitors to know what you pay. It’s not that we’re against it, or that there’s something to hide; it’s just the standard.”

Companies also equated opening their books with dictating to – and potentially alienating – other governments, something they are loathe to do. “I think it’s unwise and unrealistic to assume that businesses can fulfill the role that the international community has had difficulty accomplishing,” said Geir Westgaard, a vice president of Statoil. “Our industry has to be sensitive to accusations of being too political, of meddling with governments … there can be a whiff of neo-colonialism.” Agreed Texaco spokesman Andrew Norman: “We recognize that we have a responsibility to the people of Angola, but when it comes to government policy we feel very strongly that it’s not our role … to suggest or [try to] influence national economic policy.”

Yet scores of lobby documents, financial records and testimony reviewed by ICIJ attest to the fact that influencing national economic policy – both in their own countries and in the lands where they operate – is as integral to an oil company’s function as drilling holes. In fact, of the 50 oil companies ranked the world’s largest on the basis of their oil and gas reserves, production and sales, 23 of them maintain representatives in Washington. More than half of those companies are based in other countries, attesting to the impact they believe U.S. policy can have in foreign lands. In addition to lobbying, the oil and gas industry contributed $33.7 million to federal candidates and political parties in the 2000 U.S. election cycle, according to the Center for Responsive Politics, which tracks political campaign contributions.

Documents filed under the U.S. Lobbying Disclosure Act between 1996 and 2001 demonstrate the importance oil companies give to foreign issues. Before its merger in 1999 with BP, the list of foreign issues that U.S. company Amoco regularly lobbied on surpassed energy or even environmental issues, normally the first priority of petroleum companies. For example, in 1998 Amoco lobbied on U.S. relations with Africa, Nigeria, Angola, Azerbaijan, China, Colombia, Romania, Venezuela, Algeria, Argentina, Bolivia, Brazil, Mexico, Trinidad and Tobago, Russia, Kazakhstan, Turkmenistan, Iran and Georgia. It also lobbied on legislation including the Silk Road Strategy Act, European Energy Charter and the Free Trade Act of the Americas, as well as annual foreign appropriations bills.

Sanctions have been a longtime focus of aggressive lobbying by the petroleum industry, an ardent foe of any legislation that blocks investment and operation in other countries. Chevron, Texaco, Conoco, Phillips and Mobil all lobbied in support of the Enhancement of Trade Through Sanctions Act of 1998 and the Sanctions Policy Reform Act of 1999, which would have limited and modified international sanctions. (ExxonMobil simply listed the issue as “unilateral sanctions”). Most companies lobbied against the Iran and Libya Sanctions Act, however; even the Italian company Eni and Australian company BHP lobbied the U.S. Congress over sanctions against Iraq, Iran and Libya.

Africa garners a large amount of attention from lobbyists. Texaco has lobbied on “foreign trade and investment in Angola and Nigeria;” ExxonMobil on the “Chad/Cameroon development project;” Shell on “issues related to Nigeria and southern Africa;” Conoco on “U.S. policy toward Nigeria;” Phillips on “Angola/Nigeria transparency issues;” BP on “improved U.S.-Angola relations,” and several companies on the Nigeria Democracy Act of 1998. Perhaps the most significant African trade bill passed by the U.S. Congress in the last several years is the Africa Growth and Opportunity Act (AGOB). The petroleum industry put all its muscle behind the bill, which aimed to enhance trade between the U.S. and sub-Saharan Africa by negotiating free-trade areas and reducing tariffs. AGOA met with significant opposition upon its introduction in 1996 for, among other things, conditioning trade benefits on economic reforms like privatization, while neglecting issues like debt relief and the environment. However, a special-interest group called the “Africa Growth and Opportunity Act Coalition Inc.” was formed to lobby for the bill in Congress by some 45 corporations, including Chevron and Texaco, and lobby shops such as Cohen and Woods and C/R International (both of whom represent countries that would benefit from the bill). Articles in oil industry trade papers said the bill would create windfalls for oil companies already in Africa by shrinking the price of oil on the U.S. market and saving companies taxes. The bill was signed into law by then-President Bill Clinton in May 2000 and expanded by Congress in 2001. Oil executives argue that directly influencing a sovereign government and lobbying on U.S. foreign policy are two separate things: however, policies such as sanctions and trade agreements can shape nations and even regions just as effectively as formal diplomacy.

“Influencing or subverting a government is much more tiresome and risky than lobbying Congress to create incentives,” says William Reno, an Africa scholar at Northwestern University in Illinois. “You’re shaping the world that African countries live in based on an ideological assumption that increased trade brings capacity and order, though not particularly transparency. I would question that assumption in states where institutions are weak and governments pursue goals at the expense of these institutions: adding resources (to them) can further empower the wrong things.”

The oil industry is also a major recruiter of government officials who defect to the private sector. Perhaps the ultimate example is the Houston-based Halliburton Company’s decision to hire the current U.S. vice president as CEO in 1996. Halliburton, the world’s largest provider of oil services, has worked in some capacity on nearly every major oil concession in Angola for the past 17 years. Cheney has served three U.S. presidents – prior to becoming vice president to George W. Bush, he was defense secretary under Bush’s father, former President George Bush, and chief of staff under President Gerald Ford. During his tenure, Cheney helped boost the company’s annual profits to $15 billion, doubling its contracts with the Defense Department he once oversaw to $657 million in 1999. Halliburton’s campaign contributions also increased 43 percent under Cheney, an outspoken critic of sanctions. When he was CEO of Halliburton, the company lobbied against sanctions in Sudan, Syria, Iran, Libya, Burma, Nigeria, India and Pakistan. Cheney also quadrupled the amount of government financing Halliburton received from the U.S. Export-Import Bank, the agency tasked with finding new markets for U.S. companies.

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