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Angola deal to repay debt to Russia exposes EU tax havens Angola deal to repay debt to Russia exposes EU tax havens
(5 months later)
A newly published report on a corrupt deal for the repayment of the Angola debt to Russia in the early 1990s was presented at the European parliament on Tuesday as a vivid example of the plundering that can take place in developing nations with the complicity of European banks and tax havens.A newly published report on a corrupt deal for the repayment of the Angola debt to Russia in the early 1990s was presented at the European parliament on Tuesday as a vivid example of the plundering that can take place in developing nations with the complicity of European banks and tax havens.
The Portuguese socialist MEP Ana Gomes and the Open Society Foundation hosted the public event at which the report, Deception in high places: the corrupt Angola-Russia debt deal, was presented.The Portuguese socialist MEP Ana Gomes and the Open Society Foundation hosted the public event at which the report, Deception in high places: the corrupt Angola-Russia debt deal, was presented.
Its author is Andrew Feinstein, a former South African member of parliament and current director of Corruption Watch UK. Gomes praised Feinstein for producing the report despite potential legal challenges, and said his Angolan partners had taken "serious personal risk".Its author is Andrew Feinstein, a former South African member of parliament and current director of Corruption Watch UK. Gomes praised Feinstein for producing the report despite potential legal challenges, and said his Angolan partners had taken "serious personal risk".
The report provides a detailed account of the web of financial transactions involving Angola's $5bn (£3bn) debt to Russia, which evolved into the diversion of hundreds of millions of dollars of public funds to middlemen and senior government officials.The report provides a detailed account of the web of financial transactions involving Angola's $5bn (£3bn) 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.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.
As Feinstein explained, it had been much easier to trace the Angolan officials who benefited from the criminal transaction.As Feinstein explained, it had been much easier to trace the Angolan officials who benefited 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 $36.25m from the diverted funds, and four other Angolan officials named in the report took between $3.35m and $13.25m.The biggest alleged beneficiary is José Eduardo dos Santos, who has been the Angolan president since 1979. Documents show that Dos Santos received $36.25m from the diverted funds, and four other Angolan officials named in the report took between $3.35m and $13.25m.
The deal was intended to clear the debt owed to Russia for support provided by the former Soviet Union during Angola's 1975-90 civil war. In 1996, Russia decided that Angola would not be able to repay the entire $5bn debt, agreeing to accept $1.5bn instead.The deal was intended to clear the debt owed to Russia for support provided by the former Soviet Union during Angola's 1975-90 civil war. In 1996, Russia decided that Angola would not be able to repay the entire $5bn debt, agreeing to accept $1.5bn 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, which had no assets and was registered on the Isle of Man.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, which had no assets and was registered on the Isle of Man.
Abalone was owned by two businessmen with a history of making money in 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.Abalone was owned by two businessmen with a history of making money in 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 appeared to execute the transfers from Abalone's account without subjecting them to any meaningful internal review, or referring them to the authorities, despite the potential illicit risks involved.In Feinstein's words, UBS appeared to execute the transfers from Abalone's account without subjecting them to any meaningful internal review, or 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 $774m to Abalone's UBS accounts. Of that money, Gaydamak received $138m and Falcone $124m. UBS used this account to pay Angolan official José Leitão da Costa $3.35m.In the first phase of the operation, between October 1997 and July 2000, Angola transferred $774m to Abalone's UBS accounts. Of that money, Gaydamak received $138m and Falcone $124m. UBS used this account to pay Angolan official José Leitão da Costa $3.35m.
"This raises the question why UBS didn't flag or report this obviously suspicious payment," Feinstein said."This raises the question why UBS didn't flag or report this obviously suspicious payment," Feinstein said.
Cypriot account named after Russian bankCypriot 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 to the middlemen, the report says. On one occasion, Russia asked Angola to pay its debts directly to Russian bank Sberinvest. Gaydamak opened an account in Cyprus to which he gave the name "Sberinvest" and the Angolan money went there, without the knowledge of Falcone.Even though Abalone took no risk with the operation, the Russian side accepted far less of the agreed debt, leaving more money to the middlemen, the report says. On one occasion, Russia asked Angola to pay its debts directly to Russian bank Sberinvest. Gaydamak opened an account in Cyprus to which he gave the name "Sberinvest" and the Angolan money went there, without the knowledge of Falcone.
Angolan officials transferred $618m to the Sberinvest account in Cyprus, 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.Angolan officials transferred $618m to the Sberinvest account in Cyprus, 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.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 10 times lower.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 10 times lower.
"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."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 because of 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.He added that it was because of 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.
Feinstein's report makes several recommendations to Angola, Switzerland, the EU and its member states, and the financial sector to initiate investigations and take legal measures to prevent wrongdoing. In particular, he recommends 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.Feinstein's report makes several recommendations to Angola, Switzerland, the EU and its member states, and the financial sector to initiate investigations and take legal measures to prevent wrongdoing. In particular, he recommends 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 to European commission president José Manuel Barroso.Gomes said she would send a copy of the report to EU foreign affairs chief Catherine Ashton, and to European commission president José Manuel Barroso.
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