Africa's wealth floods offshore as corrupt leaders, corporations use banks to hide fortunes
Bonny Island off the west coast of Africa was the last place many slaves saw before being hauled to the New World.
Centuries ago, corrupt African leaders and Western traders became business partners. A few Africans made fortunes; Western interests found cheap labor. And 12 million people lost their freedom.
Today the slave trade is gone from Bonny Island in Nigeria, replaced by gas liquefaction plants and pipelines stretching from a great reserve of fossil fuels.
But the story has not changed much: Some African leaders are selling off what is most valuable — this time oil, not people — while pocketing huge bribes and leaving their citizens destitute, the Department of Justice says. Bonny Island's symbolism strikes at the heart of how modern banking has lost its way, according to many who follow the developing world.
With the help of multinational banks, money in this modern rip-off disappears into a black hole of tax havens, secret accounts and shell companies, while Western aid groups gather dimes and quarters to try to repair the damage that's left behind, a Tribune-Review investigations has found.
An estimated $1 trillion gets stolen from developing countries in a typical year, according to Global Financial Integrity, a Washington-based nonprofit that traces illicit money.
That's compared with $134 billion a year in aid that developing countries receive, according to the Organization for Economic Cooperation and Development, a Paris-based nongovernmental group that tracks global economics. The difference saddles these countries with crumbling infrastructure, inadequate food supplies and scant health care.
Africa, the OECD says, has most of the least-developed countries.
“The comparison between today's kleptocracy and the trans-Atlantic slave trade is apt and arresting,” said Stanford University slavery historian James Campbell.
Places such as Nigeria represent “the ugliest chapter in global affairs since slavery,” said Raymond Baker, director of Global Financial Integrity. He said the number of people who have died because of the illegal transfer of wealth “considerably exceeds the number of people who died in the movement of slaves.”
It is not clear whether Albert Jackson “Jack” Stanley knew anything about Bonny Island's slavery roots when he bribed Nigerian officials into letting his company build a $6 billion natural gas plant there between 1995 and 2004.
According to sentencing documents, Stanley and his partners offered $180 million in bribes in return for letting Halliburton, its subsidiary Kellogg, Brown & Root and three other companies build a plant. Stanley headed KBR.
Bribes would be funneled through U.K. con man Jeffrey Tesler with a company in Gibraltar. Stanley used Tesler to secure personal kickbacks for projects in Yemen, Malaysia, Egypt and Indonesia. Money would flow from a Portuguese shell company account in the Netherlands to New York, Monaco and Switzerland. A secret British Virgin Islands offshore account also was involved.
Though the natural gas plant was built, the outcome for the conspirators has been mixed.
French authorities uncovered the scheme before all the bribe money was paid, court records show. In the United States, the government secured more than $1.6 billion in civil and criminal fines against Halliburton and its partners. Stanley was sentenced to 30 months in federal prison, and Tesler received 21 months.
In a statement, Halliburton said it was not responsible for the bribery, only its former subsidiary. However, Halliburton reported to the Securities and Exchange Commission that it was paying $382 million to resolve the matter. KBR was to pay $20 million. Halliburton and KBR also agreed to forfeit $177 million in profits.
In Nigeria, where even some of the most senior leaders have histories of ruthless corruption, no one was prosecuted. Instead, the government sued to have any as-yet unpaid bribes transferred to the nation.
Lamenting the Bonny Island situation, the Nigeria W orld wrote: “Looting and collecting bribes is a legitimate endeavor in Nigeria, particularly if you are one of the big boys and you belong to the looters' club. Membership (in) the club provides free access to the treasury, oil and gas contracts and plenty of opportunities for looting but, above all, it provides immunity and freedom from prosecution.”
Consider for example, the case of Nigerian-born James Ibori, who was a petty thief in London. In the early 1990s, he was convicted of shoplifting and using a stolen credit card. Ibori returned to Nigeria, where he became governor of the oil-rich Delta State, according to the Financial Action Task Force, a Paris-based anti-money-laundering organization with 36 member countries.
As governor of an impoverished state, Ibori made an official wage of just $124 a week, according to the task force. Yet he was able to set up a myriad of dummy offshore companies and launder $250 million from unknown sources. He purchased homes and mansions around the world, as well as a private jet and a Bentley, the task force reported.
The disparity between Ibori's pay and his possessions did not dissuade banks from welcoming his business. He used accounts in Gibraltar, Guernsey, Switzerland and Texas to handle his affairs, the task force reported. Some accounts were in the name of his wife; others in the name of his mistress.
After an investigation in London that allegedly uncovered a plethora of money laundering transactions by Ibori through cooperative Western banks, Nigeria took action. In 2007, Ibori was charged with 170 criminal counts in Nigeria, but he was acquitted of each.
A new government refiled some charges in 2010, and Ibori fled to Dubai, where he was arrested and extradited to the United Kingdom. He pleaded guilty this year to money laundering.
Start change from within
The consequences of so much money leaving the developing world are serious. Without it, developing countries cannot spend on public services. The lost dollars undermine the unending efforts by Western countries and nonprofits to make the countries self-sustaining.
“We're talking about a massive transfer of wealth from poor to rich,” said Baker, the Global Financial director.
Despite their excesses, corrupt political leaders represent the smallest fraction of illegal money transfers from developing countries. Multinational corporations, shifting profits to subsidiaries in countries with no or low taxes and few regulations, make the largest transfers.
“It's corporations all over the world that take advantage of the porosity in the movement of money, and shift resources across borders at will,” Baker said.
If developing countries collected the taxes due them, they could greatly reduce — if not eventually eliminate — their reliance on foreign aid, said Joseph Stead, senior adviser for economic justice at Christian Aid, a London-based nonprofit. The amount of money illicitly ferreted out of some developing countries dwarfs the donations from foreign governments and nonprofits.
“Countries shouldn't have to be dependent on overseas aid,” he said. “They should be sustainable and resilient themselves. The only way that's going to happen is if you have countries generating the levels of revenue themselves to pay for essential public services.”
Rather than sending aid money for food and shelter, Western governments should help developing countries establish taxing authorities and increase enforcement, British Parliament's International Development Committee said in a July report. Poor countries, it said, collect a significantly smaller portion of their gross domestic product in taxes than developed ones: 13 percent in the poorest countries versus 35.4 percent in the wealthiest.
“How do you build these economies to the point where you're raising the income of people so that they're less poor and therefore better fed, better housed, more healthy, and where the state has the capacity to fund its own health, infrastructure, education — all the basic services that we take for granted in developed countries?” asked Sir Malcolm Bruce, a member of Parliament and the committee's chairman.
If the political and economic elite pay little or nothing in taxes, other residents and foreign corporations don't see why they should pay them either, Bruce said. Personal income tax accounts for a small proportion of the taxes in developing countries, the report found.
“Where the leadership of the country is exceedingly corrupt, it's the norm rather than the exception that we know of Swiss bank accounts and others full of ill-gotten gains by senior political people who simply diverted the money,” Bruce said.