Financial corruption scandal engulfs Nigeria’s top justice amid political turmoil

Code of Conduct Tribunal convicts Justice Walter Onnoghen

The Tribunal convicted Mr. Onnoghen of false asset declarations in foreign bank holdings.  The judge must now forfeit multiple foreign bank accounts and their (unidentified) contents to the Nigerian federal government.  He is further barred from holding public office for ten years.

Walter Onnoghen in court

Observers question the motivation behind the (sudden) accusation and (quick) conviction, all occurring within the short span of time from January, when President Muhammadu Buhari’s government charged the Justice with a 6-count indictment, until today, the reason being that the upcoming presidential election may be impacted by the conviction.

Notes white-collar and competition attorney Andreas Stargard with Primerio Ltd.: “The Tribunal’s three-person panel had previously rejected the Judge’s legal team’s procedural attacks on the jurisdiction to remove him from office (as he had voluntarily resigned earlier), with the Panel’s foreman noting that Mr. Onnoghen had amassed ‘huge amounts of money in his accounts’, which one may see as an indication of potentially corrupt sources of income by the Justice…”


Sovereign Wealth Funds: Contributing to African growth or abetting corruption?

Back in 2016, AAF published a story about Och-Ziff’s FCPA trouble involving, among Congolese diamond mines, the so-called Libyan Investment Authority (LIA).  The LIA was a sovereign wealth fund (“SWF”), recalls Andreas Stargard, an attorney with Primerio Ltd., focused on anti-corruption and antitrust matters in Africa: “In the case of Och-Ziff, the LIA was allegedly implicated in an elaborate corruption scheme, whereby an O-Z employee paid off a third-party agent to ensure the Libyan SWF provided the necessary investment funding.”

SWFStargard’s Primerio colleague, Roger Tafotie, has now published an incisive paper, evaluating the role sovereign wealth funds occupy in Africa.  He notes that SWFs represent “a large and growing pool of savings and, together with national investment funds, have been gaining in prominence over the past few years, especially in natural resource exporting countries of Africa.”

Tafotie2.jpgTafotie continues: “Acknowledging that there is controversy about the relative merits of the SWFs and their added value, my paper discusses the multiple interests of using SWFs by African states, particularly those exporting natural resources. Attempting to contribute to the answer to the question whether African countries need SWFs or not, I argue that a well-structured and governed SWF with a clear and sound mandate and professional management and staffing can serve, along its traditional functions, signaling, capacity-building, and governance purposes in African states. Beyond their role in stabilizing local economies, SWFs can therefore play an important role in fostering economic and social progress as well as governance and political accountability.”

Speaking to AAF, attorney Tafotie, who originally hails from Cameroon and practices both there as well as in the European Union, continues:

The basic idea behind the paper is that SWFs can help address the issue of state capture and/or corruption as I have argued in different parts of the paper.  This is because the establishment of a SWF must be part of a broader package of institutional reforms designed to improve a country’s capacity for resource revenue management and overall governance, these being among the rationales of creating SWFs.

However, it will be naïve not to see that SWFs can aggravate state capture/corruption since it has been demonstrated that in some context, the resilience of resource revenues is of critical importance to maintaining the existing structure of political power and, consequently, there is an incentive for the ruling elites to effectively manage resource wealth over the long term.

That is why I have expressly mentioned that: “unless numerous accountability mechanisms — that include the judiciary, legislature, regulatory agencies, external auditors, and civil society organizations — are adopted by resource-rich countries for monitoring the performance of their SWFs, a SWF should not necessarily be an institutional innovation that counteracts the resource curse and the concentration of power in the hands of a few” (i.e. contributing to state capture).

In addition, I consider SWFs as learning organizations. In this respect, SWFs can undoubtedly contribute to educate on public resources management and therefore help fighting against mismanagement and corruption. In fact, empirical researches have convincingly demonstrated that the correlation between development and good political outcomes occurs because more education improves political institutions.

Recent Gupta Saga Developments: Asset Forfeiture Unit Keeping Up Pressure

By Charl van der Merwe

The South African National Prosecuting Authority’s Asset Forfeiture Unit (AFU) recently obtained a preservation order against various individuals and companies linked to the Gupta Family in respect of the controversial ‘Estina Diary Project’ in Vrede, Free State. According to the AFU, the project was established in partnership with a Gupta linked company, Estina, and was agreed to by the provincial government without a tender. In terms of the project, R220.2 million (US$18761040) which was intended for the development of emerging black farmers were deposited into bank accounts (including offshore accounts) of various individuals while only R2 million was actually spent on the project.

According the court papers, “[t]he respective parties worked jointly… with the ultimate purpose of forcing the department to make financial commitments in a business idea that was in clear failure from the outset”… In the circumstances, I submit that the entire project, including the land it was located on, were instrumentalities of the evident theft, fraud, and money laundering,”

As part of the preservation order, the Court ordered the freezing of R10 million (US$852000) in the personal bank accounts of Mr Atul Gupta (Atul) who allegedly personally benefitted from the ‘project’. Atul has, however, recently filed an urgent application seeking to prevent the AFU from freezing his accounts.

Under section 38 of the South African Prevention of Organised Crimes Act (121 of 1998) (POCA) a South Africa High Court may (on an ex parte application by the National Director) may make an order prohibiting any person from dealing with any property if it has reasonable grounds to believe that such property is the proceeds of unlawful activities.

POCA also makes specific provision for the rescission of such a preservation order in instances where a person so affected is deprived of the means to provide for his or her reasonable living expenses and where the order will cause undue hardship (and such hardship outweighs the risk that the property may be destroyed etc.). Interestingly, however, despite claiming to be a request for reconsideration by an affected person it appears that the urgent application brought by Atul is not a rescission application under section 47 of POCA but, instead, a legal challenge on the evidence. In this regard, the application avers that the “NDPP not only failed to make out a case for the relief sought, but also misled the court in respect of the evidence supporting the granting of the order” .

Despite the fact that the papers filed with by the AFU do contain some errors (as pointed out by Atul) in light of the widespread allegations of corruption and the larger public interest element to this case, it is unlikely that the High Court will overturn the original preservation order on the basis of legal technical grounds – especially when there is no averment of harm/hardship which outweighs the risk of the money being transferred out of Atul’s accounts.

Due to the fact that the preservation order has already been granted and the urgent rescission application has been brought by Atul, Atul bears the evidentiary burden of proving his case. This might require the production of evidence in the form of his bank statements or other similar documentary evidence to show that no money was transferred to him by Estina, as alleged.

Interestingly, Atul confirmed in his affidavit that he is currently out of the country and that he, therefore, has not had an opportunity to consider the documents pertaining to the preservation order and that he wished to file supplementary papers once he has had an opportunity to do so

Although there is not yet a warrant of arrest issued by the South African Police for Atul’s arrest, Atul’s brother Ajuy Gupta is already declared a fugitive of justice by the South African Police service for his involvement in the matter. It, therefore, appears unlikely that Atul would risk voluntarily returning to South Africa for the hearing of the matter.

The AFU has given notice that it will oppose the application and should it successfully do so, it may apply to the court for a forfeiture order under section 48 of POCA to have the R10 million (US$852000) forfeited to the state. The only difference between a preservation order and a forfeiture order is that a forfeiture order needs to be proven on a balance of probabilities which is a slightly higher evidentiary burden than the reasonable grounds required for a preservation order.



And Don’t Even Mention the Russians…

Another look at South African economic & fiscal reality

By AAF Guest Contributor James Greener, Ph.D.

Minister Gigaba told us very little that we did not already know about the poor shape of the government’s finances. However, his unusual approach was actually to say as much and while he has been praised mightily for this, the market reaction has been severe. The prices of South African bonds and currency have plummeted. Those among us who over the past few years have been able to send a few sacks of cash to Dubai for safekeeping with our mates are probably feeling very relieved and smug. The frustrating but telling thing, however, is that all the hand-wringing has been directed at the failure of the income side of the budget to live up to expectation. Not very much at all has been said about the expenditure side of the equation. Given that there really are few untapped sources of significant tax revenue left it is obvious that the axe must be taken to the spending.

Some astonishing charts have been published highlighting just how much higher almost all public-sector salaries are, compared to private sector pay. Multiply this by the massive increase in the number of state employees and to the casual observer, not needing to influence voters, it seems obvious what needs to be done. Understandably any threat to their jobs will at the very least prompt massive strike action. And this should be met by the second leg of the program which is to make starting a business and hiring (and firing) staff so much simpler and easier. That is, create a way to soak up the talent and experience that will come onto (and is already unemployed in) the job market. But that’s two impossible things to believe on the day before the Currie Cup final.

The unwelcome consequences of deficits are debt and the cost thereof (aka interest rates). This is where the irritatingly influential ratings agencies pop up to scrounge a living, and so they are back in the news again. These analysts are no better than any others (see next story) yet because of where they work they assume unearned mantles of authority and infallibility. And because the minister offered some home truths they have (way too late) gone all angel of doom on us and are expected to downgrade South Africa yet again. The nation’s debt service cost is approaching panic station levels. It needs more than Gigaba to start talking specifics about what our government is going to do. To stop looting the public purse and dismiss all felons and thieves would be a good start and a way of sending a great message.

News of an interesting competition came to light recently. Four teams of trainee investment analysts drawn from different business schools were each asked to take a close look at a listed company and decide whether to recommend a buy or a sell. Each team approached the task in a different way using both published data and hands-on investigations of the firm’s products and markets. This resulted in the perfect balance of two buy and two sell recommendations. Anyone who thinks that this lack of consensus is a sign that the students clearly have a lot more to learn from their courses, should realise that this is the norm even after graduation. Anything published by a company (which, by the way, they do only because they have to) is very carefully massaged and managed. Obviously while shareholders and creditors need to be kept happy and informed there is a competing desire to keep competitors and the taxman in the dark. Consequently, it is quite understandable that two different teams can draw conflicting conclusions. It’s the old glass half empty versus glass half full story. Oh, the company they analysed? Distribution and Warehouse Network (Dawn).

Events are such that I’ll be wearing my Sharks shirt in Franschhoek in the Western Cape at the time of the Currie Cup final that will be played the Shark Tank here in Durban tomorrow. I have asked my hosts if we will be able to watch at a Sports Pub but they are dubious if I’ll be welcome. But I have every faith in the hospitality of all South Africans even when we hoist the Cup. (Apologies to the WP supporter who was offended last week at the suggestion that the Lions might win their semi) [Editors’ note: The article was originally published on October 27th, 2017]


By Peter O’Brien

Cases of corruption are so common that you need a good excuse to write about another one. So how do we justify commenting on the South African scandals involving the Gupta family, at least one of the country’ most significant state-owned enterprises (SOE), a slew of well-known international firms, prominent local law offices, the uses of public law and actions of key monitoring and regulatory bodies –and ultimately the chronic misuse of political power for private gain? The justification is that what has been happening in RSA reveals in the clearest and richest form the way corruption behavior and patterns evolve across the globe. The Gupta model allows us to spell out exactly what to expect elsewhere. In a word, Gupta is generic, it is the DNA for the species.

Where should we start among the several streams that form part of the big river that is Gupta?  Let’s take a wedding as entry point. In 2013, four partners of KPMG South Africa attended a wedding, held in Sun City and spread over four days, of a prominent Gupta family member. The reported bill for the event was around R30mn. That cost was put down in the 2014 accounts, audited by KPMG South Africa, as a business expense of an RSA registered company, Linkway Trading, controlled by the Gupta family.  Linkway had received funds, to the tune of more than $8mn, from another Gupta controlled entity called Estina, which is a dairy producing enterprise in the Orange Free State. Estina itself was at that time receiving substantial subsidies (reported by 2014 to amount to some R210mn) from the Orange Free State government.

Examination of emails obtained from KPMG showed that, from 2008 onwards, the firm had helped the Gupta group to establish at least 36 entities, mostly shell companies set up in Dubai. It appears that Linkway had received the money for the wedding from one such firm – after transferring at least part of the Estina subsidy cash to Dubai. In short: Orange Free State government money intended to help the dairy industry in that State was being spent to pay for a wedding in the Gupta family, that expenditure was then made tax deductible for a Gupta owned firm audited by KPMG South Africa, and partners of KPMG were invited to the wedding financed by the subsidy money (at which wedding it seems likely that more than the bride and groom were being toasted). Who was being milked in the whole process? Answer: the tax payers in RSA.

The Independent Regulatory Board for Auditors (IRBA) in South Africa was already uneasy about KPMG/Gupta group relations in 2014, and began enquiries in that year. In 2015 KPMG itself was also clearly feeling jittery, so it terminated its 15 year relationship with Linkway. While IRBA work was going on, KPMG involvement in another serious matter, the so-called SARS (South Africa Revenue Service) case, was under scrutiny and the firm claims that it terminated that relationship as well in March 2016. By the following month, April 2016, the Head of KPMG in RSA decided to terminate services to Gupta related firms, citing “association risk” to other KPMG business. Furthermore, the Companies and Intellectual Property Commission (CIPC), the official body responsible for compliance with the RSA Companies Act, began to check behavior of three KPMG Directors to discover whether that was compliant with legal stipulations. As of now (late September 2017), even the Institute of Directors of Southern Africa has suspended all “cobranding activities” with KPMG, to limit possible image damage to other firms stemming from association with that entity. Corporate corruption is clearly a transmissible disease. Once a virulent strain is identified, everyone seeks to protect themselves.

The second major process concerns McKinsey, Eskom (a major, perhaps the major, SOE), and Trillian Capital Partners (a private RSA financial advisory firm linked with the Gupta family). Here the corruption chain centers around public tenders and the allocation of monies related to them. Some three years ago McKinsey was awarded contracts by Eskom worth around one half of McKinsey’s total revenue in the country. In 2015-2016, approximately 30% of this contract money was paid to Trillian, allegedly because Trillian was a company subcontracted by McKinsey to help fulfil the undertakings with ESKOM. The investigative work surrounding these transactions, work which includes the Budlender Report delivered on 29 June 2017 to the current non-executive President of Trillian, Tokyo Sexwale, indicates very strongly that Trillian has not performed any substantive work in return for the very large amounts of money it has received (based on accounts data, paid invoices and similar information, ESKOM has paid approximately R1.6bn to McKinsey and Trillian).

McKinsey must have realized at a relatively early stage that the whole process was dubious. In March 2016 it ended its relationship with Trillian, and in June 2016 did the same with ESKOM. When, at the beginning of 2017, Budlender was asked to investigate Trillian dealings, the issues he was requested to examine included (but were not confined to) the politically exceptionally delicate matter of the dismissal, in 2014, of the then RSA Finance Minister Nene and his replacement by Minister Van Rooyen. Specifically, Budlender was asked to determine whether the CEO of Trillian had prior knowledge of the dismissal; if so, whether Trillian had used such information for commercial purposes; whether Trillian had provided the Special advisor to the new Finance Minister and that this person would arrange for public tenders from the National Treasury and SOEs to be directed (at least in part) towards Trillian; and whether Trillian had subsequently invoiced some SOE for work which had not been done.

Budlender’s report, of 29 June 2017, lists a veritable litany of instances where Trillian totally failed to cooperate with an enquiry which had been launched by the firm itself. The mechanisms through which it stonewalled, employing the services of a well- known RSA law firm to do this, are set out in the report. Given non-cooperation, definitive proof of the various illegalities alleged to have been committed by Trilian, ESKOM officials, McKinsey and possibly others, has so far proved impossible to obtain. It is for that reason that Budlender concludes, inter alia, that an official enquiry is required which would thus allow persons and documents to be sub-paened.

This month, September 2017, Corruption Watch South Africa has laid Corruption and Bribery Charges against McKinsey in front of the US Justice Department. On the basis of the material summarized here, plus additional information, McKinsey is being accused under the Foreign Corruption Practices Act. Corruption Watch has noted that a number of McKinsey staff had not been in favor of the linkages with Trillian but that their misgivings had apparently been ignored by senior management.

The third issue concerns a very well- known public relations firm called Bell Pottinger. In January 2016 it was hired by a private South African firm, Oakbay Investments Productivity Limited. Oakbay also has significant links with the Gupta family. Bell Pottinger was asked to work on two things: corporate communications, and a campaign to promote “economic emancipation”. This fine sounding phrase was a front for an effort to shift the investment field in  favor of certain groups in the population. Both the aim of the campaign, and the specific way it was carried out, led to Bell Pottinger being accused of fueling racial tensions in RSA.

Bell Pottinger has claimed that it only took on these “high risk clients” and “high risk mandates” after much discussion at top level. It seems safe to say that the heads of the company figured that the prospective rewards justified the risks. The work continued until April 2017, by which time there was so much adverse publicity hitting this public relations firm that it called a halt. It asked an RSA law firm, Herbert Smith Freekills LLP, to look into possible failings of its decision making and monitoring procedures. The brief summary of that report which is publicly available concludes that there was indeed poor management and poor monitoring. Bell Pottinger has responded by saying that it will “develop an ethics committee”, “develop and train staff on social media policy”, and “reissue corporate policy in a new employee handbook”. This verbiage carries as much conviction as the English Prime Minister (still, as I write) Theresa May, claiming she wants a “strong and special relationship with the EU”.

The Democratic Alliance of South Africa, noting what had happened, accused Bell Pottinger of “exploiting racial tensions on behalf of the Gupta family”, and took its complaint to the Public Relations and Communications Association (PRCA). This an international professional body comprising some 20,000 members in 55 countries. It seeks to create, maintain and monitor the highest professional standards in this ever more delicate field. PRCA began its investigation on 5 July, and both the Democratic Alliance and Bell Pottinger presented written and oral evidence. The Professional Practices Committee of PRCA delivered its verdict on 18 August. Bell Pottinger appealed the verdict but the Board of PRCA confirmed the verdict on 4 September.

The conclusions are damning. Bell Pottinger was found to have breached four very important clauses of the PRCA code of conduct. The behavior of the firm was held to have been faulty at every level and to have brought the reputation of the industry into disrepute. Bell Pottinger has been expelled as a member of the PRCA. This is the most severe penalty ever imposed in the near 50 year existence of PRCA.

The three cases allow us to describe the key features of the anatomy of corruption.

First, public and private entities, and their governing bodies/principal officials, are always tempted to sail very close to the wind. Enough prospective rewards will induce almost every group to take major risks.

Second, where there is political protection from the top of the State, the chains involving Ministries, SOE, Private firms and sometimes legal entities can divert and misuse public monies.

Third, the costs suffered by an economy/society will usually come in various forms. These include direct theft of funds; excess costs of investments and operations financed by public funds; loss of confidence in public institutions; and international damage to the reputation of the country.

Fourth, the reactions of private firms implicated in the gathering storms are too little, too late and too timid. This is true for major international groups as well as national firms.

Fifth, it follows that self-regulation and self-correction are non-starters. Without sharp sanctions from external bodies, that could in some instances be industry related, the patterns will continue.

Sixth, it is paradoxical that greed (or hubris) may often be the best hope to stem the corruption. As those practicing dishonesty become more successful, so they become over confident. It is when over stretch occurs that there is the best chance for crippling the corruption.

Seventh, public actions, usually channeled through active organizations and NGOs, can be effective. Still more, they can also succeed in securing international penalties for actions carried out in a specific country. International firms will have to pay greater attention to that kind of “collateral damage”. Their ability to engage in internal monitoring of their whole networks must be improved – “no affiliate is an island”.

This analysis has used three examples from RSA where a common theme has been the influence exerted by a powerful family, the Guptas, and their linkage with the political pinnacle of the State. But, alas, there are countless similar examples, in countries across the world and at every level of economic development. Evidence seems to suggest that the incidence of this behavior is increasing, despite the vigilance and activism of so many people and organizations.

How can we improve capacities to prevent and correct corruption? In the past, efforts centered around four things – the moral, the economic, the political, and the legal. The moral focused on the ethics of behavior. Individuals were supposed to have sufficient personal and professional principles such that their behavior would reject corrupt practices. The economic focused on market morphology. Companies would be kept at “arms -length” from each other, so that competition would prevent carve-ups. Still today, competition law exists primarily to preserve that kind of corporate distance. The political focused on the separateness of private from public decision making, and on the separation of the executive, legislative and judicial arms of government. Finally, the legal focused on assessing cases where corruption was thought to have occurred, determining appropriate penalties, and ultimately feeding back findings so that law making could be improved.

Across the globe, those four areas have come under ever greater siege. There are no reliable “barriers to corruption” under any of those headings. Seemingly infinite drafting of codes of voluntary conduct, regulations, national laws, and international agreements, seems to have provided precious little protection. The odd case might be prevented, the odd penalty might frighten people for a while. Yet that’s about the sum total. RSA itself will, as of 2023, introduce mandatory audit firm rotation every 10 years (thereby echoing a similar step taken in the EU earlier this decade). But this is a very timid move, and nobody seriously expects it will make much difference (either in RSA or the EU).

Perhaps it is time to long at the problem from a different angle. Which one? Corruption comes when groups, institutions and individuals that should be operating independently decide to collude for mutual benefit. So would it be smart for actors on the other side to collaborate a lot better? Put it this way. Suppose official legal bodies started to work much more closely with private associations and the media (the latter including activist organizations) to prevent malpractice, expose it where it does occur, and devise fresh ways of retribution on those responsible for corruption. Of course there is a certain degree of collaboration already (even including international collaboration, where the RSA examples here are revealing). But it seems the scope for it is considerable. It won’t take us to any ideal situation – the risk/reward  link will always be a major temptation. Still, things might improve a bit, and that is what we must strive for.


Peter O’Brien, Bratislava, 24 September 2017




Kenya’s New Bribery Bill: It Takes Two to Tango

By AAT Senior Contributor, Michael-James Currie

Corruption has long been recognised as one of the biggest challenges which entities wanting to do business in Kenya must contend with.

The frequent demands for bribes by public officials has led to increased business costs, particularly for foreign investors. According to figures published by GAN Integrity Solutions in their GAN anti-corruption Portal, one third of all firms reportedly experienced extortion regularly and were required to make facilitation payments and give gifts to carry out basic business operations such as obtaining operating licences, construction permits and utility connections.

Accordingly, the approval and adoption of Kenya’s new Bribery Bill by Cabinet in December 2016, which aims at facilitating an effective coordination and accountability framework for the prevention, investigation and prosecution of acts of bribery, shows an overwhelmingly positive intent by the Kenyan authorities to turn the tide against corruption.

Corruption has generally been viewed as a ‘public sector’ crime in Kenya. In other words, public officials ‘demanding’ bribes from private entities. Prior to the amendments, it was the ‘demand’ side of corrupt practices which was targeted by legislative prohibitions.

The Bribery Bill, however, recognises that both parties to a corrupt transaction ought to be held accountable and, therefore, the Bribery Bill’s predominant focus appears to be the extension of the fight against bribery directly to the private sector via the introduction of various obligations together with onerous sanctions including criminal sanctions targeted at the private sector or the “supply side”.

In essence, the Bribery Bill focuses on both the offer and the acceptance of a bribe by both local and foreign individuals. The Bribery Bill, however, places further obligations on private entities which include:

  • imposing a positive duty on every person to report to the Ethics and Anti-Corruption Commission any instance of bribery within twenty four hours of becoming aware or suspecting an instance of bribery; and
  • introducing obligations on firms to “have in place procedures appropriate to their size and nature of operations for the prevention of bribery“.

These provisions effectively mandate firms to take positive steps in order to comply with the Bribery Bill such as implementing internal rules that will preclude employees from paying or receiving bribes.

Importantly, the Bribery Bill also imposes strict liability on a private entities when an employee or person closely associate with that entity is involved in a case of bribery which has the effect or intention of obtaining or retaining business or any other advantage for that private entity.

The Bribery Bill further introduces substantial liability for non-compliance. In this regard, falling foul of the Bribery Bill could result:

  • in a hefty penalty of up to KES 1 million and or imprisonment for a period not exceeding 10 years imposed on individuals who are found to be in contravention of the Bill;
  • directors, partners or senior officers of private entities facing jail time of up to 12 months if the entity does not comply with the mandatory obligations; or
  • in individuals being barred from serving as a director of a company or a partner of a firm in Kenya for a minimum of 10 years, whilst firms may receive a ten year ban from transacting with the National or County Government.

John Oxenham, a legal practitioner with Pr1merio Ltd., admonishes that “[t]here can be little doubt that the proposed bill will have a significant impact on entities looking to conduct business in Kenya. It remains to be seen, however, whether the dual approach to targeting parties involved in instances of bribery will effectively curtail the ‘demand side’.”  In this regard, as with most anti-bribery or anti-corruption pieces of legislation, the success of curbing such practices depends largely on the effective enforcement efforts of the relevant agencies. Accordingly, in order to meaningfully combat corruption, a collective effort is required by all enforcement agencies as many individuals who engage in corrupt activities, are not deterred by the knowledge of engaging in unlawful conduct, but rather by the risk of getting caught and successfully prosecuted.

Did U.S. Meddle with Zuma Corruption Investigation? There’s a new Sheriff in Town

Ex-Public Protector Criticised for Accepting American & German Funds in Effort to Stamp out Government Fraud

Ms. Thuli Madonsela, her immediate predecessor, has denied the claims: “It’s a lie that we used consultants. It’s a blatant lie that we used USAID money, ever.”  The American government, however, acknowledged quite freely its financial support of the Public Protector’s work.  In the USAID’s own words (PDF):

USAID support was designed in collaboration with GIZ, the Department of Justice, and the Public Protector of South Africa (PPSA), to provide technical assistance to specific areas of the PPSA’s five-year strategic plan, and, through it, assistance to the African Ombudsman and Mediator’s Association (AOMA). The assistance was designed to build the capacity of the PPSA to use its own resources more effectively as it faces the challenges associated with an increase in the number and complexity of complaints investigated by the office. It supports the PPSA with training needs for investigators, specifically in investigation skills, anticorruption and fraud, alternative dispute resolution and report writing, all of which will increase their effectiveness and help to standardize practices across the PPSA. The PPSA has also highlighted a need for training in human resources, and also, assistance with outreach activities to reach rural and marginalized people will be supported to enhance accessibility. Assistance to the AOMA would be beneficial to the stature and respect accorded to the office and will contribute to strengthening good governance and democratic principles around the continent.

Andreas Stargard, an attorney with Pr1merio Africa advisors, points out the glaring questions that arise from the facts known thus far:

The independence of the OPP is at the heart of the agency’s mission.  Foreign funding can be quite innocuous, or it can indeed present a thinly disguised opportunity for another nation to meddle in domestic affairs.

Here, the discrepancy between Ms. Madonsela’s denial and the official USAID release is a bit hard to swallow.  Apparently, PriceWaterhouseCoopers were retained by the Office to help compile the Report on President Zuma’s entanglement with the Gupta family within the narrow 30-day window of time that was available to the Public Protector.  It is not clear to us whether U.S. funding was actually used, but there are good arguments on both sides.

Even more interestingly, the $500,000 total in foreign funding claimed by the media needs to be unpacked in greater detail: the half-million dollar amount was “identified” by USAID in 2015 “in reprogrammed funding to commit to democracy and governance programming.”  Yet, it was (1) made jointly with the German government‘s equivalent of the USAID (GIZ); (2) committed at only the 50% level until now (the final $250,000 tranche was to follow, supposedly, in “mid-2017”); and (3) signed merely on August 19, 2016, purportedly after “several months of program design involving all project stakeholders.”

The new Sheriff in town

The new Sheriff in town

A U.S. embassy spokesperson was quoted by media to say that the money thus far donated via the GIZ collaboration had been widely discussed within government circles.  The former Public Protector’s detractors, however, claim that the U.S.-backed funding renders her office’s independence doubtful, according to one of her critics, the Umkhonto weSizwe Military Veterans Association: “America cannot fund you without putting their interests first.”

Ms. Madonsela’s final Report, has not been released publicly, as both President Jacob Zuma and Cooperative Governance Minister Des van Rooyen applied for and obtained judicial intervention, preliminarily enjoining publication of the so-called #stateCapture Report‚ which was to be released last Friday.  The Gupta family ties certainly may have played a role in the officials’ expressed desire for privacy.

Former public protector Thuli Madonsela says no government institution has received foreign funding directly. (Delwyn Verasamy, M&G)
Former public protector Thuli Madonsela (Delwyn Verasamy, M&G)

Public protector role to be filled by Advocate Mkhwebane

busisiweAdvocate Busisiwe Joyce Mkhwebane was appointed as the new public protector in South Africa — a very important, albeit often sadly emasculated, role.  Adv. Mkhwebane will be replacing outgoing public protector Thuli Madonsela; her seven-year term officially begins on 15th October 2016.

In an informal online survey, Corruption Watch determined that her appointment by President Jacob Zuma was deemed transparent, and an 87% majority of respondents expressed confidence in Mkhwebane’s appointment.  That said, controversy erupted after the country’s Democratic Alliance party claimed that Mkhwebane had been “on the payroll” of the State Security Agency, implying a former role as an intelligence officer for the state.

Och-Ziff’s African (formerly lucrative) nightmare

Och-Ziff Capital Management Admits To Role In Africa Bribery Conspiracies And Agrees To Pay $213 Million Criminal Fine

From the U.S. Attorney’s Office for the Eastern District of New York: “Och-Ziff Enters into 3-Year Deferred Prosecution Agreement; Och-Ziff Subsidiary Pleads Guilty to Conspiracy to Violate the FCPA”

BROOKLYN, NY – The U.S. Attorney’s Office for the Eastern District of New York and the Criminal Division, Fraud Section are prosecuting a New-York alternative investment and hedge fund manager, Och-Ziff Capital Management Group, LLC (Och-Ziff), which has agreed to pay a $213 million criminal penalty and enter into multiple criminal resolutions with the Department of Justice to resolve charges related to widespread bribery of officials in Libya and the Democratic Republic of Congo.  As part of the resolution, Och-Ziff, the publicly traded parent company, entered into a three-year deferred prosecution agreement (DPA) with the Department of Justice.  An Och-Ziff subsidiary, OZ Africa Management GP, LLC (OZ Africa), pleaded guilty to one count of conspiracy to violate the Foreign Corrupt Practices Act (FCPA).  Today’s guilty plea and proceedings in connection with the DPA took place before United States District Judge Nicholas G. Garaufis in the U.S. District Court for the Eastern District of New York.  Sentencing for OZ Africa has been scheduled for March 29, 2017, at 2:00pm.

U.S. Attorney Robert L. Capers of the Eastern District of New York, Principal Deputy Assistant Attorney David Bitkower of the Justice Department’s Criminal Division, William F. Sweeney, Jr., Assistant Director-in-Charge, Federal Bureau of Investigation, New York Field Office (FBI), and Richard Weber, Chief, Internal Revenue Service, Criminal Investigation (IRS-CI), made the announcement.

“Och-Ziff, one of the largest hedge funds, positioned itself to profit from the corruption that is sadly endemic in certain parts of Africa, including in Libya, the Democratic Republic of the Congo, Chad, and Niger.  Despite knowing that bribes were being paid to senior government officials, Och-Ziff repeatedly funded corrupt transactions.  One Och-Ziff employee was so bold as to order the removal of language from their African joint venture’s internal audit report that called for an investigation of suspected bribery payments by a business partner.  Today’s corporate resolutions, which include a more than $213 million criminal penalty and an independent compliance monitor, hold Och-Ziff accountable for placing profits above the law and will help ensure that the conduct brought to light here never happens again at this company,” stated United States Attorney Capers.

“This case marks the first time a hedge fund has been held to account for violating the Foreign Corrupt Practices Act,” said Principal Deputy Assistant Attorney General Bitkower.  “In its pursuit of profits, Och-Ziff and its agents paid millions in bribes to high-level officials across Africa.  By exposing corruption in this industry, the Criminal Division’s Fraud Section continues to root out wrongdoing of all types in the financial sector.”

“Gaining the upper hand in a business venture by engaging in corrupt practices is bribery in its purest form,” said FBI Assistant Director in Charge Sweeney.  “Doing so with the intention of influencing a foreign official in his or her capacity is nothing short of corruption.  In this scheme, payments of millions of dollars were paid out to senior officials within certain parts of Africa in exchange for access to profitable investment opportunities.  This type of behavior can’t and won’t be tolerated.  I commend the investigators and prosecutors who continue to work together at home and abroad to vigorously enforce the law within the confines of the Foreign Corrupt Practices Act.”

“Today’s plea and deferred prosecution agreement result from the unraveling of complex financial transactions orchestrated by Och-Ziff Capital Management Group, LLC and its subsidiary to facilitate illegal payments to foreign government officials,” said IRS-CI Chief Weber.  “IRS-CI will continue to investigate pervasive bribery schemes used by corporations in the pursuit of attractive international investment opportunities.”

Under the DPA, Och-Ziff admitted to multiple conspiracy charges in a four-count criminal information, including two counts of conspiracy to violate the anti-bribery provisions of the FCPA, one count of falsifying its books and records and one count of failing to implement adequate internal controls.  Additionally, OZ Africa pleaded guilty to conspiring to bribe senior officials in the Democratic Republic of Congo in connection with obtaining valuable mining concessions.  Collectively, Och-Ziff and OZ Africa agreed to pay a criminal penalty of $213,055,689, and Och-Ziff agreed to retain an independent compliance monitor for a period of three years.

The DRC Bribery Scheme

Between 2005 and 2012, a businessman operating in the DRC with significant interests in the diamond and mining sectors in the DRC paid more than one-hundred million dollars in bribes to DRC officials for special access to attractive investment opportunities.  In late 2007, Och-Ziff employees began discussions to partner with the businessman based upon his special access to these investment opportunities.  Between 2008 and 2011, Och-Ziff entered into several DRC-related transactions with this businessman despite the fact that at least two Och-Ziff employees knew, and a senior Och-Ziff employee believed it was likely, that the businessman gained access to these attractive investment opportunities by making corrupt payments to government officials.  Och-Ziff personnel funded these transactions understanding that Och-Ziff’s funds would be used in part to pay substantial sums of money to high ranking DRC officials to secure access to and preferential treatment for the investment opportunities.  In late 2008, after an Och-Ziff employee was alerted that an audit of the businessman’s records revealed payments for DRC officials, that employee instructed that any references to those payments be removed from a final report of the audit.  The businessman did, in fact, make corrupt payments to and for the benefit of DRC officials to secure the investment opportunities.

The Libya Bribery Scheme

Separately, but also beginning in 2007, a senior Och-Ziff employee engaged a third-party agent to assist the company in securing an investment from the Libyan sovereign wealth fund, the Libyan Investment Authority (LIA).  At the time of the engagement, the senior Och-Ziff employee knew that the agent would need to make corrupt payments to Libyan officials to secure that investment.  The agent was engaged without formal approval by Och-Ziff and without any due diligence conducted on the agent by Och-Ziff.  From February 2007, the agent worked on behalf of Och-Ziff to obtain an asset placement from the LIA, including setting up a meeting between the senior Och-Ziff employee and the Libyan official who was empowered to make investment decisions for the LIA.  In late November 2007, Och-Ziff received a $300 million investment from the LIA into Och-Ziff hedge funds.  Shortly thereafter, Och-Ziff entered into a consulting agreement to pay a sham “finder’s fee” of $3.75 million, knowing that all or a portion of the fee would be paid to Libyan officials in return for their assistance in obtaining the LIA’s investment.  The agent did in fact make corrupt payments to and for the benefit of Libyan officials to influence the LIA’s investment.

Internal Controls Failures and Falsified Books and Records

Further, Och-Ziff admitted that it knowingly and willfully falsified and caused to be falsified records related to its retention and payment of the agent in Libya.  The falsified records concealed the true purpose of the payments, which purported to be for consulting purposes, but which actually would be used for corrupt payments to Libyan officials in return for their assistance in obtaining the LIA’s investment.  Och-Ziff also failed to implement and maintain an adequate system of internal accounting controls designed to detect and prevent the misappropriation of assets by its employees, agents, and business partners.  As a result, the company failed to prevent bribe payments from being made in the DRC, Libya, as well as in Chad and Niger, where an Och-Ziff joint venture made mining-related investments.  For all the criminal conduct included in these resolutions, Och-Ziff reaped more than $210 million in illegal profits.

The Corporate Resolutions

The Department entered into this resolution, in part, due to Och-Ziff’s failure to voluntarily self-disclose the offense conduct and the seriousness of the conduct including the high-dollar amount of bribes paid to foreign officials and involvement by a high level employee within Och-Ziff.  Notwithstanding, Och-Ziff received a 20 percent reduction off the bottom of the U.S. Sentencing Guidelines range for its cooperation with the government’s investigation.    Och-Ziff also committed to continue to enhance its compliance program and internal controls, to cooperate with the Department in ongoing investigations, and to retain an independent compliance monitor pursuant to the terms outlined in the DPA.

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In connection with the government’s investigation, Samuel Mebiame, a Gabonese national, was charged on August 16, 2016, by criminal complaint with conspiring to bribe foreign government officials to obtain mining rights in Chad and Niger, as well as Guinea.[1]  According to documents filed in court, Mebiame worked as a “fixer” for a mining company that was owned by a joint venture between Och-Ziff and a Turks & Caicos incorporated entity.  In that capacity, Mebiame paid bribes to high-ranking government officials in Niger and Chad to obtain the mining rights.  During the charged conspiracy, Mebiame repeatedly traveled to the United States to further the scheme, including to meet with coconspirators at the Plaza Hotel in New York and to start companies and open bank accounts through which he could receive international wire transfers from coconspirators.

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In a parallel proceeding announced today, the U.S. Securities and Exchange Commission (SEC) filed a cease and desist order against Och-Ziff Capital Management Group LLC and OZ Management LP, whereby Och-Ziff agreed to pay approximately $199 million in disgorgement to the SEC, including prejudgment interest.  The total amount of the global resolution is thus approximately $412 million.

The FBI’s New York Field Office and IRS-CI’s New York office are investigating the case.  The department appreciates the significant cooperation and assistance provided by the SEC in this matter.  The Swiss Federal Office of Justice, the British Virgin Islands Central Authority, the Maltese judicial authorities and authorities in Jersey and Guernsey also provided assistance.

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The case is being prosecuted by Assistant U.S. Attorneys James P. Loonam, Jonathan P. Lax, and David Pitluck of the Business and Securities Fraud Section of the U.S. Attorney’s Office for the Eastern District of New York, and Assistant Deputy Chief Leo Tsao and Trial Attorney James P. McDonald of the Criminal Division’s Fraud Section.  The Criminal Division’s Office of International Affairs provided significant assistance in this matter.

Slow Crawl On Corruption

A long walk to freedom need not mean a slow crawl on combating corrupt government


The recent (May 12) London Summit on Anti-Corruption resulted in another small step in the right direction. About 40 countries were represented, along with a number of international sports associations and similar bodies that have come under scrutiny for corruption. No real agreements were made, but some initiatives were announced. The UK Government, which for the last several years has been concerned about that country’s poor reputation due to its role in money-laundering, confirmed its plans to establish a register (with retroactive force) of large property owners. The so-called Beneficial Owners Transparency Initiative will shortly be made law. Despite the efforts to persuade other significant countries to follow the same path, to date only 4 of the G20 countries have committed to ending the practice of Secret Company Ownership. The sports associations present (which did not include FIFA, perhaps because of its major meetings in Mexico the following day) agreed to launch, in 2017, an International Sport Integrity Partnership, though the details of this are still unclear.

La Suisse lave plus blanc

The London meeting sensibly sought to focus on a single dimension only of anti-corruption efforts, namely financial secrecy. It is now some 35 years since the Swiss campaigner, Jean Ziegler, published a fierce tract on money-laundering in his own country, “La Suisse lave plus blanc” (in English translation: “Switzerland Washes Whiter”) , and it was towards the end of the 1980s that activities against the international drug trade started to place priority on tracking down where and how the money had been used (especially through the efforts of the Financial Action Task Force, set up with the participation of both national and international institutions). Notwithstanding the flood of additional information (that will require very careful analysis) provided by the Panama Papers, this route remains a tough one.

There are at least three problems to overcome. First, and most important, the reluctance of countries ( and states/regions within them) to embrace full transparency. Put simply, that elusive animal, political will, is hard to manage. Second, the complexity of legal and other arguments relating to what should be the boundaries separating legitimate claims for privacy from claims designed to shroud illegal behavior. Third, the major practical difficulties in carrying out investigative work on the scale required. To date, no international body has been given the resources adequate to such a task.

Corruption vs. Money

Discussions of corruption and money often mix together issues that should be kept separate. Africa’s countries are faced with two challenges: the use of money to distort decisions (such as those involving public procurement) and the avoidance of payments that should be made to the State (leading to what is variously called the “shadow economy” or the “informal economy”). Both things make governance more difficult, and tend to impede economic growth. Both can lead to money laundering. And at least the former often involves foreign entities.

While the London Summit did not unfortunately shed much new light on these matters, the information made available again underlined how so many other countries are locked into the same battle. For instance, data referring to 2012 and covering 20 EU Member States show that best estimates of the size of the shadow economy in relation to GDP are quite alarming. Of the 20 countries measured, the lowest percentage (shadow to total GDP) was for Austria, at 7.6% while the highest was for Bulgaria (31.9%). The median figure, 15.5%, was for Slovakia, a striking finding given it is a country that for years has had only a single, and low, tax rate (meaning tax evasion might be expected to be small). Indeed, both Germany and Sweden have a shadow economy/legal economy ratio of around 14/15%. In other words: the advanced countries not only have a problem with aggressive corruption (that aimed at particular projects and programs) but also with the silent corruption of the shadow economy.

Governance & Incentives

The governance issues, not really examined in London, remain for Africa at the center of the problems. It is now a full 20 years since the then President of the World Bank declared that governance was the great obstacle to be overcome in the efforts towards development, and further declared that “the cancer of corruption” was the central issue in governance. Since then, it seems that little progress has been made. Or, to put it differently, the efforts of a political and technical nature have been neutralized by the growing sophistication (legal, technological and financial) in the criminal world.

The measures against money laundering operate from the premise that if criminals are faced with a high risk that they will never be able to enjoy the benefits of their actions, they will be much less inclined to behave badly. This is a fair line of policy to follow, yet so far the deterrent effect does not seem to have been too powerful. An opposite way of tackling things is to find ways of reducing the incentives to corrupt behavior to start with. Given that for Africa it is this which would seem to provide the best, if modest, hope for achieving home-grown policies against corruption, future efforts should be made along these lines.

No doubt many countries are already experimenting with their own tentative policies. It might be made worthwhile establishing simple information exchanges among countries about how they have designed and implemented such policies, and the results they are achieving. For some years, it has been normal to use an experimental approach towards assessing and improving various anti-poverty programs. It is perhaps now time to follow the same path with regard to anti-corruption.

* About the author: Peter OBrienPeter O’Brien is economics & trade advisor to Africa consulting boutique Pr1merio. With over 30 years’ international expertise in economic and financial analysis, trade negotiations, and deal making, Peter O’Brien has advised governments, NGOs, and private clients on economics, policy, and diplomacy matters. Peter has worked worked in all regions of Africa, providing advice to clients ranging from South African conglomerates to Ethiopian government ministries.  A native of Ireland, Peter is fluent in English, French, Spanish, Portuguese, Italian and German.