Exclusive: How South Sudan’s elite
A leaked audit report shows how family and friends of top government officials benefited from a letters of credit scheme
On a hot, dusty day in April 2015, generals, ministers, senior ruling party officials and MPs descended on the offices of the ministry complex in South Sudan’s capital, Juba. Some army men came in their uniforms, accompanied by a flock of AK-47-toting soldiers. Others, perhaps less willing to be seen, sent letters with requests, bearing the seal of whatever government institution they worked for. Some would simply pick up the phone to give instructions.
At first sight, the gathering may have looked like an emergency meeting of the country’s leaders. In fact, South Sudan’s elites were scrambling to cash in on the country’s dwindling foreign reserves — the advanced stage of a systematic effort to loot the resources of the world’s youngest nation.
At that time, South Sudan was well into the second year of a bloody civil war — a war that is yet to be resolved. Oil revenues had declined by a third, and the country’s dwindling foreign reserves had become its most sought-after commodity — especially for those in power.
To address the country’s acute shortage of hard currency, the Bank of South Sudan earmarked $ 9 9 3 - mi l l i o n in oil revenues between 2012 and 2015 to import vital goods such as medicine and food. Ministries allocated the hard currency to selected traders at a preferential exchange rate through letters of credit (LCs), a documentary credit facility commonly used to facilitate international trade.
But i nstead of helping South Sudan’s impoverished population, the LCs became one of the biggest corruption scandals in the nation’s short but troubled history, a Mail & Guardian investigation has found.
Rather than using the lifeline to import badly needed goods such as grains and medicine, many of those involved exploited it as a way to buy scarce oil dollars at a highly discounted exchange rate and resell them on the black market, potentially generating hundreds of millions of dollars in profit.
“Some few officials and fake traders, apparently with the assistance and collaboration from officials in authority, turned the LCs to a mere means for personal benefit,” concluded a confidential report of the country’s National Audit Chamber obtained by the M&G.
“Many beneficiaries of the letters of credit seem to have managed to get their payments without delivering the intended goods or services to the country,” said the audit report, which was presented to President Salva Kiir in December 2015. The LCs “have caused the country huge financial losses … at the expense of the majority of the populace in the country”, it concluded.
Initially launched when South Sudan shut down its oil production in 2012, the scheme took off just as conflict engulfed the young nation. Almost 90% ($875-million) of the funds were allocated in four rounds between May 2014 and April 2015. The practice flourished until the country finally ran out of foreign reserves, eventually forcing the Bank of South Sudan to abandon the fixed exchange rate in December 2015.
The LC scheme is only the latest in a series of corruption scandals in a country whose birth in 2011 was greeted with international adulation and generous financial support.
Although South Sudan ranks second from the bottom in Transparency International’s corruption index, it remains one of the top recipients of foreign aid.
In 2014, at a time when the scheme was at its height, donors spent $1.8-billion in the country as part of the second-largest humanitarian appeal in the world, trumped only by Syria.
The audit report investigating the scheme, which was completed in 2015, contains a list of more than 1 900 LCs awarded to almost 1 200 companies. It stops short, however, of identifying their owners. Pro- transparency organisations believe the findings are being intentionally kept under wraps.
The president’s office denied the widespread abuse of the LCs and allegations that it was stalling further investigation.
“The abuse comes as an exception and I’m not aware of particular details,” said Ateny Wek, Kiir’s spokesperson. “The office of [the] president is dealing with a lot of other things that have more priority.”
The auditor general declined to comment on a report that has yet to be made public.
Over several months, the M&G analysed data in the audit report and investigated the background of companies that received the larg- est allocations. An examination of the shareholders for a sample of companies suggested they were often linked to people in the South Sudanese government and armed forces. Moreover, evidence corroborated by dozens of interviews and official records suggests that only a small share of the funds were actually used to import the intended items.
‘There was nobody who didn’t come’
In economies with mature financial markets, LCs form an integral part of international trade, with little room for manipulation.
The idea is to minimise the risk for two parties trading across borders: on request of the customer, a bank issues a written guarantee of payment to the bank of a supplier in another country. The customer deposits the value of the LC with his bank in local currency, the hard currency equivalent of which is released to the supplier’s bank as soon as the conditions stipulated in the letter are met. Usually, the release of funds requires documentary proof of delivery of goods.
In South Sudan, a country with weak institutions and where an artificially maintained dual exchange rate regime enabled corruption, the LCs became a portal to self-enrichment. The decision to place the power to allocate LCs into the hands of ministries, instead of commercial banks — as is the practice around the world — paved the way for lobbying and abuse by office holders.
Every three to four months, when the time came to divide the hard currency available through the letters of credit, high-ranking members of the ruling party used their political clout to channel funds to companies owned by their associates or relatives. The April 2015 meeting was one such opportunity.
“There was nobody who didn’t come,” one government official close to the selection process said. “Ministers, members of Parliament, generals — everybody came,” said the official, who, like most sources interviewed for this story, requested anonymity for fear of reprisals.
Government officials rarely owned the companies that received the LCs, because if they did it would violate a constitutional provision prohibiting office holders from transacting commercial business.
But according to several sources, letters of recommendation from top government and army officials supported the majority of companies that passed the selection process, allegedly in return for a share of the profits generated from black-market currency trading.
The M&G obtained a few of these recommendation letters, signed by ministers, generals and governors (the details of the letters are withheld to protect the identity of sources that provided them). Several sources close to the process further reported that letters of recommendation came from the office of the president, the office of the army’s chief of general staff, and the office of the first lady, and were usually signed by administrators.
The members of the joint technical committee, a body composed mostly of mid-level technocrats and charged with verifying the authenticity of companies recommended for allocations, felt powerless to intervene.
“We are just sitting there, like tools,” one of them said.
Several members described the vetting process as a facade, based on a set of easily manipulated criteria. The companies that regularly received allocations were often unknown to the business community and were alleged to be briefcase companies created for the purpose of embezzling funds.
One particular case stood out. In April 2015, $10-million was earmarked to import cooking oil. It was an eyebrow-raising amount, equivalent to two-thirds of the country’s annual consumption, according to trade data.
Although the $10-million was split between five companies in an apparent effort to feign competi-