Can western firms stop profiting from poor nations’ corruption?
Isabel dos Santos’ secret to becoming a billionaire in Angola, one of the world’s poorest countries, was simple. She got her dad, José Eduardo dos Santos, Angola’s president, to give her money from the nation’s treasury.
OK, it wasn’t quite that simple. A maze of shell companies, overseas tax havens and complex management and investment schemes funneled millions to and fro before the money ended up in her hands, according to an examination of more than 715,000 leaked emails, contracts and other documents obtained and examined by the International Consortium of Investigative Journalists and shared with several news outlets, including The New York Times.
Yes, this is another tragic tale of a resource-rich, underdeveloped country plundered by predatory political leaders and their families. But thanks to the investigation, we also know that dos Santos had the assistance of Western firms, including the Boston Consulting Group, McKinsey & Co. and the accountants at PwC, who helped manage some of the 400 companies and subsidiaries in 41 countries controlled by dos Santos and her husband. In some cases, the couple’s advisers oversaw financial transfers that the current Angolan government describes as acts of money laundering. All the while, these Western advisers collected a share of the proceeds.
Boston Consulting Group “managed” a Swiss jewelry company that the Angolan government bought with money borrowed at a high rate of interest from a bank controlled by dos Santos. After she and her husband ran the jewelry company into the ground with lavish spending, the government was left owing $225 million.
When Boston Consulting and McKinsey were hired to restructure Angola’s state oil business, which dos Santos eventually ran, the government didn’t pay them directly but through a Maltese company owned by dos Santos and another company owned by her friends, allowing the couple to siphon millions of dollars from the government’s payments.
Money-laundering experts and forensic accountants say PwC, which provided dos Santos with accounting and tax advice, worked with at least 20 companies she or her husband ran, as Angolan funds went missing, and signs of money laundering were overlooked.
Angola offered ideal conditions for such plunder. Rich in oil and diamonds, the country has a history of colonialism, conflict and instability that has left it ripe for the picking. The infant mortality rate is among the highest in the world, about 30% of the population subsists on less than $1.90 a day and corruption is endemic — Angola ranks close to the bottom of 180 countries in the anti-corruption monitor Transparency International’s ranking of the world’s most corrupt nations.
Dos Santos’ father, José Eduardo dos Santos, was a former revolutionary trained in Soviet Azerbaijan, but as he became Angola’s longest-ruling president, he shed his Marxism and amassed great wealth.
For the record, dos Santos and her husband, Sindika Dokolo, have insisted they made their fortune, estimated at more than $2 billion, honestly and on their own, and that they are now victims of a political “witch hunt.” Friday on Twitter, dos Santos called the accusations “extremely misleading and untrue” and part of “a very concentrated, orchestrated and well-coordinated political attack.” The leaked documents show how she obtained stakes in lucrative enterprises — diamond exports, mobile phones, banks and a cement maker — often through decrees signed by her father.
The government of President João Lourenço, who succeeded dos Santos’ father when he stepped down in 2017, has frozen dos Santos’ assets and Thursday announced she would be criminally charged soon. Whether Lourenço will make headway against the country’s corruption, or whether he is simply consolidating power to ensure he gets his share, remains to be seen.
On Tuesday, PwC’s global chairman, Bob Moritz, told The Guardian newspaper that he was “shocked and disappointed” by disclosures of what his firm did for dos Santos, and that the company would investigate and take action. Boston Consulting insisted that it had taken steps when hired “to ensure compliance with established policies and avoid corruption and other risks.” McKinsey said it wasn’t doing any work now with dos Santos or her companies.
The investigative consortium should be commended for exposing the gross misuse of public funds, as it did earlier with the Panama Papers, which exposed the offshore finance industry. But naming and shaming is not enough.
The US requires American banks and other financial firms to report suspicious activity, such as potential money laundering. But the US does not impose that requirement on law, accounting or consulting firms — even though such firms can play a very similar role in helping clients move money to avoid taxation or other legal restrictions.
European accounting firms, by contrast, are subject to the same kind of reporting requirements as banks. The European Union requires senior executives at accounting firms to approve relationships with politically connected individuals like dos Santos, and to take “adequate measures” to ensure that a client’s money comes from legitimate sources.
Such rules are not a panacea. The EU has struggled to hold accounting firms to those standards. While PwC did business with dos Santos, the emails reviewed by the investigative consortium showed that some major banks declined the opportunity.
But imposing banklike legal obligations on a broader range of firms that provide financial, tax and legal advice would be an important step forward.
American companies have long argued that their involvement in other countries carries important benefits for those countries. That certainly can be true. But it’s clear that the current rules — or rather, the lack of rules — allow those companies far too much leeway to make money at the expense of the countries where they operate. The US has long criticized corruption in other countries. We need to deal with what’s rotten at home, too.