The FCPA Blog

Ken Silverstein's report on this week's Senate hearings about foreign rulers moving huge chunks of money to the U.S. is here.

For Silverstein, Harper's Washington editor and writer of the online Washington Babylon, the Senate investigation is a personal triumph. With help from Global Witness, he exposed the financial maneuverings of African kleptocrats and their U.S. enablers. His story in November about Teodoro Nguema Obiang Mangue, son of the dictator of oil-rich Equatorial Guinea, was a breakthrough.

We mentioned Silverstein's story in a post here, noting it was the first time a mainstream publication had ever talked about Presidential Proclamation 7750 --  the 2004 American law that allows the State Department to deny visas to foreign kleptocrats and their families.

Silverstein wondered then why Obiang -- "a notoriously crooked official" -- was allowed to enter the U.S. and stash millions in cash and assets there. Did the lack of action against Obiang, Silverstein asked, stem from political pressure to ignore the crimes and corruption of a possible future president of an oil-friendly ally?

In Washington, Senator Carl Levin, chairman of the Permanent Subcommittee on Investigations, used Silverstein's reporting to launch an investigation into Obiang and others, culminating in this week's hearings. At a press briefing Tuesday, Silverstein asked Senator Levin why Obiang isn't on a list of corrupt foreign officials barred from the U.S. under Proclamation 7750. “That’s the right question,” Levin replied.

This week, Levin's committee released a 330-page report. Some "findings of fact" were:

Lawyers. Two U.S. lawyers helped Teodoro Obiang circumvent anti-money laundering and PEP (politically exposed person) controls at U.S. banks by allowing him to secretly use a series of attorney-client, law office, and shell company accounts as conduits for his funds.

Realtors. Two realtors helped Obiang buy and sell multi-million-dollar residences in California, and a real estate escrow agent facilitated his purchase of a $30 million property by handling millions of dollars wire transferred from Equatorial Guinea, without verifying the source of the funds, since they had no legal obligation to do so.

Escrow Agents. After one U.S. escrow agent, as an AML precaution, refused to complete the purchase of a Gulfstream jet for Obiang without obtaining information on the source of $38.5 million to be paid for the aircraft, another U.S. escrow agent stepped in and completed the transaction with no questions asked. The escrow agents had no legal obligation under current law to inquire about the source of the funds.

Lobbyist. A U.S. lobbyist helped President Omar Bongo of Gabon obtain six U.S.- built armored cars and U.S. government permission to buy six U.S.-built military cargo aircraft from Saudi Arabia to support his regime, while allowing his U.S. bank accounts to be used as a conduit for $18 million in suspect funds in connection with those transactions, with no questions asked.

Offshore Corporations. Jennifer Douglas, a PEP through her marriage to Atiku Abubakar, former vice president of Nigeria, used a series of U.S. bank accounts to bring over $25 million in suspect funds into the United States via wire transfers from offshore corporations. Douglas was later named in the bribery prosecution of ex-U.S. Congressman William Jefferson and has been linked to corruption admitted by Siemens.

University. A U.S. university accepted over $14 million in wire transfers from unfamiliar offshore shell corporations to pay for consulting services related to development of a university in Nigeria founded by Mr. Abubakar.

Personal Accounts. Pierre Falcone, a PEP through his close association with the President of Angola and appointment as an Angolan Ambassador, was able to use personal, family, and U.S. shell company accounts at a U.S. bank in Arizona to bring millions of dollars in suspect funds into the United States and move those funds among a worldwide network of Falcone accounts, despite his status as an arms dealer and a long history of involvement in criminal proceedings in France. Falcone is now in jail in France.

Silverstein's latest story added these weird details:

Two American attorneys set up shell accounts for Obiang to help him buy a $30 million home in Malibu and a $38.5 million jet. All told, Obiang moved more than more than $110 million into the U.S. from 2004 to 2008. One of the shell companies was called Sweet Pink, named after the rapper Eve Jeffers, who was then Obiang’s girlfriend and the president of Sweet Pink. (Eve later dumped Obiang, reportedly after hearing rumors that his dictator father was a cannibal who ate his political opponents. The senate report neither confirms nor denies that Obiang Sr. is a flesh eater.)

A copy of the proceedings of the Senate Permanent Subcommittee on Investigations -- Keeping Foreign Corruption Out of the United States: Four Case Histories -- along with the full staff report can be downloaded here.

Britain has banned 20 Kenyans from entering the country. According to reports last week from the BBC and others, the names of those banned haven't been made public but they may include senior civil servants, politicians and businessmen. Britain's High Commissioner (ambassador) to Kenya, Rob Macaire, said the ban was necessary because Kenya has never convicted a senior official of corruption.

In November, the U.S. ambassador to Kenya, Michael Ranneberger, confirmed on his Twitter page that the U.S. government had denied a visa to Kenya's attorney general Amos Wako. It was the first time an American official had revealed a visa determination under Presidential Proclamation 7750, the executive order giving the State Department the power to exclude foreign kleptocrats, their families and friends. See our post here.

In July 2007, the U.K.'s Serious Fraud Office opened a criminal investigation into contracts between the Kenyan government and a U.K. business known as Anglo Leasing Finance. The contracts for passport controls and border security systems were awarded to phantom overseas companies at inflated prices that topped $100 million. Kenya refused to cooperate and in February this year the SFO ended its investigation, saying without support from the Kenyan government the case couldn't be prosecuted.

Attorney General Wako has denied being involved in corruption and blamed the lack of cooperation with the SFO on Kenya's judicial system. 

Kenya's former top anti-corruption officer, John Githongo, began investigating Anglo Leasing Finance after his appointment in 2002. He delivered his report to President Mwai Kibaki in November 2005. (A copy, later leaked to the public, can be downloaded here.) He received death threats and fled to England. From there, Githongo publicly blew the whistle on many of Kenya's top politicians. President Kibaki was forced to fire three ministers -- though he reappointed two of them a year and half later.

The lawsuit examining how three African rulers and their families managed to acquire dozens of luxury homes, cars and other assets in France has been stopped. A Paris magistrate had ordered the investigation in May at the request of Transparency International. See our post here. But last month an appellate court agreed with the Justice Ministry that TI lacked standing to bring the case.

The rulers named in the suit were Teodoro Obiang Nguema Mbasogo of Equatorial Guinea, Denis Sassou Nguesso of the Congo Republic, and Omar Bongo-Ondimba of Gabon. The Congo Republic and Gabon -- recently joined by Equatorial Guinea -- are important oil exporters. According to Reuters, the French oil and gas group Total SA  is "the leading producer in Gabon and Congo Republic and many other French firms, public and private, have long-term contracts there." 

William Bourdon, one of TI's lawyers, said: "Those in France and Africa who organize and take advantage of the looting of African public money will be celebrating with champagne." TI said it will ask France's Supreme Court (the Cour de cassation) to reinstate the investigation.

Gabon's President Bongo died in June. He had ruled the country since 1967, making him Africa's longest-serving head of state. His family owns 39 properties in France, Reuters said, mostly in exclusive districts of Paris and on the Riviera. The Congo Republic's Sassou-Nguesso and his relatives own 24 French properties, including a Paris mansion worth $28 million.

TI tipped police in 2007 to the African leaders' French assets. A preliminary police review identified "dozens of bank accounts, properties in rich districts of Paris and on the Riviera, and a collection of Bugattis, Ferraris, Maybachs, Maseratis and other luxury cars." The foreign rulers have denied using embezzled public funds to buy assets in France.

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Another time, another surge. President Lyndon Johnson, during a June 8, 1965 phone call to Senate Majority Leader Mike Mansfield, said this about U.S. troops in South Vietnam and the generals' requests for reinforcements:

I don't see exactly the medium for pulling out. . . . Our 75,000 men are going to be in great danger unless they have 75,000 more. My judgment is and I'm no military man at all, but I study it every day and every night and I read the cables, I look back over what's happened in the last two years, the last four really, and if they get 150, they'll have to have another 150. And then they'll have to have another 150. . . .

But, unless you can guard what you're doing, you can't do anything. We can't build an airport, by God . . .  it takes more people to guard us in building an airport than it does to build the airport.

From the transcript of LBJ's Path To War, Bill Moyers' Journal, November 20, 2009.

Mergers and acquisitions are back. Seeking Alpha just said: "Over the past few weeks, there has been a resurgence in acquisition activity, fueling an already strong market rally. This news has spanned all regions of the economy ranging from the transportation sector (Burlington Northern being taken over by Berkshire Hathaway) to pharmaceuticals (Schering Plough being acquired by Merck). Most recently, in the consumer sector, Kraft announced its intention to take over confectionery giant Cadbury while Hewlett Packard announced plans to buy 3com."

When M&A numbers climb, so do Foreign Corrupt Practices Act enforcement actions. That's because all acquisitions involve due diligence, either before or after the deal is done. Due diligence is one way potential FCPA offenses are discovered. And once discovered, most are now self-reported to the Justice Department or the Securities and Exchange Commission. Directors protect themselves through disclosure. Beyond that, buyers in friendly M&A deals commonly insist that the target's compliance problems be reported and resolved before the closing.

In the past, M&A activity has led to some well-known FCPA enforcement actions. Cardinal Health's 2003 acquisition of Syncor produced FCPA precedents concerning an acquirer's pre-merger due diligence obligations and successor liability. Titan Corporation's FCPA violations were discovered after a Lockheed tender offer. Lockheed aborted the offer and in 2005 Titan paid a record $28.5 million for its FCPA settlement. More recently, M&A activity resulted in enforcement actions involving Delta Pine, Aibel, and Latin Node, among others. In May, Sun Microsystems self-disclosed an internal investigation into possible FCPA violations discovered during due diligence for Oracle's takeover bid. And last year, Halliburton's clumsy attempt to buy British firm Expro through a hostile takeover produced the most intrusive Justice Department FCPA Opinion Procedure Release on record.

The current M&A wave, combined with the DOJ's already sharpening focus on the FCPA, means there's lots more enforcement action on the way.

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Where do FCPA cases come from? In remarks yesterday to the National Forum on the Foreign Corrupt Practices Act, Assistant Attorney General Lanny Breuer said this: "Although many of these cases come to us through voluntary disclosures, which we certainly encourage and will appropriately reward, I want to be clear: the majority of our cases do not come from voluntary disclosures. They are the result of pro-active investigations, whistleblower tips, newspaper stories, referrals from our law enforcement counterparts in foreign countries, and our Embassy personnel abroad, among other sources. I have personally traveled abroad and spoken with Embassy personnel about this issue."

A copy of Lanny Breuer's November 17, 2009 remarks can be downloaded here.

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Presidential Proclamation 7750 allows the State Department to deny visas to foreign kleptocrats and their families. It was signed into law in 2004 and by 2006 it was being called a key tool in America's anti-corruption arsenal. (The FCPA reaches bribe payers but not bribe takers.) Yet we could say without exaggeration in a post last week that the U.S. press had completely ignored Proclamation 7750.

But that's now changed.

Harper's Magazine published an article by Ken Silverstein on November 16 about the son of Equatorial Guinea's ruler, Teodoro Nguema Obiang Mangue. The article began:

In 2004, George W. Bush issued Presidential Proclamation 7750, which barred corrupt foreign officials from entering the United States and ordered the State Department to compile a list of banned individuals. Three years later Congress approved a complementary measure that said the State Department should take special heed to bar officials when there was “credible evidence” to believe they were involved in the theft of natural resources revenues. Last July, the State Department issued a report noting that corruption eroded “confidence in democratic institutions” and that fighting it was a central tenet of American foreign policy. The report also stated that the Obama administration would “vigorously” enforce 7750, better known as the Anti-Kleptocracy Intiative, and give particularly close scrutiny to visa requests from individuals involved in corruption involving natural resources.

And somewhat improbably, the New York Times carried its own story on the same day by Ian Urbina about Teodoro Nguema Obiang that also featured the hitherto invisible Proclamation 7750.

After five years, what a difference a week makes.

Last week, the U.S. ambassador to Kenya, Michael Ranneberger (left), made a very strange announcement. He confirmed on his Twitter page that the U.S. government had denied a visa to Kenya's attorney general Amos Wako. What's strange is that as far as we know, it's the first time an American official has ever revealed a visa determination under Presidential Proclamation 7750. That's the executive order giving the State Department the power to exclude foreign kleptocrats, their families and friends. Before now, those decisions had always been made -- and kept -- in complete secrecy.

In October, U.S. Assistant Secretary of State Johnnie Carson said the U.S. had denied a visa to an unnamed senior Kenyan official who had been "obstructive in the fight against corruption." After Carson's announcement, the Kenyan press had been speculating who the unnamed senior official could be. But it was Ambassador Ranneberger who confirmed it. He didn't mention the attorney general by name but sent Twitter readers to a story in the Kenyan press that did.

We talked with a couple of State Department officials earlier this year about Proclamation 7750 (see our post here). Why, we asked, were those banned from American soil never publicly identified? "The State Department," they told us, "can't publicly release the names of those denied entry under Proclamation 7750 -- U.S. law generally prohibits disclosure of visa-related information." And consistent with that, we've never seen confirmation from the State Department or any American government source of a Proclamation 7750 visa action. Until Ambassador Ranneberger's tweet.

Attorney General Wako, meanwhile, sprang to his own defense and threatened to sue someone in the United States for defamation (a good reason to keep Proclamation 7750 determinations secret).

Kenya's Standard said Wako, who has served as attorney general since 1991, "confirmed he received a letter from the U.S. banning him from the country." The paper's account also referred directly to Proclamation 7750, which the foreign press rarely mentions and the U.S. press completely ignores. The Standard said:

In a seven-page statement that took a half an hour to read, Wako prosecuted his case, defending his record as a "reformist" and attacking the revocation of his visa as serving American interests. . . . "Let me state that Sitswila Amos Wako has not been engaged in corrupt actions which have adversely affected the national interests of the United States of America or at all," he said, in reference to Proclamation 7750 of January 12, 2004, which a U.S. official in Nairobi confirmed had been used to lock him out their country.

Wako claimed he's "totally indifferent to the revocation of the visa" since "I have no desire to visit the U.S." But, he said, the grounds given for the visa determination are defamatory and he "intends to seek legal advice with a view of instituting legal proceedings in the U.S."

We naturally have a few questions: When does United States law allow disclosure of the State Department's visa determinations under Proclamation 7750? On what grounds was it allowed in Attorney General Wako's case? Will there be more announcements of actions taken under Proclamation 7750?

And finally: Did the ambassador simply go a tweet too far?
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