Big Oil’s sleazy Africa secrets: How American companies and super-rich exploit natural resources

African oil attracts global network of traders, bankers and investors who combine with venal local political cabals.

Little but fear and sewage flows down the precipitous slope that separates Angola’s presidential complex from the waterside slum below. Swelled by refugees who fled a civil war that raged on and off for three decades in the interior, Chicala sprawls out from the main coast road in Luanda, the capital. Periodically the ocean sends a storm tearing through the rickety dwellings. Boatmen ply the inlets, their passengers inured to the stench emanating from the waters.

This is not the face that Angola prefers to present to the world. Since the end of the civil war in 2002 this nation of 20 million people has notched up some of the fastest rates of economic growth recorded anywhere, at times even outstripping China.

Minefields have given way to new roads and railways, part of a multibillion-dollar endeavor to rebuild a country that one of the worst proxy conflicts of the Cold War had comprehensively shattered. Today Angola boasts sub-Saharan Africa’s third-biggest economy, after Nigeria and South Africa.

Luanda consistently ranks at the top of surveys of the world’s most expensive cities for expatriates, ahead of Singapore, Tokyo, and Zurich. In glistening five-star hotels like the one beside Chicala, an unspectacular sandwich costs $30.

The monthly rent for a top-end unfurnished three-bedroom house is $15,000. Luxury car dealerships do a brisk trade servicing the SUVs of those whose income has risen faster than the potholes of the clogged thoroughfares can be filled.

At Ilha de Luanda, the glamorous beachside strip of bars and restaurants a short boat-ride from Chicala, the elite’s offspring go ashore from their yachts to replenish their stocks of $2,000-a-bottle Dom Pérignon.

The railways, the hotels, the growth rates, and the champagne all flow from the oil that lies under Angola’s soils and seabed. So does the fear.

In 1966 Gulf Oil, a US oil company that ranked among the so-called seven sisters that then dominated the industry, discovered prodigious reserves of crude in Cabinda, an enclave separated from the rest of Angola by a sliver of its neighbor, Congo.

When civil war broke out following independence from Portugal in 1975, oil revenues sustained the Communist government of the ruling Movimento Popular de Libertação de Angola (the People’s Movement for the Liberation of Angola, or MPLA) against the Western-backed rebels of Unita.

Vast new oil finds off the coast in the 1990s raised the stakes both for the warring factions and their foreign allies. Although the Berlin Wall fell in 1989, peace came to Angola only in 2002, with the death of Jonas Savimbi, Unita’s leader. By then some five hundred thousand people had died.

The MPLA found that the oil-fired machine it had built to power its war effort could be put to other uses. “When the MPLA dropped its Marxist garb at the beginning of the 1990s,” writes Ricardo Soares de Oliveira, an authority on Angola, “the ruling elite enthusiastically converted to crony capitalism.” The court of the president—a few hundred families known as the Futungo, after Futungo de Belas, the old presidential palace— embarked on “the privatization of power.”

Melding political and economic power like many a postcolonial elite, generals, MPLA bigwigs, and the family of José Eduardo dos Santos, the party’s Soviet-trained leader who assumed the presidency in 1979, took personal ownership of Angola’s riches. Isabel dos Santos, the president’s daughter, amassed interests from banking to television in Angola and Portugal. In January 2013 Forbes magazine named her Africa’s first female billionaire.

The task of turning Angola’s oil industry from a war chest into a machine for enriching Angola’s elite in peacetime fell to a stout, full-faced man with a winning grin and a neat moustache called Manuel Vicente. Blessed with what one associate calls “a head like a computer for numbers,” as a young man he had tutored schoolchildren to supplement his meager income and support his family. After a stint as an apprentice fitter, he studied electrical engineering.

Though he had been raised by a lowly Luanda shoemaker and his washerwoman wife, Vicente ended up in the fold of dos Santos’s sister, thereby securing a family tie to the president. While other MPLA cadres studied in Baku or Moscow and returned to Angola to fight the bush war against Unita, Vicente honed his English and his knowledge of the oil industry at Imperial College in London.

Back home he began his rise through the oil hierarchy. In 1999, as the war entered its endgame, dos Santos appointed him to run Sonangol, the Angolan state oil company that serves, in the words of Paula Cristina Roque, an Angola expert, as the “chief economic motor” of a “shadow government controlled and manipulated by the presidency.”

Vicente built Sonangol into a formidable operation. He drove hard bargains with the oil majors that have spent tens of billions of dollars developing Angola’s offshore oilfields, among them BP of the UK and Chevron and ExxonMobil of the United States. Despite the tough negotiations, Angola dazzled the majors and their executives respected Vicente. “Angola is for us a land of success,” said Jacques Marraud des Grottes, head of African exploration and production for Total of France, which pumped more of the country’s crude than anyone else.

On Vicente’s watch oil production almost tripled, approaching 2 million barrels a day—more than one in every fifty barrels pumped worldwide. Angola vied with Nigeria for the crown of Africa’s top oil exporter and became China’s second-biggest supplier, after Saudi Arabia, while also shipping significant quantities to Europe and the United States. Sonangol awarded itself stakes in oil ventures operated by foreign companies and used the revenues to push its tentacles into every corner of the domestic economy: property, health care, banking, aviation.

It even has a professional football team. The foyer of the ultramodern tower in central Luanda that houses its headquarters is lined with marble, with comfortable seats for the droves of emissaries from West and East who come to seek crude and contracts. Few gain access to the highest floors of a company likened by one foreigner who has worked with it to “the Kremlin without the smiles.” In 2011 Sonangol’s $34 billion in revenues rivaled those of Amazon and Coca-Cola.

Oil accounts for 98 percent of Angola’s exports and about three-quarters of the government’s income. It is also the lifeblood of the Futungo. When the International Monetary Fund examined Angola’s national accounts in 2011, it found that between 2007 and 2010 $32 billion had gone missing, a sum greater than the gross domestic product of each of forty-three African countries and equivalent to one in every four dollars that the Angolan economy generates annually. Most of the missing money could be traced to off-the-books spending by Sonangol; $4.2 billion was completely unaccounted  for.

Having expanded the Futungo’s looting machine, Manuel Vicente graduated to the inner sanctum. Already a member of the MPLA’s politburo, he briefly served in a special post in charge of economic coordination before his appointment as dos Santos’s vice president, all the while retaining his role as Angola’s Mr. Oil. He left Sonangol’s downtown headquarters for the acacia-shaded villas of the cidade alta, the hilltop enclave built by Portuguese colonizers that serves today as the nerve center of the Futungo.

Like its Chinese counterparts, the Futungo embraced capitalism without relaxing its grip on political power. It was not until 2012, after thirty-three years as president, that dos Santos won a mandate from the electorate— and only then after stacking the polls in his favor. Critics and protesters have been jailed, beaten, tortured, and executed.

Although Angola is not a police state, the fear is palpable. An intelligence chief is purged, an airplane malfunctions, some activists are ambushed, and everyone realizes that they are potential targets. Security agents stand on corners, letting it be known that they are watching. No one wants to speak on the phone because they assume others are listening.

On the morning of Friday, February 10, 2012, the oil industry was buzzing with excitement. Cobalt International Energy, a Texan exploration company, had announced a sensational set of drilling results. At a depth beneath the Angolan seabed equivalent to half the height of Mount Everest, Cobalt had struck what it called a “world-class” reservoir of oil.

The find had opened up one of the most promising new oil frontiers, with Cobalt perfectly placed either to pump the crude itself or sell up to one of the majors and earn a handsome profit for its owners. When the New York stock market opened, Cobalt’s shares rocketed.

At one stage they were up 38 percent, a huge movement in a market where stocks rarely move by more than a couple of percentage points. By the end of the day the company’s market value stood at $13.3 billion, $4 billion more than the previous evening.

For Joe Bryant, Cobalt’s founding chairman and chief executive, a punt based on prehistoric geology appeared to have paid off spectacularly. A hundred million years ago, before tectonic shifts tore them apart, the Americas and Africa had been a single landmass—the two shores of the southern Atlantic resemble one another closely.

In 2006 oil companies had pierced the thick layer of salt under the Brazilian seabed and found a load of crude. An analogous salt layer stretched out from Angola. Bryant and his geologists wondered whether the same treasure might lie beneath the Angolan salt layer.

Bryant had worked as the head of BP’s lucrative operations in Angola, where he cultivated the Futungo. “Joe Bryant made himself an inner-circle oilman very quickly,” a well-connected Angola expert told me. French executives were known to be “haughty,” but Bryant made friends in Luanda. “He knows how to get on with them, how to speak with them,” the expert said.

In 2005 Bryant decided to strike out on his own and founded Cobalt, taking BP’s head of exploration with him and setting up an office in Houston, the capital of the US oil industry. “We were literally going from my garage to competing with the biggest companies in the world,” Bryant recalled.

Bryant needed backers with deep pockets. He found them on Wall Street. Traders at Goldman Sachs had long played the commodities markets; Goldman’s razor-sharp bankers oversaw mergers and acquisitions between resources groups. Now, in Cobalt, it would have its own oil company. Goldman and two of the wealthiest US private equity funds, Carlyle and Riverstone, together put up $500 million to launch Cobalt.

In July 2008, as Cobalt was negotiating exploration rights to put its theory about the potential of Angola’s “presalt” oil frontier to the test, the Angolans made a stipulation. Cobalt would have to take two little-known local companies as junior partners in the venture, each with a minority stake.

Ostensibly the demand was part of the regime’s avowed goal of helping Angolans to gain a foothold in an industry that provides just 1 percent of jobs despite generating almost all the country’s export revenue.

Accordingly, in 2010 Cobalt signed a contract in which it held a 40 percent stake in the venture and would be the operator. Sonangol, the state oil company, had 20 percent. The two local private companies, Nazaki Oil and Gáz and Alper Oil, were given 30 percent and 10 percent, respectively.

Exploration began in earnest. Even before the jaw-dropping find Cobalt’s geologists had christened their Angolan prospect “Gold Dust.” At the height of the rally in Cobalt stock after it unveiled its Angolan find, Goldman Sachs’s shares in the company were worth $2.7 billion.

Cobalt moved across Houston to shimmering new headquarters close to the majors’ offices. One visitor to Joe Bryant’s office at the Cobalt Center noted the stunning view over the city. “Cobalt,” remarked a local realtor, “is going to be a huge Houston success story.”

There was just one snag. What Cobalt had not revealed—indeed, what the company maintains it did not know—was that three of the most powerful men in Angola owned secret stakes in its partner, Nazaki Oil and Gáz. One of them was Manuel Vicente. As the boss of Sonangol at the time of Cobalt’s deal, he oversaw the award of oil concessions and the terms of the contracts.

The other two concealed owners of Nazaki were scarcely less influential. Leopoldino Fragoso do Nascimento, a former general known as Dino, has interests from telecoms to oil trading. In 2010 he was appointed adviser to Nazaki’s third powerful owner, General Manuel Hélder Vieira Dias Júnior, better known as Kopelipa.

One veteran of Futungo politics who has clashed with Kopelipa told me that, should the day of Kopelipa’s downfall ever come, “the people in the streets will tear him to pieces for what he has done in the past.” As the head of the military bureau in the presidency, he presides over security services that keep the Futungo protected by whatever means necessary.

Some even dare to call him “o chefe do boss”—the boss of the boss. During the war he served as intelligence chief and coordinated the MPLA’s arms purchases. More recently he has emerged as the foremost of the “business generals,” the senior figures in the security establishment who have translated their influence into stakes in diamonds, oil, and any other sector that looks lucrative. Between them this trio formed the core of the Futungo’s commercial enterprise.

A long-neglected 1977 statute prohibits American companies from participating in the privatization of power in far-off lands. Updated in 1998, the Foreign Corrupt Practices Act (FCPA) makes it a crime for a company that has operations in the United States to pay or offer money or anything of value to foreign officials to win business. It covers both companies themselves and their officers. For years after it was passed the FCPA was more of a laudable ideal than a law with teeth.

However, from the late-2000s the agencies that were supposed to enforce it—the Department of Justice, which brings criminal cases, and the Securities and Exchange Commission, the stock market regulator, which handles civil cases—started to do so with gusto.

They went after some big names, including BAE Systems, Royal Dutch Shell, and a former subsidiary of Halliburton called Kellogg Brown & Root. All three admitted FCPA or FCPA-related infringements, and the cases resulted in fines and profit disgorgements totaling more than a billion dollars—though such amounts scarcely dent the profits of companies this big.

Oil and mining companies have been the subject of more cases under the FCPA and similar laws passed elsewhere than any other sector. Indeed, the Halliburton and Shell settlements both concerned bribery in Nigeria.

Companies want rights to specific geographical areas under the most favorable terms possible. For the inhabitants of sub-Saharan Africa’s resource states, capturing some of the rent that resource companies pay the state in exchange for lucrative territory—or capturing a position as a gatekeeper to that territory—is by far the most direct route to riches.

Delivering a suitcase stuffed with cash is only the simplest way to enrich local officials via oil and mining ventures run by foreign companies. A more sophisticated technique involves local companies, often with scant background in the resource industries. These companies are awarded a stake at the beginning of an oil and or mining project alongside the foreign corporations that will do the digging and the drilling.

Sometimes genuine local businessmen own such companies. Sometimes, though, they are merely front companies whose owners are the very officials who influence or control the granting of rights to oil and mining prospects and who are seeking to turn that influence into a share of the profits.

In the latter case the foreign oil or mining company risks falling foul of anticorruption laws at home. But often front companies’ ultimate owners are concealed behind layers of corporate secrecy. One reason why foreign resources companies conduct what is known as “due diligence” before embarking on investments abroad is to seek to establish who really owns their local partners.

In some cases due diligence investigations amount, in the words of a former top banker, to “manufacturing deniability.” In others the due diligence work raises so many red flags about a prospective deal that a company will simply abandon it. Frequently the evidence that a due diligence investigation amasses about corruption risks is inconclusive. Then it is up to the company to decide whether to proceed.

In 2007, as its Angolan ambitions started to take shape, Cobalt retained Vinson & Elkins and O’Melveny & Myers, two venerable American law firms, to conduct its due diligence. Corporate records are not easy to obtain in Angola, even though any company is supposed to be allowed access to its partners’ records. I was able to get hold of Nazaki’s registration documents, and its influential trio of owners appear nowhere on them. But there were some clues.

One document names a man called José Domingos Manuel as one of Nazaki’s seven shareholders and the company’s designated manager. His name also appears alongside those of Vicente, Kopelipa, and Dino on the shareholder list for a separate oil venture.

That might have raised a red flag for any company considering going into business with Nazaki: it demonstrated a clear link between one Nazaki shareholder and three of the most powerful men in the Futungo. (José Domingos Manuel, I was told by two people who know the Futungo well, had been a senior officer in the military and was a known associate of Kopelipa.)

There was another red flag: six of Nazaki’s seven shareholders were named individuals, but the seventh was a company called Grupo Aquattro Internacional. Aquattro’s own registration documents do not name its own shareholders. But they are Vicente, Kopelipa, and Dino.

In 2010, two years after the Angolan authorities had first told Cobalt that they wanted it to make Nazaki its partner, a crusading Angolan anticorruption activist called Rafael Marques de Morais published a report claiming that Vicente, Kopelipa, and Dino were the true owners of Aquattro and, thus, of Nazaki.

“Their dealings acknowledge no distinction between public and private affairs,” he wrote. Nazaki was just one cog in a system of plunder, which meant that “the spoils of power in Angola are shared by the few, while the many remain poor.”

At least one due-diligence investigator was aware of what Cobalt says it was unable to establish. In the first half of 2010 an investigator—we shall call him Jones—exchanged a series of memos with Control Risks, one of the biggest companies in corporate intelligence.

Control Risks, the correspondence shows, had launched “Project Benihana,” an endeavor apparently codenamed after a Florida-based chain of Japanese restaurants, to look into Nazaki. Jones, a seasoned Angola hand, warned his contact at Control Risks that oil concessions in Angola were only ever granted if the MPLA and the business elite stood to benefit.

He went on to name Kopelipa as one of the men behind Nazaki. No client is named in the correspondence. (In most such cases the freelance investigators are not told on whose behalf they are ultimately working.)

Both Cobalt and Control Risks refused to say whether the Texan group was the client in this case. But what is clear is that the warnings were there to be found. At least one other due-diligence investigation I am aware of also got wind of Nazaki’s Futungo connections.

By its own account Cobalt went ahead with a deal in a country that was, in 2010, ranked at 168 out of 178 countries in Transparency International’s annual corruption perceptions index, without knowing the true identity of its partner, a company with no track record in the industry and registered to an address on a Luanda backstreet that I found impossible to locate when I went looking for it in 2012.

When US authorities informed Cobalt that they had launched a formal investigation into its Angolan operations, the company maintained that everything was above board. With none of the fanfare that accompanied its cork-popping announcement of its big discovery earlier the same month off the Atlantic coast, Cobalt disclosed the investigation in its annual statement to shareholders.

“Nazaki has repeatedly denied the allegations in writing,” Cobalt told its shareholders, going on to say that it had “conducted an extensive investigation into these allegations and believe that our activities in Angola have complied with all laws, including the FCPA.”

Two months later, when I wrote to Joe Bryant to ask him about the allegations, Cobalt’s lawyer replied and went further: Cobalt’s “extensive and ongoing” due diligence “has not found any credible support for [the] central allegation that Angolan government officials, and specifically [Vicente, Kopelipa and Dino] . . . have any ownership in Nazaki.”

Referring to its massive discovery a few weeks earlier, Cobalt’s lawyer added, “Success naturally brings with it many challenges. One of those challenges is responding to unfounded allegations.”

The problem for Cobalt was that the allegations were not unfounded. I had also written to Vicente, Kopelipa, and Dino, laying out the evidence that they owned stakes in Nazaki, which I had gathered from documents and interviews. Vicente and Kopelipa wrote near-identical letters back, confirming that they and Dino did indeed own Aquattro and thus held secret stakes in Nazaki but insisting that there was nothing wrong with that.

They had held their Nazaki stakes, “always respecting all Angolan legislation applicable to such activities, not having committed any crime of abuse of power and/or trafficking of influence to obtain illicit shareholder advantages.” The holdings had, in any case, been “recently dissolved.” If US law led Cobalt to pull out of Angola, Kopelipa and Vicente went on, others would be keen to take its place.

Excerpted from “The Looting Machine: Warlords, Oligarchs, Corporations, Smugglers, and the Theft of Africa’s Wealth” by Tom Burgis. Published by PublicAffairs Books. Copyright 2015 by Tom Burgis. Reprinted with permission of the publisher. All rights reserved.

Source: SALON.com

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