Bank, Big Oil tied to African payments

Richard B. Schmitt and Kathleen Hennessey
Los Angeles Times
July 15, 2004
Washington: American oil companies made millions of dollars in questionable payments to relatives and friends of the president of tiny Equatorial Guinea, which “may have contributed to corrupt practices in that country,” Senate investigators said in a report released late Wednesday.

The findings are contained in a new report examining the relationship between the West African nation and its despotic ruler, and the venerable Riggs Bank in Washington, an old-line financial institution that has served diplomats and aristocrats for years.

The report, which describes a pattern of lax regulation and abuse of federal regulations against money laundering, was triggered by a story in The Times last year that detailed how Equatorial Guinea had deposited hundreds of millions of dollars in Riggs Bank. The story also raised questions about whether Equatorial Guinea’s growing oil wealth had been used to enrich the country’s leaders to the detriment of its poor.

The country has since emerged as sub-Saharan Africa’s third-largest oil producer, after Nigeria and Angola. The report notes that each country is a major supplier of oil to the United States, and each is known to have major problems with corruption, poverty and violence.

The payments by several blue-chip oil giants were for leases on oil-company offices and employee living facilities, land purchases, security and other services, and even college tuition for the children of the nation’s ruling elite.

ExxonMobil Corp., one of the largest operators in the region, formed an oil-distribution venture with a firm controlled by Equatorial Guinea’s president, Brig. Gen. Teodoro Obiang Nguema Mbasogo, the report found. Another oil giant, Amerada Hess Corp., purchased security services from a company owned by the president’s brother, who has been accused in State Department reports of torture, and leased a building from a 14-year-old relative of the president, the investigators determined.

The Senate report offers a richly detailed look at how oil companies operate within a developing economy, in which many businesses are dominated or controlled by government officials, their families and other associates.

Obiang, the report notes, controls businesses that virtually monopolize the Equatorial Guinea construction, supermarket and hotel industries; his wife is a major landowner, and his son is a dominant force in the timber industry.

This “economic dominance” has left foreign companies in a position of having to provide the president and his coterie with sometimes “lucrative returns,” the investigators found, adding, “How oil companies can and should respond to this situation raises a number of difficult policy issues.”

Riggs Bank was a distribution point for the oil companies’ largess, as well as a repository for the wealth of Obiang, his family and their various business interests, the report found.

The report found that Riggs accepted millions of dollars in cash deposits sealed in plastic, and helped Obiang create companies overseas to which millions of dollars were wired. The country was the bank’s largest client, with total deposits in 2003 ranging from $400 million to $700 million, mainly from royalties from oil production, investigators said. The bank has total assets of about $6.3 billion.

“It is a sordid story of a bank with a distinguished name which blatantly ignored its obligations under anti-money-laundering laws,” said Sen. Carl Levin (D-Mich.), the ranking minority member of the Senate Permanent Subcommittee on Investigations.

The panel is holding a hearing today at which representatives from Riggs, the Treasury Department and three oil companies are scheduled to testify.

The Senate report also describes how the bank courted former Chilean dictator Augusto Pinochet and helped him move funds after a Spanish judge in 1998 issued an international warrant for his arrest on charges of murder and torture. The report also alleges that the bank concealed the existence of the Pinochet accounts from regulators for two years.

The same Senate subcommittee is separately investigating how the bank managed another client – the Saudi government.

In May, Riggs paid a $25-million fine to settle charges that it violated federal banking regulations in its handling of the Equatorial Guinea accounts, and has since severed ties with the client.

A grand jury has been investigating possible criminal charges against the bank. Among other things, sources have said, investigators are studying the actions of a former top Riggs manager on the account, Simon Kareri. According to the report, Kareri wired $1 million from the Equatorial Guinea oil account at Riggs to an offshore bank account controlled by his wife.

A lawyer for Kareri, who is scheduled to appear at today’s hearing, declined comment.

Levin said it was unclear whether the oil companies had any legal exposure. The report called on Congress to amend the Foreign Corrupt Practices Act to require greater disclosure of payments abroad by U.S. firms.

An ExxonMobil spokeswoman, Susan Reeves, declined comment on the report, saying the company was still in the process of reviewing it. But she said, as a general matter, “ExxonMobil opposes corruption and is thoroughly committed to honest and ethical behavior wherever we operate.”

A spokesman for Hess also declined comment. Most of Hess’ involvement in Equatorial Guinea has been through a company that it acquired in 2001.

Robert Garsson, a spokesman for the Office of the Comptroller of the Currency, which is the primary federal agency that regulates Riggs, said the comptroller has ordered a “top-to-bottom review of the supervision of Riggs” and has adopted internal changes to help the agency identify problem banks sooner.

“In general, we have acknowledged that the Riggs situation represents a failure of supervision,” Garsson said. “We were too slow to act, we gave the bank too many opportunities, too many bites at the apple. We were too willing to believe that the bank was sincere in its promises and effort to make changes.”

The report also singles out the former chief federal examiner for Riggs, R. Ashley Lee, who left the government two years ago to become a top executive at the bank. The report questions whether Lee may have violated federal conflict-of-interest rules by participating in meetings with regulators in his job at Riggs.

Garsson declined comment on the questions surrounding the former examiner. In general, he said the issue of examiners going to work for banks they oversaw was “problematic, at best,” but also fairly common. The agency “feels very strongly that this is an area where we need to look at tightening up restrictions,” he added.

Lee, who also is scheduled to testify Thursday, could not be reached for comment.

Obiang seized power in a 1979 coup, and his regime has been accused of torturing dissidents and suppressing civil liberties. A 2003 State Department report on human rights in the country said that most of its new-found oil wealth – roughly $150 million annually from royalties – “appears to be concentrated in the hands of top government officials while the majority of the population remained poor.”

American oil companies have been developing close political and financial ties to the Obiang regime since oil was discovered in Equatorial Guinea in the mid-1990s. Led by ExxonMobil, Amerada Hess and Marathon Oil, U.S. companies have invested at least $5 billion there.

As the oil boom started gaining steam, the industry responded by becoming increasingly entangled with Obiang and his cronies.

ExxonMobil launched an oil-distribution business in which Abayak S.A., an Obiang-controlled construction and real estate company, has a 15% ownership interest. Its Mobil Equatorial Guinea Inc. unit also leases from Abayak a 50-acre office and residential complex. The report found that Amerada Hess paid officials and their relatives nearly $1 million for office leases. One such transaction, by Triton Energy Co., since acquired by Hess, involved a 14-year-old relative of the president, netting the boy and his mother $445,800.

The subcommittee documented payments in excess of $4 million by oil companies to support more than 100 students studying abroad, “most of whom were the children or relatives of wealthy or powerful [Equatorial Guinea] officials.”

Triton transferred more than $250,000 to a Riggs account established to provide funding for the education of the children of Armengol Ondo Nguema, Obiang’s brother and the country’s feared security chieftain. Amerada Hess has also paid $300,500 to a company controlled by Nguema for “security services,” the report found.

In all, Riggs managed more than 60 accounts for Equatorial Guinea, its officials and family members, starting in 1995, according to the report, and “turned a blind eye to evidence suggesting the bank was handling the proceeds of foreign corruption, and allowed numerous suspicious transactions to take place without notifying law enforcement.”

Riggs opened multiple personal accounts for Obiang, his wife and other relatives, helped establish shell corporations overseas for the president and his son, and “facilitated” nearly $13 million in cash deposits into Riggs accounts controlled by Obiang and his wife, including $3 million for an account opened in the name of a Bahamian shell corporation he owned called Otong S.A.

Riggs also allowed wire transfers totaling more than $35 million from an Equatorial Guinea government account at the bank that received funds from oil companies – to companies including one that investigators said they believed that Obiang controlled.

Bank officials also accommodated a number of requests for large transactions with few questions asked. On six occasions between 2000 and 2002, the report found, Riggs accepted cash deposits of $1 million or more for the Otong account, totaling $11.5 million. Some of the money was brought into the bank in suitcases by Kareri, the account manager, in unopened, plastic-wrapped bundles, the report said.

In a prepared statement responding to the committee’s findings, Riggs said, “We regret that we did not more swiftly and more thoroughly complete the work necessary to fully meet the expectations of our regulators.”

The bank added that it had taken a number of steps to address the regulators’ concerns, including bringing in new management, upgrading its technology and severing relations with substandard international clients.

Times staff writer Ken Silverstein contributed to this report.

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