Illegal smuggling of rhino horns has grown after a 20-year decline. (PHOTO: U.S. FISH AND WILDLIFE SERVICE)
A California father and son team described by federal prosecutors as being “at the apex of the rhino horn smuggling pyramid” in the United States has been sentenced to more than three years in prison on federal wildlife smuggling and money laundering charges.
Vihn Chuong “Jimmy” Kha and his son, Felix Kha, ran a lucrative smuggling operation estimated at $2.5 million that prosecutors linked to a global network of poachers and buyers from China to South Africa, where an average of two of the endangered animals are killed each day.
After a 20-year decline, the traffic in rhino horns has climbed since 2008, and is now valued at up to $8 billion a year, according to the U.S. Fish and Wildlife Service, making it the most lucrative form of smuggling after arms and drug trafficking. The horns are prized in Asian culture as good luck charms, and are used for medicinal purposes. They have been carved into libation cups in Vietnam and China. [Full Article]
An oil rig in Brazil produces an estimated 180,000 barrels of oil each day. U.S. oil companies hope to block a rule that will require them to disclose contract details starting in early 2014.
Anti-corruption advocates are cheering an appeals court decision not to rule on a lawsuit against transparency requirements for U.S. energy and mining companies. A three-judge panel for the U.S. Court of Appeals for the District of Columbia decided it did not have jurisdiction in an industry challenge against the Securities and Exchange Commission regulation. Delays could make the case largely moot.
Under the 2010 Dodd-Frank financial reform law, companies will have to disclose details about payments to foreign governments starting early next year. But a coalition of industry groups, led by the U.S. Chamber of Commerce and the American Petroleum Institute, is suing the S.E.C., saying the rule will cost its members billions of dollars, place companies at a competitive disadvantage against non-U.S. competitors, and violate companies’ right to free speech by compelling them to disclose politically charged details of their contracts.
The judges unanimously decided that the case was out of its jurisdiction. In the court’s opinion, Judge David Tatel said the court lacked “authority to hear this suit.”
The decision will cause delays, as the case now returns to the District Court for the District of Columbia. Meanwhile, a parallel rule is wending its way through the European Union Parliament. Earlier this month, an E.U. body agreed on changes to financial regulations that would impose similar requirements on state-owned extractive industries and those that are listed on the stock exchanges of member nations. The European Parliament and Council of Ministers is expected to ratify the final text sometime this summer.
Isabel Munilla, director of Publish What You Pay U.S., a coalition of groups supporting the rule, said the E.U. provisions would indirectly affect U.S. companies.
“The E.U. rules cover cross-listed companies like Shell and BP, which are backing the U.S. lawsuit,” Munilla said. “This lawsuit is a moot point.”
To reduce potential delays, industry groups filed their suit in the lower court at the same time as their appellate case. The lower court must still prepare to hear the case, which could take months.
Munilla said the S.E.C. is in a better position to defend the rule at the lower court, because it more closely examines the rulemaking process.
“[The industry groups] wanted the case in the D.C. Circuit Court of Appeals, since it has been friendly to efforts by industry to overturn regulations,” she said.
Brian A. Straessle, a spokesman for the American Petroleum Institute, pointed out in a statement that the court’s ruling should not be construed as an indication that the case lacks merit.
“The court simply concluded that it does not have jurisdiction to decide the case at this time,” Straessle wrote. “We will continue to explore every avenue as our challenge moves forward in the District Court for the District of Columbia.”
The U.S. Chamber of Commerce did not respond to a request for comment.
In a hearing at the appeals court in March, the S.E.C. argued that companies are already forced to share factual information with the Internal Revenue Service and other government agencies, and such rules have never been considered violations of the First Amendment.
Following the court’s decision, S.E.C. spokesman John Nester said its legal team stands “ready to present our case to the district court.” He expressed confidence that the agency would successfully defend the rule.
“S.E.C. staff continue to believe that our legal interpretation and economic analysis are sound and that this Congressionally-mandated rule will be affirmed.”
Despite a major push in recent years to crack down on corporate bribes to foreign officials, virtually none of the money paid in penalties has gone back to countries where the crimes occurred. Preliminary results of a report on government settlements in hundreds of bribery cases showed that out of $6.4 billion in penalties, only $185 million, or less than three percent, went to compensate victim countries.
“Countries where the bribes have been paid, where the damages of corruption have taken place, are either not aware at all, or not being involved in the process,” said Oliver Stolpe, a senior advisor to the Stolen Asset Recovery Initiative (StAR) who led the study. StAR is a joint effort of the World Bank and the United Nations Office on Drugs and Crime.
This lack of inclusion is a major factor in the poor rate of return for settlement money, research suggests.
When companies pay bribes to steal contracts or bulldoze over regulations, it means big losses for countries where the crime took place. Over the last decade, the United Nations has tried to stanch the hemorrhaging with international agreements and a crackdown on graft. But increasingly, the errant companies’ home countries, such as the United States, the United Kingdom and other European nations have settled directly with offenders instead of resolving these cases through litigation.
“We have seen over the last ten years, finally, some real enforcement action against companies that paid bribes abroad,” said Stolpe, who first discussed the report’s findings at the International Anti-Corruption Conference in Brasília in November. “And the reason that we have seen that is basically due to the settlements.”
Despite the increase in prosecutions, the use of settlements is leaving victim countries out of the bargain. The StAR researchers covered a range of cases settled between 1999 and 2011. The amount of penalties in the study accounted for overall sanctions, not necessarily confiscated funds. Asset seizures and other measures that effectively block offenders from the fruits of their graft accounted for only a third of the $6.4 billion in penalties collected.
When a government prosecutes a company for violating its own laws, such as the Foreign Corrupt Practices Act in the United States, it faces no obligation to share fines or settlements with foreign governments.
But Maud Perdriel-Vaissiere, managing director of Sherpa, a Paris-based advocacy group for victims of economic crimes, said a system of asset recovery that bypasses direct victims of corruption is untenable.
“It is a big injustice,” she said, arguing that the practice actually fosters corruption. “If eventually the authorities decide to bring a case against [a] company, it is the country where the company is registered that gets the fines out of the settlement.”
Frustration prompted the Socio-Economic Rights and Accountability Project in Nigeria last year to write a letter to the U.S. Securities and Exchange Commission, demanding that the country be included in future negotiations.
The letter, reviewed by 100Reporters, asks for “adequate damages against multinational corporations involved in bribery in Nigeria.”
The letter cites a 2011 case in which the U.S. Department of Justice rejected Costa Rica’s request for restitution against an alleged bribe payer, Alcatel-Lucent. The letter said the department successfully argued that “in essence, because the senior employees of the Costa Rican entity were pervasively corrupt, the entity itself was a guilty co-conspirator and thus was not entitled to restitution under US criminal laws.”
A spokesman for the Department of Justice declined to comment for this story.
Charles Monteith, Head of Legal and Case Consultancy for the Basel Institute’s International Centre for Asset Recovery, said the U.S. and other countries involved in settlements are often reluctant to repatriate money to nations where corruption is still rampant.
“There are problems with returning money to governments that have been involved in corruption. That’s the bottom line.”
There is also a host of sticky legal issues. In some countries, returning stolen assets requires that a particular victim be named–impossible in cases where a national budget has been raided.
Some governments do not allow companies to be criminally prosecuted, only people, Monteith added.
In most countries, only that part of a contract won through bribes is considered tainted. Tracing bribes to specific pieces of large and complex projects can bog down a case for years. In the United States and the United Kingdom, the entire amount of a dirty contract is considered to be illicit, and provides a starting point for negotiations.
“The repatriation system needs to be simpler. And it needs to be universally accepted,” Monteith said.
Akaash Maharaj, secretary-general of the Global Organization of Parliamentarians Against Corruption (GOPAC), said settlements should be ruled out unless “all of the money that is possible to be identified is returned to the rightful owners.”
Maharaj’s group is urging the United Nations Office of Drugs and Crime to set up enforceable guidelines around settlements in corruption cases. The issue is slated for consideration later this year at the Conference of the States Parties to the United Nations Convention against Corruption.
“Financial institutions that are part of the international system must agree to a broader range of common protocols and common regulations to assist the investigators of international crimes,” he said.
Even beyond settled cases, very little of the world’s recovered stolen assets end up back in the coffers of their home nations.
In 2003, 140 countries signed The United Nations Convention against Corruption, a breakthrough anti-graft agreement that established a legal means for nations to recover assets lost to corruption. But the aim of this convention has fallen short. According to the Organisation for Economic Co-operation and Development, out of an estimated $1.2 billion assets frozen between 2006 and 2009, only $277 million were returned to the country of origin.
A recent StAR report indicated the amount returned from illegally held assets over a 15-year period added up to only $5 billion, a pittance compared to $20 to $40 billion in state revenues that StAR estimates developing countries lose through corruption each year.
Christian Larson, Program Officer on Economic Governance at the secretariat of the Organization for Security and Co-operation in Europe, said prosecutors and law enforcement agencies often have rules in place that allow recovered assets to be used to cover some of their costs.
“When countries engage private firms to assist with asset recovery, a lot of money goes to paying back the professionals who have helped to track it down and confiscate it.”
Requesting countries have complained that by the time legal proceedings surrounding the return of stolen assets are concluded, very little money is actually returned, Larson said.
Heather Lowe, legal counsel and director of government affairs at Global Financial Integrity, said the current system relies on Mutual Legal Assistance Treaties, which demand that countries requesting stolen assets make highly detailed claims to banks. Countries holding the money require hard evidence like bank account numbers and the exact amount of the suspicious funds. Each country has its own standards, and developing countries often don’t have easy access to that level of detail—unless the countries leading the prosecution share information with them.
“A small country that is struggling financially needs to literally figure out exactly how to draft and phrase its request so that it comports with the other country’s law before the other country will even consider it,” Lowe said.
And that can take a long time to get right. Lowe argues that the obstacles to recovering corruption damages are so great that countries should instead try to crack down on money laundering and block financial outflows in the first place.
“It is a far better use of resources to prevent those assets from fleeing in the future. And that, really, that’s what we need to be focusing on,” she said.
Maharaj, of the lawmakers’ body, said the stakes couldn’t be higher. The amount of money the world loses to corruption each year, he said, could pay tenfold for all of the key priorities in tackling poverty, heath, gender inequality, environment and other development goals that the United Nations pledged to reach by 2015.
“The failure to repatriate these funds almost certainly kills more people every year than war and famine combined.”
Howard Crystal (L) and Jonathan Kaufman outside the D.C. Circuit Court of Appeals. /PHOTO CHAD BOUCHARD
In a last-ditch effort to scuttle a U.S. federal rule aimed at fighting corruption, a coalition of oil, gas and mining companies told an appeals court panel Friday that the new rule–which forces them to publicly disclose payments to foreign governments in countries where they operate–would violate the companies First Amendment right to free speech.
The disclosures, part of the Dodd-Frank financial reform law, are meant to hamstring corruption in the notoriously opaque extractive industries. The new rule forces companies to inform investors and citizens of resource-rich countries about payments their governments collect for natural resources.
The rule came into effect as part of the Dodd-Frank financial reform law passed in 2010. Under the S.E.C. regulation, companies working in extractive industries—largely oil, gas and minerals–must disclose details of each individual deal they strike with foreign governments. Before the law passed, companies were not required to reveal any information about payments to foreign governments..
A group of industry organizations including the American Petroleum Institute and the U.S. Chamber of Commerce is suing the S.E.C., because members don’t want to disclose details of the deals companies strike with countries.
Eugene Scalia of Gibson Dunn & Crutcher LLP, an attorney for the American Petroleum Institute and the son of U.S. Supreme Court Justice Antonin Scalia, argued that, “This rule should be vacated.” He said that it forces companies to engage in speech—financial disclosures–designed to influence politics in other nations.
HE said that the rule would cost oil companies “potentially billions of dollars,” predicting it would force them to pull out of countries that might bar such disclosures of payments.
But S.E.C. attorney William Shirey dismissed Scalia’s argument as baseless.
“It’s simply factual data,” Shirey told the judges. He added that government demands for disclosure—which cover everything from tax returns to corporate filings to pledges of compliance with federal regulations–have “never been subject to First Amendment scrutiny.”
And supporters of the heightened disclosure rules said there is no evidence that any countries would spurn contracts with companies on such grounds.
The American Petroleum Institute has also argued that the S.E.C. failed to conduct a thorough cost-benefit analysis on the rule. The S.E.C. argues that Congress had already taken cost into consideration when in drafted the law.
Human rights and transparency advocates say the rule, known as Section 1504 of the Dodd–Frank Wall Street Reform and Consumer Protection Act, is a critical step in stemming corruption in resource-rich countries.
Tutu Alicante, the executive director of EG Justice, a group dedicated to human rights in West African nation of Equatorial Guinea, said if companies’ payments to governments were transparent, citizens in resource-rich nations would be better equipped to hold their governments accountable.
“The only way we’re going to combat the type of corruption and the type of mismanagement of funds that is keeping Equatorial Guinea poor is by laws like 1504.”
Shirey told the panel of judges that the U.S. government stood to gain from the rule because it would hamper corruption that could be used to fund terrorism. “It’s a foreign policy objective to require transparency in resource-rich countries,” he said.
But Judge David Tatel questioned his line of reasoning. “Do you really want to argue as strongly as you are, given that your stronger argument is that it will disclose information to investors?” the judge asked.
Jonathan Kaufman, counsel for Oxfam America, said he was not surprised to hear Tatel focusing on the benefits of disclosure for U.S. investors, many of whom have supported the rule because the payment information from oil and gas companies helps them advise clients.
“Investor protection is the bread and butter of the S.E.C. So it’s really easy to see why the S.E.C. should be regulating in this field if it’s a matter of information that investors want,” Kaufman said.
Oxfam America intervened on behalf of the S.E.C. to get the case kicked to a lower court. Doing so would likely delay a ruling in the United States. In that case, companies would face equally stringent disclosure rules coming into effect in Europe.
The statute, Kaufman said, “is clear and the judges were clear that there is no jurisdiction in this court.”
Delaying the case much longer could be sticky for extractive industries. Isabel Munilla, spokesperson for the Publish What You Pay organization, which supports tougher disclosure requirements, said the U.S. law is part of a global movement, with the European Union and the London Stock Exchange on the cusp of adopting similar rules. Companies that are cross-listed on European exchanges would have to comply with those regulations, even if the court struck down the rule.
“The train has left the station on this one,” she said.
The court is expected to decide sometime over the next three months.
The court could decide to overturn the law, a decision that would be subject to appeal. The court could also ask for certain parts of the law to be rewritten, while allowing the remainder to stay in effect, or order the S.E.C. to redraft the entire rule. .
If the court decides it doesn’t have jurisdiction over the case, that decision would likely come sooner. The case would then fall to the U.S. District Court for the District of Columbia, a move that could delay the case for months.
This private Airbus, known as VP-BEX, was a monthly visitor to Zimbabwe, and is believed to have carried out millions of dollars in undeclared diamonds from the Marange mine. /PHOTO ANDRE KOK/
By Khadija Sharife Exclusive to 100Reporters
From time to time, a VIP-configured Airbus jetted into Lanseria International Airport, a small and privately-owned base facility near Johannesburg, South Africa. The plane, an Airbus 319CJ, also stopped at Zimbabwe’s Harare airport. It carried important people and was widely believed to ferry some precious—and illicit–cargo: Zimbabwe’s conflict diamonds.
The diamonds came from one of the largest diamond troves in history: Marange. Spanning 173,000 acres and priced at $800 billion in rough diamonds, Marange’s concentration of treasure is eight times higher than average, at more than 1,000 carats per hundred tons.
The plane, first identified in report by the British nonprofit organization Global Witness, has been used to move diamonds out of Zimbabwe. Money from their export has gone to cement the hold of President Robert Mugabe, and finance Zimbabwe’s notorious secret police—responsible for killing, raping and maiming hundreds of artisanal miners in an operation to clear out Marange in 2008.
An examination of purchasing documents, corporate records and interviews with relevant officials by 100Reporters has, for the first time, parted the curtain on the plane’s ownership to reveal links between the mysterious jet, Zimbabwe government officials, law firms and investors with holdings across the globe, from the UK to China, Angola to Bermuda to Wall Street.
Flight logs for the plane, registered as VP-BEX, disclose frequent trips to Singapore, Hong Kong, Tanzania and Angola, among others. The Airbus appears to enjoy a remarkable lack of scrutiny, seemingly flying in a perpetual no-oversight zone. In the South African airport that was the plane’s home base, unless cargo and goods were self-declared, the plane and its passengers were not normally subject to inspection by customs, police or civil aviation authorities.
Farai Maguwu, an award-winning human rights activist and Zimbabwe’s leading researcher of the diamond trade, said, “We don’t know where the plane goes, what the routes are, or even who is involved. But we know that VP-BEX A319 was identified as playing an important role in facilitating this secretive system that is causing Zimbabweans to lose diamond revenue.”
The Wrong Horse
Until 2006, De Beers, one of the world’s leading diamond producers, held the rights to Marange. But common to diamond majors, De Beers appeared to lock down the concession rather than exploit it, possibly as a means of controlling supply. A British-registered company called African Consolidated Resources had acquired concessions from De Beers.
When the De Beers’ concessions expired in 2006, Mugabe’s ruling party, ZANU-PF, swooped in. Zimbabwean government officials had tired of De Beers’s failure to exploit the mines, said one source, speaking on condition of anonymity. Another source cited De Beers’s failure to “marry” the Zimbabwean government into the company’s existing business models, as it had in Botswana and Namibia. There, the government formed public-private partnerships with the company. Meanwhile, Supa Mandiwanzira, a representative of Zimbabwe’s Diamond Consortium, threatened that Zimbabwe had “the potential to destroy the whole industry” by flooding the markets.
A 120-carat diamond from Zimbabwe. / PHOTO TENFORD CHITANANA
Africa Consolidated had acquired a smaller claim to mine diamonds in Marange. But its shareholders included a rival within ZANU vying to oust Mugabe – the now dead General Solomon Mujuru. “The company bet their money on the wrong political horse,” a high-level source told 100Reporters. General Mujuru died under suspect conditions, and Africa Consolidated’s rights were quickly terminated by the regime. Before long, Africa Consolidated found itself sidelined for ZANU-approved partners, primarily South African and Chinese companies, such as New Reclamation and the China International Fund (CIF).
Operation Hakudzokwi—or “You Will Not Return”—opened the way for Mugabe’s exploitation of the mine with a small group of select and largely secretive partners. One watchdog group, estimating that $2 billion in undeclared precious stones have left Zimbabwe, has called the takeover “perhaps the biggest single plunder of diamonds since Cecil Rhodes.”
Hadkuzowki set new standards for brutality in forcing out thousands of itinerant miners who had flocked to Marange. When the BBC’s Panorama interviewed paramilitary forces and police involved in the assault three years later, soldiers were apparently wracked with guilt. They reported that people were killed, “like flies.”
“There was no way out,” said one soldier. Panorama’s interviews with soldiers revealed that the military laid a string on mines, stationed armored vehicles, mounted soldiers “and an infantry battalion in a circular pattern around the 2.5 kilometer area.”
The government justified Hakudzokwi as a necessary move to ensure the country’s minerals are used for national purposes. But according to Zimbabwean Finance Minister Tendai Biti, millions of dollars in diamond revenues that should have been deposited in Zimbabwe’s national treasury are being secreted elsewhere.
“A Flying Hotel Room”
The most frequent passenger on the Airbus, identified by its tail code VP-BEX, has been Xu Jinghua, a Chinese businessman also known as Sam Pa, who visited Zimbabwe once a month and was believed to carry out diamonds, according to watchdog groups. Pa has been accused of providing $100 million and a fleet of Nissan pickup trucks to Zimbabwe’s feared secret police, according to Global Witness and other nonprofit organizations that monitor extractive industries. Pa has denied the accusations.
The Airbus, a corporate ultra-long jetliner, is smaller and lighter than its commercial counterpart. The private version of the 319CJ hosts an average of 18 or more seats, with luxury compartments. Writing on an aviation forum, one enthusiast who claimed to have entered a Planair 319CJ described the interior as “a flying hotel room.” The plane has all the perks of a commercial jet in terms of speed, range, and reliability. The corporate version, hosting a small passenger base, is capable of flying 6,000 nautical miles non-stop.
But the plane has one added perk: while the VP-BEX – a VIP-configured jet – can carry cargo, there are no real systemic checks on the material it may be transporting through South Africa, as the plane did not generally declare any cargo and diamonds are small enough to escape scrutiny.
One pilot formerly operating from Lanseria alleged that security was often “slack” at the airport. “Passengers don’t need to carry their illicit goods with them,” he told 100Reporters. “If a company has, for example, leased a hangar, the plane can taxi down to the hangar, and the goods are left inside. An hour or two later, the goods can be picked up.” While customs officials randomly check the bags of international passengers arriving on commercial airliners, those flying in on private jets are seldom checked, the pilot said. “One plane in 30, and 99 percent of the time, it would be due to a tip-off,” said the pilot.
Gavin Sayce, Lanseria’s airport manager, did not respond to interview requests.
Until September 2012, the plane was registered in Bermuda to Planair, a shell company registered in Bermuda, which operated it on behalf of the China International Fund, a Hong Kong-based private company. In September, the plane was registered under Hong Kong Jet (Bermuda), which belongs to a Chinese Fortune 500 company, the HNA Group.
China International is often described as Zimbabwe’s largest investor at US$8 billion—though there is little evidence that the company has yet made good on its pledges of vast infrastructure development.
Godwills Masimirembwa, chairman of Zimbabwe’s Mining Development Corporation, has maintained that the army had every right to mine diamonds. “There should not be boundaries. If the army uses its stake to finance its activities, then that’s good and we will remain with the peace that we are enjoying in this country,” he said during a meeting at the Mutare Press Club this month.
Masimirembwa denied misuse of funds from looted diamonds or diamond revenue, and cited U.S. Army involvement in “economic and industrial activities” as best practice. He challenged Biti to prove that diamond companies were not remitting revenue to the government.
Zimbabwe’s Blood Diamond Jet
The plane was purchased new in mid-June 2006 by Angola’s Sonangol State Corporation, a secretive entity with a long history of off-books sales of petroleum, according to the International Monetary Fund and other sources. A December 2011 IMF report, for example, cited $32 billion discrepancy in revenue from Angola’s public accounts between 2007 and 2010, largely connected to the quasi-fiscal activities of Sonangol.
Sonangol is interlocked with the China International Fund through multiple known and unknown subsidiaries. In Zimbabwe, China International’s diamond-related legal forms include the Hong Kong-incorporated Sino-Zim Diamonds Ltd., headed by nominee lawyer Jimmy Zerenie and Eliezer Nefussy, reportedly the longtime right-hand man to diamond magnate Lev Leviev in Namibia. Leviev significantly broke the global De Beers stronghold, beginning with Russia, before entering Angola’s diamond industry.
Leviev’s brother, Moshe, was named by Global Witness as a director of LLD Asia, a tentacle of Sino-Zim’s complex multi-corporate structure, primarily registered in the British Virgin Islands (BVI). LLD Asia, advertises itself as one of the largest dealers of Angolan, Namibian, Russian and other diamonds, selling to buyers in the United States, Italy, Belgium and Hong Kong. Masimba Kamba, an individual connected to Zimbabwe’s Central Intelligence Organization, the secret police, is also connected to Sino-Zim, as a director, and to a related company in the British Virgin Islands (Strong Achieve Holdings).
Also involved in China International Fund are Lo Fung Hung, Sam Pa and Alain Fanaie, who doubles as the Chief Executive Officer of China Sonangol. Following a U.S.-China Economic & Security Review Commission (USCC) report, the Hong Kong-based China International Fund, based at 27/F Two Pacific Place, 88 Queensway, Hong Kong, would become known as the 88 Queensway Group, due to its physical address.
The USCC report identified Leviev, a real estate billionaire and major diamond supplier in New York, Dubai, London, Singapore and Cannes, as a key figure in China International Fund.
Much like Hong Kong, Singapore and the British Virgin Islands are also secrecy jurisdictions, peddling sovereign-protected spaces of legal and financial opacity to international companies seeking to hide assets or conceal the identities of their beneficial owners.
“It all sounds depressingly familiar,” said Ronen Palan, a professor at the University of Birmingham and author of Tax Havens: How Globalization Really Works. “Why are complex overlapping corporate structures used? I cannot see any reasons for such complexity besides concealing financial activities, lowering taxation, and creating distance from ownership in case the airplane is used for illegal business. There are clearly no societal advantages to such structures,” he said.
The controlling face of the 88 Queensway empire is Lo Fung, while Pa has been identified as more of a behind-the-scenes operator.
In 2007, Pa, formerly a military comrade of Angola’s lifetime dictator, José Eduardo dos Santos, valued his Angolan business deals at $30 billion. Global Witness has described him as a monthly visitor on board VP-BEX to Harare. According to a Zimbabwean source, who spoke on condition of anonymity, Pa is perceived as one the Central Intelligence Organization’s most important allies.
The 88 Queensway group has used some of its wealth to make its mark in New York real estate. It bought the JP Morgan Chase building at 23 Wall Street for $150 million, paid $150 million for a 49.9 percent stake in the Madison Avenue Clock Tower, and another $50 million (along with the assumption of half the building’s $720 million in debt) for a 49 percent stake in the former New York Times building at 229 West 43rd Street, according to the USCC report.
Neither the China International Fund, China Sonangol nor Sonangal responded to repeated requests for comment. LLD Asia could not be reached for comment.
[Since publishing this report, 100Reporters has received comments from China Sonangol disputing the corporate relationships described here and denying any business in mining Zimbabwean diamonds. "China Sonangol has not purchased a single carat of diamond from Zimbabwe," J.K. Wee, the firm's general counsel, wrote. The firm's full response is reprinted following the story.]
It’s a Bird, It’s a Plane, It’s Planair.
In 2007, a year after mining started at Marange, the plane was allegedly delivered to another Bermuda-registered company: Planair Enterprises, a shell company incorporated on 17 July 2001.
Planair appeared to operate as the Lanseria-based aviation arm of China Sonangol, while Aero Management Services (AMS) handled the plane’s maintenance at Lanseria. According to a high level corporate source at the airport, little was known about Planair, save that it had a fleet of planes that was not South African-owned – abnormal for Lanseria-based owners and operators. The plane’s pilot is a celebrated former South African Airways (SAA) pilot, Flippie Vermeulen, from Springbok Safari. Vermeulen did not respond to interview requests.
Pilots, speaking candidly on aviation forums, call Planair “the ghost company.” Though Planair has ostensibly operated at Lanseria since 2006, the airport’s security division’s register did not identify Planair as an operating company on its register. It did acknowledged that Aero Management Services (AMS) was registered and active at the airport, and provided a contact number.
The AMS hangar at Lanseria.
AMS’s receptionist said that Planair and Aero Management functioned as a single company. An official at the company’s technical department told 100Reporters that AMS operated more than one Airbus aircraft, and that VP-BEX was operated on behalf of a big Chinese company. He stated that only VIPs traveled aboard, and to his knowledge, there was no cargo. One security official at Lanseria, who spoke on condition of anonymity, told 100Reporters that such planes are rarely checked, unless there are specific alleged security concerns related to criminal activity.
Gap in Oversight
Despite the jet’s suspected role in moving undocumented diamonds from Zimbabwe, Lanseria airport security were officially not aware that the plane identified by Global Witness was headquartered, or even using, the airport. 100Reporters was informed that aside from the usual inspections of airport security and non-cargo VIP-configured jets, there would have been no specific oversight throughout the duration of Planair’s, or the VP-Bex’s, use of the AMS-leased hangar.
A senior security official referred 100Reporters to the South African Revenue Services, ordinarily responsible for collecting customs duties. Adrian Lackay, spokesman for the Revenue Services, did not disclose whether or not the company and plane were known to the Revenue Services. He said the agency had no role in monitoring planes, and wrote in an email that “the Civil Aviation Authority (CAA) is responsible for registering aircraft and monitoring flights into and from this country,” as is the South African Police Service.
A spokeswoman at the Civil Aviation Authority, however, said monitoring the plane was not her agency’s role. “Our mandate relates to aviation safety and security only, and for this reason we cannot comment on alleged criminal activity at airports,” said Marie Bray, the spokeswoman. “The CAA’s mandate on aviation security is limited to certain functions and powers.” She referred 100Reporters to the South African Police and back to the customs service. Bray would not say whether or not the Civil Aviation Authority had knowledge of the plane or the company.
British Gown, Bermuda Veil
Much like British Virgin Islands, Cayman Islands and others, Bermuda is a secrecy jurisdiction connected to the UK’s City of London, a leading tax haven, via its status as dependencies. These UK territories have been described by the UK-based Tax Justice Network as “satellite” havens that form part of the City of London’s business model, “giving it unrivalled market power in the field of financial services” for companies, specifically those seeking secrecy. (Full disclosure: This reporter has authored a report for the Tax Justice Network, Tax Us if You Can: Africa.)
The use of a jurisdiction like Bermuda, which specializes in aviation services, to register the company and the plane prevents home and host countries from penetrating beneficial directors and shareholders. This renders law enforcement investigations almost impossible, unless insiders bring forward specific evidence.
In Bermuda, Planair was served by Apex Law Group, a Bermuda-based law firm with expertise in “international business,” according to its website. The firm’s head is Lynda Milligan-Whyte, a former senator of Bermuda. Milligan-Whyte also serves as director of the Bermuda Monetary Authority, regulating financial services in Bermuda. Her private firm notes that aviation services, provided by the Bermuda Department of Civil Aviation, “is considered to be a business sensitive regulatory body that is prepared to be responsive to customers and flexible in its approach.”
Law firms that serve as nominee directors have little interest, and often, little active role, in the companies they front. Their specific purpose is to provide the illusion of a corporation with genuine economic activity in a jurisdiction.
Milligan-Whyte did not respond to repeated interview requests from 100 Reporters.
Bermuda does not only supply clients with sovereign-backed financial and legal secrecy, it also provides a tax-free environment to finance and manage corporate aircraft. Just under half of all Bermudan-registered planes are corporate and private jets.
According to the law firm Conyers, Dill and Pearman, which specializes in multi-jurisdictional legal services, financial perks of Bermudan companies includes an absence of taxes on capital transfers, income and profits.
This tax-free holiday extends to “a government guarantee available in relation to the tax regime” applicable to companies via the Minister of Finance of Bermuda under the Exempted Undertakings Tax Protection Act 1966. Put simply, no exempted company can be taxed even in the event of changes to the tax regime by the Bermudan government.
Unlike most countries, Bermuda does not require that aircraft registered in the Bermuda be based in, or operate from, there.
Yet this global reach, armed with secrecy, effectively prevents other authorities from having access to the nature, financial activities, and even beneficial owners of planes operating in their own jurisdictions.
Ebony Dictators, Ivory Banksters
John Christensen, founder of the Tax Justice Network and a former senior advisor to Jersey, a British tax haven, said the details on the mysterious plane’s ownership make for “depressing reading.”
“Once again we find an offshore company registered in the British secrecy jurisdiction of Bermuda being used to disguise the identity of the people behind the crimes,” Christensen said. “Presumably the offshore nominee directors involved in this racket will deny knowledge of any illicit activities,” he told 100Reporters.
Planair’s nominee director, Milligan-Whyte, is also a SonAir nominee director. SonAir, a subsidiary of Sonangol, includes directors such as Manuel Vicente, President Dos Santos’s right hand man in Angola, and a crucial part of the China Sonangol system. The company Flight Pro Consulting identifies both Planair and Sonair as the same company in its list of clients.
MeesPierson, a Netherlands-based company, also holds several spots on Planair’s board of directors (including Andre Wilwert and Eric Mangrini). According to a Global Witness report, the company acted as financier for one of Africa’s most notorious scandals, known as Angolagate, an oil-for-arms deal facilitated by dos Santos and Pierre Falcone, an alleged arms dealer and head of Pierson Capital, a firm specializing in commodity-backed loans, among other areas.
Meanwhile, Falcone has been a key figure for the 88 Queensway Group that hosts China Sonangol, and has strong ties to the Dos Santos regime.
“Secrecy services, such as nominee directors and other methods of creating anonymous companies, are one of the ways in which countries who permit their use facilitate criminal activity around the world,” said Heather Lowe, Legal Counsel for the Washington-based Global Financial Integrity.
“The negative impact is greater when the ‘world powers’ offer these secrecy services, because the average person would never think that a U.S., Canadian, or French company, for example, would be anonymous and therefore difficult to hold accountable for their actions or use. Companies created in OECD-type countries enjoy a patina of legitimacy that they do not necessarily deserve,” she stated.
In fact, the non-profit Tax Justice Networks rankings of top secrecy jurisdictions around the world includes Switzerland, the United States, the United Kingdom and a raft of British-administered havens from Jersey to the Cayman Islands.
Secret Central Intelligence Organization documents obtained by Global Witness suggest that VP-BEX’s role is to jet diamonds from one base to the next, often failing to record its complete itinerary.
An official from another company, formerly operating from Lanseria, who spoke on condition of anonymity, told 100Reporters that by underestimating a plane’s cruising speed, scheduled flight plans can be maintained. The most frequent stops declared for the VP-BEX include Angola, Singapore, South Africa, Zimbabwe, China, Russia and Tanzania.
On Oct. 10, 2012, for instance, VP-BEX filed a flight plan scheduling the plane to depart from Harare International Airport(FVHA/HRE) at 10 am Central Africa Time, heading for Singapore Changi (WSSS/SIN), with an estimated arrival 18.5 hours later, at 10.24 AM local time. But on the same day, according to a South African private security specialist, the plane made a stop in Luanda, Angola, though no mention of such was detailed in the flight logs.
“The best way to crack down on blood diamond trafficking from Zimbabwe may well be to tackle the offshore secrecy behind which the traffickers can hide with relative impunity,” said Christensen.
The view from the balcony of Lanseria’s Wiesenhof restaurant looks straight out onto the AMS hangar. Like Zimbabwe’s diamonds, the evidence of illicit looting is alluvial, on the surface, waiting to be picked up. But wait too long and exposed parties regroup, slipping back into the shadows of complex corporate webs and secrecy jurisdictions.
This coincidentally occurred as 100 Reporters began its investigation into VP-BEX. During the last months of 2012,VP-BEX’s registration was transferred to Hong Kong Jet (HKJ) – an airline management company specializing in private jets. On November 13, a company press release announced the acquisition of a 4th luxury Airbus, without providing any identifying details, such as the plane’s registration number. The plane was documented as scheduled for delivery to HKJ in December 2012.
A ‘Certificate of Aircraft Registration’ names HKJ’s Bermuda subsidiary as the registered charter carrier of VP-BEX.
HKJ’s registered Bermuda address is a nominee law firm called Appleby. The same company acquired another key VIP plane from China International Fund – VP-BED, owned by China Sonangol but operated by Planair.
Both China Sonangol and HKJ (a subsidiary of the vast Chinese airline and property corporation, HNA) are major clients of Airbus private jets, according to a press release from Airbus’s parent company, the European Aeronautic Defense and Space Co. in Toulouse, France. According to the Financial Times, “despite HNA’s increasingly high profile, the company remains something of a mystery, with a convoluted corporate structure.”
The HNA Group, a Fortune 500 company, is valued at $13 billion.
No mortgage or other financing instruments, or outstanding charges surfaced in public records associated with the transfer. A high-level source in the Bermudan government Aviation Department said that the planes were merely re-registered to HKJ Bermuda.
Amy Wang, a spokeswoman for HKJ, declined to answer questions, saying only that HKJ would protect the privacy of its clients.
Moving Money
In the last year, China Sonangol is alleged to have purchased two Airbus A319s directly from the manufacturer on behalf of Air Zimbabwe, delivering the planes to hangars in Harare airport – where they remain relatively unused. As with many other China International Fund-related planes, such aircraft are either sold, relatively dormant, or leased out.
China International Fund is estimated to have invested between $500 million to $1 billion in a variety of customized luxury planes, according to sources in the aviation industry and price lists from plane manufacturers such as Airbus.
Why the interest in luxury aircraft?
Elsewhere, aircraft purchases have been used to turn billions of dollars in illicit money into licit assets – a simple case of laundering profits. Mexican drug cartels, for example, have effectively transferred over $420 billion in drug proceeds through banks like Wachovia, via shell companies based in secrecy jurisdictions such as Luxembourg and the Seychelles. Along the way, they purchased planes too.
The use of countries like Bermuda can not only conceal such deals, but also eliminate the former history and purpose of these companies. Bermuda’s no-tax location ensures that the planes will generate maximum profit, too.
“This could be the sound of how justice dies,” said Maguwu to 100 Reporters. “No wimper, no bang. Just the sound of a business filing cabinet being closed.”
Khadija Sharife is a member of 100Reporters, based in South Africa.
Editor’s Note: The above article has been updated to correct the ownership of Sonair; the frequency of the Airbus’s stops at Lanseria; the number of documented casualties in Operation Hakudzowki; and Global Witness’s position that Sam Pa supplied money and vehicles, not weapons, to Zimbabwe’s secret police. It also clarifies the claim that Planair appeared to operate as an arm of China Sonangol. The article further updates with a published denial of Sam Pa that, while not made to the reporter directly, was publicly available and so should have been quoted in the original article.
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