by Margarida Fontes and Margot Gibbs

Cape Verde’s finance minister has ordered an immediate investigation into how a bank owned by controversial billionaire Isabel dos Santos was granted a licence to operate in his island nation.

Olavo Correia, who is also the deputy prime minister, has instructed the country’s officials to launch a probe after he was shown details of a Finance Uncovered investigation into Ms dos Santos’s business in Cape Verde.

He has also asked them to examine a series of questionable payments that companies controlled by Ms dos Santos routed through her offshore bank, Banco Bic Cape Verde.

He revealed his decision during an interview with Finance Uncovered’s Cape Verde partner on Wednesday. 

But he also pushed back on accusations that his country was a “weak actor” in the international financial system, or that it was a tax haven.

“We comply with all legal standards,” he said.

Luanda Leaks reaction

Before the interview, Finance Uncovered had published an article as part of the Luanda Leaks project – an investigation into Ms dos Santos’s business affairs that has been coordinated by the International Consortium of Investigative Journalists (ICIJ).

Documents found in the leaked cache of files showed how the billionaire daughter of Angola’s former president used Banco Bic Cabo Verde to channel tens of millions of dollars in payments from Chinese and European contractors working on construction projects in her father’s country.

These payments through the lighter touch regulatory environment of Cape Verde – a Portuguese-speaking archipelago off the west coast of Africa – were ordered at around the time scrutiny of her business dealings mounted in the wider international banking system.

Ms dos Santos, then a “politically exposed person” (PEP) in anti-money laundering terminology, had bought into the bank in 2013. This was the same year Cape Verde’s regulators seemingly waived their ownership rules and granted it a banking licence.

Licensing concerns

Leaked documents seen by Finance Uncovered show that an investor consortium led by Ms dos Santos had been leaning on Cape Verde regulators to waive those rules.

Mr Correia, who has been finance minister since 2016, said he wanted his department to explain what happened before he took office. 

Cape Verde’s rules required offshore banks to be 15% owned by banks based in OECD countries, but gave the government discretion in “exceptional cases”.

Mr Correia said he had been unable to find documents showing how Banco Bic Cabo Verde met this standard. Ms dos Santos and her co-investors owned their shares through individual holdings and investment companies, rather than through other banks. Ms dos Santos originally held 25% of the bank’s shares, increasing her stake to 42.5% in 2015. 

Mr Correia’s predecessor as finance minister was Cristina Duarte, a member of a different party which had then been in power. When we had asked her for an explanation, she said she had “no information”. She then appeared to hang up, and has not responded to subsequent questions about the licensing process. 

According to the UN website, Ms Duarte is currently on the advisory board to the UN Department of Economic and Social Affairs.

Ms dos Santos has not responded to any questions from Finance Uncovered, but in an interview with BBC Africa about the wider LuandaLeaks allegations on Monday, she strenuously denied any wrongdoing.

Bic Cabo Verde also previously failed to respond to questions from Finance Uncovered.

She said: “The allegations which have been made against me over the last few days are extremely misleading and untrue.

“I have always operated within the law and all my commercial transactions have been approved by lawyers, banks, auditors and regulators.” 

She also said that she had engaged lawyers to take action against “inaccurate and defamatory reports”.

Her father, Jose Eduardo dos Santos, served as president of mineral-rich Angola from 1979 to 2017 and is suspected of corruption on a massive scale. The majority of the country’s population live on $2 a day.

Offshore banks not worth the risk

Meanwhile, the future of Banco Bic Cabo Verde hangs in the balance. Sweeping reforms to the country’s offshore sector have meant it has had to apply for a new domestic banking license.

Mr Correia said the offshore banking sector posed a reputational risk to his country, adding that the relatively small number of jobs they provided did not justify their special treatment.

His government removed offshore banks’ tax breaks in its 2019 budget.

He said: “Those offshore banks that have no interest in becoming regular banks will have to look for another financial centre outside Cape Verde”.

Bic Cabo Verde has applied to become a regular bank, which would mean that it would take deposits from and lend to domestic businesses as well as international clients.

Asked if he had concerns over Ms dos Santos’s bank operating domestically, Mr Correia said that the central bank would follow all applicable rules when assessing the application.

He said: “If they do not meet the minimum prudential standards and if the promoters are not credible and have a clean record, they will never be able to carry out banking activities.”

Mr Correia also dismissed a suggestion by banking experts that Cape Verde was a weak actor in the financial regulatory system.

A report last year by the money laundering watchdog, the Financial Action Task Force (FATF), found that Cape Verde’s banks still had “very little knowledge” of new beneficial ownership obligations. These are a central tenet of anti-money laundering regulations. 

But Mr Correia said: “It will also be the government’s concern to improve the law so that Cape Verde is increasingly a financial centre.” 

Editing by Ted Jeory

A major leak of secret documents detailing the finances of Africa’s richest woman has raised serious questions about the role played by the winter sun islands of Cape Verde as she built her controversial business empire across the world.

The cache of files, known as the Luanda Leaks, show how Isabel dos Santos, the billionaire daughter of Angola’s former president, used her own bank on the trendy tourist archipelago to route millions of dollars in payments from Chinese and European contractors working on construction projects in her father’s country.

The payments through the lighter touch regulatory environment of Cape Verde – a Portuguese-speaking archipelago off the west coast of Africa – were ordered at around the time scrutiny of her business dealings mounted in the wider international banking system.

Ms dos Santos, then a “politically exposed person” (PEP) in anti-money laundering terminology, had bought into the bank in 2013. This was the same year Cape Verde’s regulators seemingly waived their ownership rules and granted it a banking licence.

Experts say the findings suggest reforms in global standards are needed over whether PEPs can own banks. 

Cape Verde – a weak actor in banking regulatory system

Tom Keatinge, director of the Centre for Financial Crime and Security Studies at the Royal United Services Institute think tank, said: “A PEP owning a bank in a weakly regulated jurisdiction like Cape Verde represents the perfect combination for a potential risk of facilitating money laundering.”

He added: “A weak actor like Cape Verde offering international banking services represents a systemic vulnerability for the global financial system.” 

The princess and her country’s paupers

Ms dos Santos, 46, who has rubbed shoulders with celebrities Kim Kardashian and Paris Hilton, has been celebrated as a highly successful businesswoman – even previously feted at the Davos World Economic Forum – but is now reeling from a string of allegations that suggest her wealth was a direct result of her father’s autocratic rule in resource-rich Angola.

Jose Eduardo dos Santos (pictured below with Isabel), who served as president from 1979 to 2017, is suspected of corruption on a massive scale, while the majority of the country’s population live on $2 a day.

Since he stepped down, the focus on his daughter’s businesses has intensified.

cape verde

In August, Finance Uncovered revealed the details of her London mansion, and last month her assets in Angola – including a telecoms company and a bank – were frozen over allegations she owed the state some $1bn.

This week, she has faced further corruption allegations through the Luanda Leaks project, a collaboration coordinated by the International Consortium of Investigative Journalists (ICIJ) based on documents provided by the Platform to Protect Whistleblowers in Africa  PPLAAF, a Paris-based advocacy group.

The allegations have centred on her business empire, which includes consulting and telecoms companies and even a diamond retailer, and the western advisors who helped her.

The Prosecutor general in Angola vowed on Monday to use “all possible means” to return Isabel dos Santos to Angola.

Dos Santos denies all

Ms dos Santos did not respond to our enquiries but in an interview with BBC Africa said all allegations against her were “completely unfounded” and “orchestrated by the current government that is completely politically motivated”. 

She added: “I can say my holdings are commercial, there are no proceeds from contracts or public contracts or money that has been deviated from other funds.”

Her father did not respond to questions posed by the ICIJ.

Cape Verde: Not just tourists who are welcome

As part of the ICIJ project, Finance Uncovered worked with journalists in Cape Verde to reveal the billionaire’s moves into the up-and-coming tourist hotspot – a country marketing itself as paradise islands 400 miles off the coast of West Africa.

Popular with UK holidaymakers and celebrities, the finale of Channel 4’s Celebs Go Dating was filmed there in 2018. 

The volcanic islands have a close connection to Angola through their former colonial rulers Portugal. Portuguese is the official language in both countries.

With a population of just 500,000 people, the country has attracted massive investment into its tourism industry over the past 20 years. More recently plans for a controversial mega-casino funded by Chinese investors from the former Portuguese colony of Macau have also been unveiled. 

But in 2013, Cape Verde’s National Assembly introduced tax incentives to make the islands attractive to offshore banks. 

The same year, Ms dos Santos bought into Banco Bic Cabo Verde. This would be a “sister” to her Angolan and Portugese banks, which were owned by the same investor consortium.

Two years later, as she became the majority shareholder, the bank ramped up its dealings with these “sisters”, a move that increased its profits to a high of €12.9m by 2017. 

The Cape Verde bank also became a significant part of her own payments system as concern grew about her politically exposed status elsewhere in the international financial environment.  

Finance Uncovered has found that between 2016 and 2017 her companies used accounts at the bank to invoice for more than $35m they were owed for contracts in Angola. 

How owning your own bank can be useful…

One of these companies was Boreal Investments Limited, a Hong Kong company which in June 2015 was awarded 37.5% of a state contract to construct the Caculo Cabaca dam on the river Kwanza, Angola. 

The $4.5bn mega-project, intended to increase Angola’s total grid capacity by 43%, was financed by a loan from Chinese state owned bank ICBC. 

The Luanda Leak files suggest that in 2015 Boreal’s account at Hang Seng, a subsidiary of HSBC, was shut down after dos Santos’ advisers informed it she was the owner of the company.  

PEPs are considered high risk because of their potential exposure to bribery and corruption by virtue of their position. As a consequence, banks are required to perform enhanced due diligence before taking on such clients.

It is not clear whether Boreal was able to find another bank in Hong Kong. But in Boreal’s invoice for the advance payment under the dam contract in 2017, it asked its Chinese partner CGGC, a state-owned engineering company, to pay $17.5m to its account at Banco Bic Cabo Verde.

According to Maira Martini, a money laundering policy expert at Transparency International, this payment order should have raised red flags because it involved a bank account in a third country. She said the banks involved should have raised official “suspicious activity reports” to warn of a possible money laundering risk. 

Banco Bic Cabo Verde has not responded to any requests for comment.

In June 2018, the new Angolan government, which alleges the contract price was inflated by $1bn, removed Boreal from the contract. 

Ms dos Santos strenuously denies the allegation, citing a new presidential decree which has increased the price by a further $1.2bn. Her lawyers said that in Angola, “public tenders are not required or applicable to all public contracts”. 

Boreal launched arbitration proceedings against CGGC in August 2018.

…but a PEP owning a bank can be a problem

Policy experts believe bank ownership, and some control of the payments system, is increasingly a key issue in the fight against corruption and money laundering.

Tom Keatinge, of RUSI, says “the potential for corrupt use of a bank by an owner is considerably more than if the bank was owned by a third party”.

He said: “A bank is unlikely to apply financial crime compliance controls to transactions that are conducted on behalf of the owner.” 

This is one of the reasons that most countries have strict regulations on who can own banks or hold positions of power within them. But the files show how Cape Verde’s own rules were bypassed when Banco Bic Cabo Verde was granted its license to operate. 

Leaked documents show that Ms dos Santos’s co-investors applied significant pressure and demands on the central bank regulators even before they went ahead with their €28m purchase in 2013: in their application for a banking licence, they said a precondition of their investment was for the islands’ Finance Ministry to waive its requirement that offshore banks operating in the country were at least 15% owned by a bank in an OECD country.

Banco Bic Cabo Verde’s proposed owners were individuals and investment vehicles in turn owned by Isabel dos Santos and other individual investors.

The Finance Minister at the time was Cristina Duarte, a former Vice President of Citibank in Angola. When Finance Uncovered called her to ask questions about the issue, including whether she personally knew Ms dos Santos, she appeared to hang up.

Reaction in Cape Verde

The central bank in Cape Verde has failed to answer questions we asked. And Cape Verde’s Finance Minister, Olavo Correia, has cancelled two scheduled interviews.

However, a former senior member of the Cape Verde Cabinet did speak on condition of anonymity.

The former minister said government members have been “extremely dubious” about decisions taken over the operation of the country’s offshore banking sector.

The former minister said that when it came to foreign investment in the country, past governments had lost their capacity to critically assess how, and whether, the investments would benefit citizens.

Despite four years of generous tax breaks to the offshore banking sector, these offshore banks employed just 86 people at the end of 2017, of whom only 51 were Cape Verde nationals according to figures provided by the International Monetary Fund.

Bic Cabo Verde was given €8.5m in corporation tax breaks from the government between 2013 and 2018, but the bank’s non-director wage bill was about €130,000 annually.

What banking regulators need to change

The Cape Verde government is not the only institution that let Ms dos Santos own a bank. The Portuguese authorities also did.

In its response to the ICIJ, a spokesperson for the Bank of Portugal said the European Central Bank had assessed Ms Dos Santos as a bank owner in 2016. European banking regulations require that bank owners are assessed on the basis of their “reputation”.

According to Transparency International’s Maira Martini, this points to a gap in global financial regulations. She said authorities should take into someone’s status as a PEP when making decisions on awarding banking licences.

* Additional reporting: Margarida Fontes

* Editing by Ted Jeory and Nick Mathiason

ConocoPhillips, the US oil giant, has finally paid tax to Vietnam on a $896m gain from the sale of two oil fields in 2012 – marking a significant climbdown amid embarrassing legal action and international criticism.

Conoco’s “capitulation” comes after Finance Uncovered revealed in 2018 the company was using an obscure British law to try and avoid a Vietnam capital gains tax bill estimated to be worth up to $179m.

Conoco’s retreat appears to have come about partly because it wanted to avoid further negative publicity, those with knowledge of the issue claimed. Our original story was published in The Guardian newspaper.

The company confirmed a settlement had been reached but declined to disclose the amount paid. It is understood the settlement was less than $179m.

Huge dodges

Conoco’s Vietnamese tax dispute goes to the heart of a largely unexplored area of multinational tax avoidance.

Most coverage of international tax abuse focuses on corporation tax.

But Finance Uncovered and our journalist partners in Uganda, Germany and Namibia have probed a new front in the tax debate – capital gains tax avoidance.

In four investigations, we have uncovered multinational capital gains tax dodges worth a combined $2.4bn.

Tax free gain

The Conoco settlement was announced late last year and came as its lawyers negotiated with the Vietnamese government.

When Vietnam signalled it would claim the tax due, Conoco issued a pre-emptive legal strike using an arbitration process run by the United Nations Commission on International Trade Law.

The arbitration was to take place under the UK-Vietnam Bilateral Investment Treaty because the 2012 deal had involved British subsidiaries of the US major.

The structure of the 2012 sale was complex. A UK subsidiary of Conoco had sold two companies it owned — ConocoPhillips Gama Ltd, and ConocoPhillips Cuu Long — to another UK company owned by the Anglo-French oil firm Perenco.

It appears from corporate accounts that the only assets held by ConocoPhillips Gama and Cuu Long were Conoco’s oil interests in Vietnam.

According to accounts filed at Companies House in the UK, ConocoPhillips sold the companies for $1.3bn, reaping a profit of $896m. Buried in the detail of those accounts, a small note stated that the company paid no taxes on the capital gain.

The tax-free gains were made possible by the UK’s “substantial shareholder exemption”, which meant profits on the sale of shares in subsidiary companies are not subject to capital gains tax in the UK.

But while the UK may choose not to levy any capital gains tax, Vietnam had the right to do so under the terms of the UK-Vietnam tax treaty.

Grossly disadvantageous

The technique of holding shares of assets in a separate country is known as offshore indirect transfers.

It is widely used by global companies to avoid tax on the profits from assets such as mines, telecom businesses or real estate are sold.

This ruse has angered developing countries and economic justice campaign groups.

Mae Buenaventura, deputy coordinator at the Asian Peoples’ Movement On Debt and Development, said: “There is a growing trend towards lowering capital gains taxes, just as corporate income taxes are being reduced.

“Capital gains tax is a progressive tax, levied on those with property and wealth, and thus cutting rates benefits only the rich and propertied elites.

“This contributes to further heightening inequality. While the rich are favoured with tax breaks, public spending on the most basic social services remains gravely inadequate. Revenues forgone from tax avoidance represent the loss of financial resources that could have gone to public healthcare, education, water and sanitation services, electricity and other needs essential to a life of dignity.”

Alex Cobham, chief executive of Tax Justice Network, said: “The apparent capitulation of ConocoPhillips is a welcome development not least for the tax revenues of a country in which millions of people live in extreme poverty.

“But there is no reason to think that this signals the end of this type of indirect offshore transfer scheme. A number of high profile cases in recent years have shed some light on the phenomenon, thanks in no small part to the work of Finance Uncovered.

“The scale of revealed revenue losses is well into the billions of dollars. Given the extent of corporate accounting opacity, this is likely just the tip of the iceberg.”

ConocoPhillips confirmed it reached a settlement with the government of Vietnam “to resolve matters regarding the 2012 sale of the company’s Vietnam business,” said its spokesman. “We engaged in a constructive dialogue and are pleased to have the matter resolved.”

Tax experts suggest that Vietnam will continue to be affected by this tax avoidance technique more generally. A significant amount of companies investing in the south east Asia country are from Singapore. The tax treaty between the two countries allows for capital gains tax to be waived.

“Currently investors can take advantage of hundreds of bilateral tax treaties, which, like the Singapore-Vietnam treaty, allow them to avoid capital gains tax on indirect transfers of assets,” said Martin Hearson of the International Centre for Tax and Development. “Fixing these problems in their treaty networks should be an urgent priority for developing countries that want to tax foreign investment more effectively.”

Other capital gains tax stories:

·      Umeme: Did Uganda miss out on a $38m tax windfall?

·      Analysis: How rich oil firms are using secretive court to fight capital gains tax in developing world

·      What a Liberty! How one of the world’s biggest telecom companies is set to pocket a €7.2 BILLION tax free windfall

·      Australian extractive giant dodges $15.8m capital gains tax after Namibian uranium mine sale

Picture credit: Shutterstock

Finance Uncovered worked with the Organized Crime and Corruption Reporting Project (OCCRP), The Times and a host of other news organisations (see below) to shine a light on a murky corner of the UK’s corporate laws – an aspect that makes Britain so attractive to money launderers, fraudsters, and kleptocrats. Read More

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The commercial contract, obtained by the International Consortium of Investigative Journalists and analysed by Finance Uncovered as part of the Mauritius Leaks project, provides a rare insight into how blue chip corporations boast about their environmental ethics on the one hand, while on the other Read More

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