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Africa/Global: Swiss Connections
AfricaFocus Bulletin
March 23, 2015 (150323)
(Reposted from sources cited below)
Editor's Note
An investigation conducted by the Berne Declaration (BD) has
revealed how Philia, a Swiss trading company, has been profiting at
the expense of the Congo (Brazzaville) oil refinery, Coraf. Coraf is
managed by the President's son, Denis Christel Sassou Nguesso, who
is a close friend of Philia's sole shareholder, Jean-Philippe
Amvame Ndong. The case is an unusually explicit and striking example
of the links between corruption in Africa and the lack of
transparency and regulation for companies located outside the
continent.
Revelations such as this, from a Swiss non-governmental
organization, and, earlier this year, the International Center for
Investigative Journalism disclosures implicating clients around the
world of the Swiss subsidiary of giant HSBC Bank, both reflect and
contribute to rapidly growing international realization of the scale
of "illicit financial flows" including both legal and illegal tax
avoidance strategies. This growth of involuntary and still limited
transparency comes from insider leaks and greater capacity to bring
together diverse information sources.
But it is critical to note that action on such revelations still
depends on painfully slow and inconsistent processes of actions by
government agencies in both rich and poor countries, and those in
turn depend on the level of political pressures brought to bear. The
results to date have been measurable, but both slow and extremely
limited.
One of the most successful cases, for example, resulted in
agreements to track illicit gains by the family and associates of
former Nigerian dictator Sani Abacha. In another recent press
release, the Berne Declaration analyzes how little of those funds
have been documented as reaching the Nigerian people, and how the
perpetrators have largely escaped punishment.
For the Berne Declaration press release on the Abacha funds, March
18, 2015, on delayed and problematic action in restitution to
Nigeria, see http://tinyurl.com/kekncfe
For earlier updates on the Abacha funds, see
http://www.africafocus.org/docs14/nig1403.php
This AfricaFocus Bulletin contains links to several of the Africarelated
articles from the "Swiss Leaks" investigation, plus the press
release and executive summary from the Berne Declaration
investigation on Swiss oil trading company Philia and the Congo
(Brazzaville) national oil company.
For previous AfricaFocus Bulletins on illicit financial flows and
tax justice, visit http://www.africafocus.org/intro-iff.php
++++++++++++++++++++++end editor's note+++++++++++++++++
Swiss Leaks
In its "Swiss Leaks" investigation, made public in February this
year, the International Center for Investigative Journalism
(http://www.icij.org/project/swiss-leaks)
revealed thousands of formerly secret bank accounts hosted by the Swiss branch of the
giant bank HSBC for "criminals, traffickers, tax dodgers,
politicians and celebrities."
The ICIJ gained access to information on more than 100,000 such
accounts from the late 1990s and early 21st century, and has
published new data on a wide sample of questionable cases from
around the world. While having such an account is not in itself
illegal, the ICIJ data clearly demonstrate how it facilitates such
activity. Many of the cases reported to date had links to African
countries, including the following:
Congolese oil wealth squandered in Geneva
Press Release, March 1, 2015
https://www.bernedeclaration.ch/
An investigation conducted by the Berne Declaration (BD) reveals how
Philia, a Swiss trader, has been profiting at the expense of the
Congolese state-owned oil refinery, Coraf. Coraf is managed by the
President's notoriously corrupt son, Denis Christel Sassou Nguesso.
Largely unknown in the opaque world of trading, Philia was able to
obtain an exclusive contract to export petroleum products with no
public tender process and under highly questionable conditions. This
case clearly illustrates the problems that plague the commodity
sector, notably the risk of misappropriation of oil rents at the
expense of the population of producer countries.
With access to exclusive documents, the BD analysed Philia's
business model and the clauses of a contract signed in 2013 with the
Republic of the Congo's state-owned oil refinery. The contract and
invoices in our possession leave no room for doubt that Philia
generated significant profits from Coraf's generosity. Coraf
provided the Geneva-based trader with free credit and, in doing so,
enabled it to bypass the compliance procedures that trade finance
banks typically conducted before allocating credit. By immediately
re-selling its cargoes to third parties, including other Swiss
traders, Philia acted as a pure intermediary between Coraf and the
international markets. Philia therefore pocketed substantial profits
for zero logistical effort. These perks granted at the Congolese
population's expense enabled Philia, owned by one single
shareholder, to competitively position itself in the downstream oil
sector.
Coraf is a true financial abyss for the Congolese Treasury. For
three years, the state has not received a single penny in exchange
for the oil it allocates to the refinery. It is little coincidence
that Coraf is managed by the President's son, an individual who has
complete control over this ultra-corrupt state's oil sales. While
the population live in poverty, Denis Christel Sassou Nguesso
distinguishes himself by his elaborate expenditures, meticulously
detailed in the "Biens mal aquis" inquiry currently underway in
France. Ten years ago, a London tribunal further revealed how he
flogged, for his own profit, large quantities of state crude sold-on
to Glencore and Vitol.
The story of Philia reveals how oil contracts are manipulated in the
dark corridors of power, all the while maintaining a veil of
legality. Transparency in the payments and contracts concluded
between Swiss companies and state entities is crucial in the fight
against the misappropriation of oil rents by corrupt elites. Yet,
the Swiss government nevertheless refuses to adopt such measures for
the commodity trading sector, despite the significant positioning of
Swiss traders in African markets. The BD further calls for the
creation of a sector-specific surveillance authority � ROHMA � which
would require companies to conduct mandatory due diligence on their
supply chains and business partners.
For more information
Marc Guéniat, Berne Declaration, +41 (0) 21 620 03 02,
[email protected].
Philia's refined ventures in Brazzaville
How Swiss traders misappropriate Congolese oil rents
Executive Summary
February 2015
https://www.bernedeclaration.ch/
This report presents the results of the Berne Declaration's in-depth
investigation into the highly questionable business relationship of
Philia, a Swiss trading company, and the Société Congolaise de
raffinage (Coraf), the Republic of the Congo's state-owned oil
refinery. The report reveals how Philia has benefitted from
favourable treatment from Coraf at the expense of the public
treasury and, therefore, the Congolese people. There is a lot at
stake: oil is Congo's principal source of revenue; it is a source of
immense potential wealth for a population that otherwise remains
very poor � a shameful example of the resource curse that so many
producer countries suffer. Far from unique, this case illuminates
the problematic practices that are wide-spread in Switzerland's
commodity sector. Such practices are facilitated, nurtured and
protected by the lack of transparency that reigns in the small world
of trading. They are encouraged by the absence of any effective
regulation in Switzerland.
Our investigation draws upon exclusive documents, primarily a "term
contract to export fuel oil" concluded between Philia and Coraf in
May 2013. The contract, sent to us by an anonymous source, was
signed by Denis Christel Sassou Nguesso, Coraf's General
Administrator and son of none other than the (notoriously corrupt)
Congolese President. This contract granted Philia the totality of
Congo's fuel oil exports between the 1 st June and 31 st December
2013, renewable for one year "after evaluation in January 2014".
According to the other documents we have received, Coraf transferred
five cargoes of fuel oil to Philia in 2013. By reselling this fuel
oil, the Swiss trader turned over $140 million, to which we can add
$35 million resulting from the resale of four cargoes of naphtha.
A refined contract
Philia did not obtain this fruitful contract via a public tender
process. Moreover, the contract contains multiple suspicious clauses
that are unfavourable for the Congolese refinery:
- Coraf takes serious financial risks by offering fuel oil on open
credit to Philia, a small company largely unheard of in the trading
world, with no payment guarantee.
- Coraf accepts longer than usual payment periods, leaving its
treasury devoid of tens of millions of dollars for extended periods
of time, and in doing so acts as Philia's de facto bank.
- Coraf authorises payments in euros using a "mutually agreed upon
exchange rate", rather than fixing a reference rate explicitly
detailed in the contract.
In addition to enabling Philia to economise on its banking fees, the
clauses granting open credit and long payment periods permit Philia
to finance other transactions without borrowing from any financial
establishment. The Swiss company is thus able to avoid the
compliance procedures typically under taken by banks before issuing
a letter of credit. Consequently, Philia evades the scrutiny of the
sole form of regulation (albeit indirect) that covers Swiss trading
companies' transactions.
Flipping cargoes in Pointe-Noire
Beyond the term contract to export fuel oil, Philia's general
business model in Congo is highly problematic. The Geneva-based
company systematically resells its cargoes from Coraf under the same
contractual conditions (with the exception of price) to other Swiss
traders � Mercuria, Mocoh and AOT Trading. By acting as a pure
intermediary, Philia pocketed substantial profits for a simple
exchange of paperwork. Coraf's choice of business partner appears to
have little economic justification. The state-owned refinery not
only takes a serious financial risk, but also denies itself of
significant revenue.
The numerous experts we have con sulted are unanimous in their
conclusion: Philia has profited from Coraf's generosity at the
latter's expense. This favourable treatment, yet to be justified,
enabled Philia to position itself in Congo's exclusive downstream
oil sector, as well as to extend its operations across other
countries, notably Gabon and Senegal. It has deprived the Congolese
population of the oil-derived revenue crucial for the country's
development. While we have been unable to accurately calculate the
precise losses accounted for by the transactions analysed in this
report, we can affirm that they are substantial.
The Republic of the Congo and the resource curse
- President: Denis Sassou-Nguesso, in power since 1979
- Economic growth: 3.5% - 8% of GDP between 2004 and 2014
- Oil generates 80% of public revenue
- Corruption ranking: 154th out of 177 countries
- Human development index: 140th out of 187 countries
- 50% of the population live below the poverty line
Philia: at the heart of misappropriated funds
While Philia's business deals reveal nothing illegal, it remains to
be explained how and why this little-known junior has been deemed an
eligible business partner, as well as the disproportionate profits
reaped from its business in Congo. We hypothesise that Philia has
been acting on behalf of politically exposed persons (PEPs) for whom
it (directly or indirectly) diverted part of the oil rents. Such
mechanisms are common in the trading sector � the Berne Declaration
has detailed a number, notably in Nigeria, Angola and Ukraine. In
some cases, intermediaries divert rents directly on behalf of a PEP;
in others, their mechanisms are more subtle, ensuring that they
appear to have no direct connection with the ultimate beneficiaries
of the rents. In Philia's case, we possess no facts that would
enable us to confirm that its profits swell the pockets of members
of the Congolese elite. A matrix of facts nevertheless implies that
Philia's sole shareholder, Jean-Philippe Amvame Ndong, entertained a
close relationship with Denis Christel Sassou Nguesso. Multiple
sources interviewed confirm that the two are indeed friends. They
regularly spent time together in the south of France where Mr Amvame
Ndong lived for a number of years. Certain witnesses further reveal
how Philia's personnel were engaged in providing private services of
all sorts to the Congolese President's son.
Consulted on multiple occasions, Philia's managers have continually
affirmed that their business activities are legitimate, profusely
defending themselves. In spite of full transparency from our side,
Philia tried to prevent the publication of this report via legal
proceedings, first in the canton of Geneva where the company is
domiciled, then in the canton of Vaud where the Berne Declaration
has its French-speaking office. The court dismissed two of the
appeals; Philia retracted the other two. But Philia's managers have
not denied the existence of relations between its sole shareholder
and the Congolese President's son, neither has it been able to prove
that these relations had no effect on its acquisition of the
contract and its so very favourable clauses. We can only hope that
the publication of this report draws out other facts proving, or
disproving, our hypothesis.
The responsibility of Philia's Swiss "clients"
Philia is not the only Swiss company referenced in this report. The
companies that buy its cargoes carry a moral responsibility, at
least, if such goods were obtained from Coraf via illegitimate � or
illegal � means. Did Mercuria, Mocoh and AOT Trading undertake any
steps to verify the legitimacy of Philia's operations, its
beneficial owners and the conditions under which it obtained the
contract? We can legitimately doubt this.
Combatting the resource curse
In order to prevent Swiss trading companies from contributing to the
resource curse, the Swiss authorities should adopt binding measures
that go much further than the propositions made by the government in
its "Rapport de base: matières premières", published in March 2012.
As the world's number one commodity trading hub, Switzerland carries
an important responsibility. To minimise the specific risks
presented by the sector, the Berne Declaration has proposed an
independent supervisory authority, ROHMA (after the German
Rohstoffmarktaufsicht), charged with regulating and controlling the
Swiss commodity sector.
Who profits from "profit oil"?
In order to understand this case, it is essential to describe how
the oil sector is managed in the Republic of the Congo, a country
where public and private actors are intricately intertwined. Whether
we are talking about oil production or trade, a small handful of
people appointed by the President are in control of the allocation
of oil permits. Since 2010, the son of the Congolese President,
Denis Christel Sassou Nguesso, has been Deputy Director-General of
the downstream sector at the Société nationale des pétroles du Congo
(SNPC), as well as the head of Coraf. It is into the hands of this
man � known for his extravagant expenditures documented in the
"Biens mal acquis" affair currently underway in France � that the
state's share of oil revenue, or "profit oil", therefore falls.
While in theory this oil should generate substantial revenue for the
Congolese state, Coraf is in reality a financial abyss. The reports
of the Extractive Industries Transparency Initiative (EITI) reveal
how, between 2011 and 2013, the national refinery did not repay the
public treasury the financial equivalent of the oil it processed.
The numbers are frightening: outstanding payments exist for over 12%
of Congo's profit oil. What has come of these profits, amounting to
around $600 million per year? The total opacity surrounding Coraf's
operations makes it impossible to answer this question.
"One does not engage in the oil sector in Congo without being
associated with the presidential family; it's impossible. The logic
is simple: the rare public tenders are an illusion, destined to
reassure the international community. But it's all biased; the
candidates do not have the same terms of reference". - Former
Congolese oil minister
Recommendations for the Swiss government:
- Ensure payment and contract transparency for all contracts
concluded between Swiss companies active in the commodity sector and
governments or any public entity.
- Require all Swiss companies active in the commodity sector to
undertake supply chain due diligence.
- Require all Swiss companies active in the commodity sector to
undertake due diligence on their business partners.
- Establish a supervisory authority for the primary commodity sector
such as ROHMA, as proposed by the Berne Declaration (for more
information, see: http://www.ladb.ch/rohma or http://www.rohma.ch).
AfricaFocus Bulletin is an independent electronic publication
providing reposted commentary and analysis on African issues, with a
particular focus on U.S. and international policies. AfricaFocus
Bulletin is edited by William Minter.
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