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### Viewing cable 09MALABO27, EQUATORIAL GUINEA RAW, PAPER 4: THE BUSINESS OF CORRUPTION

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Reference ID | Created | Released | Classification | Origin
--- | --- | --- | --- | ---
09MALABO27 | 2009-03-12 10:10 | 2011-02-10 21:09 | UNCLASSIFIED//FOR OFFICIAL USE ONLY | Embassy Malabo

`

    VZCZCXRO7362
    OO RUEHMA
    DE RUEHMA #0027/01 0711040
    ZNR UUUUU ZZH
    O 121040Z MAR 09
    FM AMEMBASSY MALABO
    TO RUEHC/SECSTATE WASHDC IMMEDIATE 0469
    INFO RUEHUJA/AMEMBASSY ABUJA IMMEDIATE 0036
    RUEHKH/AMEMBASSY KHARTOUM IMMEDIATE 0011
    RUEHSB/AMEMBASSY HARARE IMMEDIATE 0022
    RUEHMA/AMEMBASSY MALABO 0533
    RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
    RUEATRS/DEPT OF TREASURY WASHINGTON DC
    RHEFDIA/DIA WASHINGTON DC
    RUEAIIA/CIA WASHINGTON DC
    RHEHAAA/NATIONAL SECURITY COUNCIL WASHINGTON DC
    RUEHYD/AMEMBASSY YAOUNDE IMMEDIATE 0273
    RUEHMD/AMEMBASSY MADRID IMMEDIATE 0103
    RUEHLC/AMEMBASSY LIBREVILLE IMMEDIATE 0069

` `

    UNCLAS SECTION 01 OF 05 MALABO 000027

    SENSITIVE

    SIPDIS

    KHARTOUM FOR FERNANDEZ; HARARE FOR CHISHOLM; YAOUNDE FOR DATT

    E.O. 12958: N/A

    TAGS: PREL ECIN ECON EFIN PGOV EPET ENRG KCOR PINR
    SOCI, EK

    SUBJECT: EQUATORIAL GUINEA RAW, PAPER 4:  THE BUSINESS OF CORRUPTION

    REF: MALABO 26 AND PREVIOUS

    ¶1. (U) Triggered by changes underway in Washington D.C.,

    upcoming personnel rotations in Embassy Malabo and animated by

    the recent attack on the capital, this is the fourth in a series

    of cables intended to update our perspective on Equatorial

    Guinea, and to provide a ground-level view of one of the world's

    most-isolated and least-understood countries to interested

    readers.

    ¶2.  (SBU) SUMMARY:  The low level of institutional development

    and peculiar financial management mechanisms may inflate

    perceptions of corruption in Equatorial Guinea (EG).  Suddenly

    rich, the country's over-reliance on now-defunct Riggs bank, a

    lack of conflict-of-interest rules and a legacy of moonlighting

    further complicate EG's record.  While significant concerns over

    the level of corruption remain, and as growing oil revenues fuel

    the local commercial boom, there are signs EG is moving toward

    improving public finance management -- and U.S. engagement is

    helping achieve results.  End SUMMARY

    ¶3.  (SBU) As in many other areas, Equatorial Guinea (EG) has a

    bad reputation when it comes to transparency and corruption.

    Numerous IOs/NGOs rate the country as one of the world's worst

    performers.  However, these organizations may be working from a

    position of bias and with poor information.  To our knowledge,

    none of them have undertaken recent on-the-ground surveys here.

    On the contrary, there are signs the perspective of the problem

    in EG may not be in complete alignment with reality.  Moreover,

    assessments rarely take into full account the country's level of

    societal and institutional development.

    ¶4.  (SBU) Legacy Issues:  Part of the problem is the peculiar

    nature of the EG social environment.  According to the former EG

    treasurer, who retired in 1993 just before the oil revenues

    started to flow, lack of resources in its early days often led

    the government to compensate officials with in-kind transfers.

    Land, operating licenses and import concessions were common

    forms of "payment" to ministers and other ranking officials

    during a period when "there was often no money to pay salaries."

     The practice began with EG government seizure of "abandoned"

    Spanish colonial holdings -- and their subsequent redistribution

    to officials as a means of compensation.  As testament to the

    then-prevailing level of abject poverty, former U.S. Ambassador

    to EG Chester Norris (1989-1992) relates having to personally

    loan money to President Obiang himself so he could "buy gasoline

    to go to local political events."  During the period of the

    "skinny cows," officials were only expected to be in the office

    three days a week.  The remainder of the time they worked their

    farms or businesses in order to feed their families.  During

    that period -- when local markets sold onions by the quarter,

    tomato paste by the spoonful, and the handful of taxis in

    circulation in Malabo required advance booking for use -- many

    Equato-Guineans energetically sought to avoid poorly-compensated

    government jobs.  Some could not; especially those close to the

    president.  Having himself come to power in a coup (one likely

    supported by outside forces) and constantly under threat of

    overthrow, he purchased loyalty by any means available.

    ¶5.  (SBU) Those private entrepreneurs who mocked their poor

    public officials now see the tables turned.  Once oil money

    started to flow in the mid '90s, many officials found themselves

    in improved positions.  Money and power accumulated within the

    government.  In addition, the once-meager returns from the

    earlier in-kind compensation for officials mushroomed as the

    economy expanded at one of the world's fastest rates.  For one

    example, the single license to import cement into country has

    become extremely lucrative (NOTE: this license belongs to

    ABAYAK, a company partially owned by the president and first

    lady).  In another, the only person authorized to provide notary

    services in Malabo is now one of the country's wealthiest men.

    These legacy privileges have been closely guarded by those

    receiving them, but demands from the younger generation and

    growing appreciation for competition is leading to gradual

    opening.  The outgoing, but-still-powerful Minister of National

    Security once had the only modern hotel in Malabo.  He built it

    on land that was part of his "skinny cow" compensation package,

    situated along the 4-lane airport highway that was until 2000 a

    single, muddy track.  His now-aging hotel faces stiff

    MALABO 00000027  002 OF 005

    competition from newer, more upscale arrivals: a French-owned

    "5-star" Sofitel, a Lebanese-run EG government complex, and

    (soon) a 300-bed Lebanese-owned Hilton Hotel near the Malabo

    airport.  Forced to innovate, the former minister has just

    opened Malabo's first European-style bakery and associated

    ice-cream shop on his premises.  Competition works.

    ¶6.  (SBU) Legal Corruption:  Representatives of a foreign,

    internationally-recognized law firm working closely with U.S.

    oil companies in EG for years tell us they are aware of rumors,

    have seen fully exploited "grey areas" but have never

    encountered a "smoking gun of outright corruption."  They

    describe EG's anti-corruption statutes as "even more stringent

    than the (U.S.) Foreign Corrupt Practices Act."  In practice,

    officials caught in the act are more often quietly removed from

    office and/or banished to some hinterlands task as penance than

    they are prosecuted.  We know of not a single court case.

    ¶7.  (SBU) Moreover, one major flaw remains:  EG has no law

    limiting or even defining conflict of interest.  Most ministers

    continue to moonlight and conduct businesses that often conflate

    their public and private interests.  The Minister of Justice has

    his own private law firm, in which he maintains an active hand

    and open interest -- and which is not illegal under current EG

    law.  In similar fashion, the Minister of Transportation and

    Communications is director of the board and owns shares in the

    parastatal airline, not to mention the national telephone

    company.  The custom of simultaneously maintaining both official

    and private activities that became entrenched in the era of

    skinny cows has not been altered for the fat ones.  There is

    public grumbling but little internal pressure to change the

    rules.  Nonetheless, occasionally lines do get crossed.  We

    understand the former Minister of Fishing and Environment lost

    his job when it was discovered he was occasionally going to

    Spain to sign over fishing licenses out of view of the rest of

    the government.  There were also rumors that corruption led to

    the former Prime Minister's ouster (i.e., Ricardo Mangue).  High

    officials appear to be insulated from prosecution, but

    apparently can't expect impunity.

    ¶8.  (SBU) Family Matters: EG has an extremely tight, intricately

    interconnected society (REFTEL).  There are no arms-length

    transactions here.  The traditions of the predominant Fang tribe

    prevail, and the bonds of family are as strong as they are in

    any other culture.  By American standards, these bonds are

    exceedingly powerful.  Ministers themselves fall victim to these

    traditions and appear unable to avoid pressures to intercede in

    mundane matters on behalf of even lower-class family members.

    Failure to do so can result in loss of influence and

    ostracization within the family and clan.  During a meeting with

    the powerful Minister of Interior in which he was interrupted by

    a telephone call, we were surprised to hear him engage in

    translation and explanation of a routine administrative document

    for an elderly aunt.  "She doesn't read well and she speaks poor

    Spanish," he apologized. "These family matters must be attended

    to here."  The tug of family and the opportunity for abuse of

    power are clear.

    ¶9.  (SBU) Among those close to the president, two individuals

    are singled out for criticism both here and abroad -- the first

    lady, and her son, the "primogeniture" of President Obiang.

    "Teodorin" (or "little Theodor") as the son is known, lives the

    life of an international playboy and is widely accused of

    corruption.  His purchase of a $34 million mansion in Malibu,

    California once made Forbes magazine and attracted a great deal

    of attention.  Yet when we probe him on the issue of corruption,

    he explains that during the time of the "skinny cows," the

    government "granted" him a concession to lumber a large tract of

    pristine continental jungle.  The company he formed (and which

    he still owns, even though he is currently Minister of

    Agriculture and Forestry), brought in a Malaysian contractor

    with 40 teams of well-equipped lumberjacks who clear-cut,

    transported and shipped a wealth of whole logs to Asian markets

    -- leaving Teodorin with a large windfall.  It also ruffled

    enough feathers that a new law was introduced that prohibited

    the exportation of whole logs and limiting clear-cutting.  In

    the meantime, Teodorin continued entrepreneurial activities that

    often included purchase of foreign real estate.  "I've been very

    MALABO 00000027  003 OF 005

    lucky in business," he told us, "and I like to live well.  My

    house in Malibu is now worth twice what I paid for it."

    ¶10.  (SBU) The origins of his mother's initial grubstake were

    based in real estate, and by any measure she has since become a

    formidable local real estate baron.  As the oil business took

    off, anyone with residential properties that supplied the basics

    (i.e., running water, electricity) saw demand for their

    properties soar.  Earlier than most, the first lady identified

    and built into EG's sizzling real estate boom, where 100% return

    on investments in western-style construction can come within a

    single year of completion.    Of course, it doesn't hurt with

    marketing if you are the first lady, and land for construction

    may be easier to come by than for some others.  The president

    himself acknowledges his "private interests in Equatorial

    Guinea," which include support for his wife's real estate

    ventures.  Once, in a new, stately presidential palace suite,

    waving a hand, he told us, "This doesn't belong to me.  It

    belongs to the people.  But I have to take care of my family, so

    I maintain private interests on the side."

    ¶11.  (SBU) Anecdotal Indicators:  Given the poor level of

    institutional development, the absence of appropriate law and

    the whiplash EG has experienced in going from poverty to riches

    in such a short period (a decade ago EG was among the very

    poorest countries in the world -- it now has one of the highest

    per capita incomes of any population), it is appropriate to

    focus on the issue of corruption.  Yet apart from the obvious

    conflicts of interest, the rumors and accusations, there are

    some positive signs.  Most EG government revenue is generated by

    exploitation of the country's growing oil and gas reserves.  All

    production is currently led by U.S. oil companies extremely

    sensitive to the requirements of the U.S. Foreign Corrupt

    Practices Act.  Thus we have a reasonable level of confidence

    regarding the accounting up to the point that royalty payments

    enter EG accounts.

    ¶12.  (SBU) In this area too, there are positive signs.  EG is a

    member of the 6-nation Central African Franc monetary union.  In

    the past decade, and in competition with much larger countries

    such as Cameroon, Gabon, and Congo, EG's reserves in the

    associated Central African Bank went from a rounding error to

    over 60% of the sum total.  While leaks are likely, a system

    hemorrhaging money to corruption is unlikely to have amassed

    reserves at such a rapid rate.  A recent visitor from the

    secretariat of the Extractive Industries Transparency Initiative

    (EITI -- for which EG is voluntarily a candidate country) was

    "pleasantly surprised" to find EG's accounts to be in such good

    order.

    ¶13.  (SBU) Riggs Rigged:  The 2005 collapse of venerable Riggs

    Bank in Washington D.C. continues to hang over EG like a cloud.

    At the time of the Senate/OCC investigations, EG was discovered

    to have the largest cumulative balance in the bank.  Yet study

    of the record shows the bank itself to have been at fault with

    regard to its reporting responsibilities, while the accounts

    associated with EG can be reasonably explained.  Based on our

    conversations here, Equatoguineans readily accepted Riggs'

    advice regarding accounts and accounting -- assuming the bank

    was "acting properly." As the increasing flow of

    dollar-denominated oil revenues built up, and attractive

    interest income streams ensued (which was not always the case

    with EG funds held in the BEAC -- the Central African central

    bank), individuals associated with the EG government began to

    open private accounts.  Both the amounts in the government

    accounts and those in individual accounts are easily in line

    with amounts generated respectively by oil revenues and private

    activities of those concerned.  Recognizing the crippling human

    capacity challenges in the country and the need for western

    (particularly U.S.) education, the EG government even worked

    with the bank to set up accounts for two separate scholarship

    funds, which the bank (poorly) administered.  EG leaders were

    "surprised" to learn U.S. government investigators took a dim

    view of this arrangement.

    ¶14.  (SBU) As a country, EG has poor level of appreciation for

    international best practices in accounting.  From the EG

    perspective, the country relied on Riggs for good advice, which

    MALABO 00000027  004 OF 005

    it did not receive.  EG continues to struggle with very meager

    institutional development in the area of public finance and

    financial management.  One element scrutinized by U.S.

    investigators of the Riggs affair was the peculiar signatory

    authority utilized on EG accounts.   Long after closure of its

    Riggs accounts, President Obiang is still proud to say he is

    paymaster for the EG government.  He continues to personally

    maintain control of the checkbook, "because I've learned I can't

    trust anyone else."  Countersigned checks are his way of

    ensuring money goes where intended.  He has been attacked by

    some for exerting this level of control, but given what we know

    about the current low level of institutional development and

    lack of capacity, it may be more prudent than immediately

    apparent.  There are very large numbers of public projects

    underway and the president is famous for making surprise

    personal appearances to spot-check for progress, conformity and

    quality.  The tactic is reported to keep contractors on their

    toes.  Nevertheless, it is in these downstream, public

    expenditures that we lose visibility and in which the greatest

    opportunities for corruption persist.  Rumors abound of

    influence buying, bid rigging and kickbacks.  Without developed

    institutional oversight and internal controls, one person can't

    supervise everything, but woes betide those who are caught in

    the act.

    ¶15.  (SBU) Progress:  There are two bright spots and a promising

    glimmer regarding improvement in EG's management of public

    finances, all of which have significant USG angles.  One is the

    unique "Social Development Fund" (SDF) whereby EG ministries are

    learning to manage project development, planning and execution

    in ways that are consistent with international best practices.

    SDF is fully funded by the EG government, and involves direct

    payment to USAID for 3 years and about $15 million worth of

    technical assistance to establish mechanisms and procedures for

    social projects that range from health to education.  An

    overarching goal is to set in motion institutional development

    leading to a government-wide system that meets international

    standards.  After fits and starts, the Fund has moved into the

    execution phase of initial round of projects, with dozens more

    in development and new ministries coming onboard.

    ¶16.  (SBU) Another promising sign is EG's determination to

    become a member of the Extractive Industries Transparency

    Initiative (EITI), an international effort supported by former

    British PM Tony Blair and Transparency International's Peter

    Eigen.  Encouraged by the embassy, EG has mounted a serious,

    voluntary effort to obtain candidate status and move toward full

    membership.  In another demonstration of the capacity challenges

    confronting the country, the key stumbling block is not

    accounting and transparency so much as a very low level of

    development of the country's nascent civil society -- a key

    "watch-dog" component of the EITI process.  With a 200 million

    euro project underway, the EU is engaged in helping civil

    society grow to fill this gap.

    ¶17.  (SBU) Finally, we have been told by the Minister of Finance

    that EG will pursue a request for USG assistance (specifically

    Treasury Department official technical assistance) in

    professionalizing his ministry, and which the government of EG

    will partially or fully fund.  His letter making this request

    has been drafted and is "awaiting the council of ministers

    approval," expected soon.

    ¶18.  (SBU) Conclusion:  While we make no claim of having

    undertaken an exhaustive study of corruption in EG, we find

    local nuance and "ground truth" to be at odds with

    often-exaggerated claims made by the international press and

    even by NGO's that focus on this issue set.  Flush with oil

    money, the value of corrupt actions is probably growing.

    However, anecdotal evidence suggests the incidence of corruption

    is declining.  Businessmen describe EG as a "good place to work,

    but a hard place to do business."  I.e., while it is relatively

    safe and secure, many of the actors who populate the country are

    working the angles for their own personal and family benefit.

    The FCPA and resulting performance of U.S. oil companies has

    helped secure a reputation for Americans of being honest and

    straight, which helps keep the worst of the crooks at bay.

    Other international players may have less integrity.  The good

    MALABO 00000027  005 OF 005

    reputation we enjoy attracts EG leaders who want to see the
    business and legal environment improve.  Here too, additional
    U.S. assistance can help, as the results above show.
    SMITH

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