Oligarchy: the wild ways courts are being used to launder money

Hello, and welcome to Oligarchy. We are tracking how Covid-19 and the world’s response to it is affecting the super-rich — and what that means for power and politics.

AUTHORITY STEALING

Here’s a dilemma fit to tax the aptitude of even the most judicious judge. 

  • Imagine a company came before you arguing that it had signed a business deal with a large, oil-rich, sovereign state, but the state had failed to keep its side of the bargain. The company wanted compensation, as laid out in the contract. There is no doubt about the facts of the case: the business venture never got started; the country did agree to pay compensation if it failed to do its bit; the company has the right to appeal to you, the judge, for justice.

Open and shut case? Not so fast. 

  • Now imagine the country’s lawyers replied that the previous government had deliberately failed to keep to the terms of the agreement, so as to trigger the compensation clause, and thus earn the company and its corrupt associates in the administration billions of taint-free dollars. Yes, the business venture hadn’t happened, but that’s because it was never supposed to. 

In summary, Nigeria’s current government is saying its predecessor deliberately broke a contract in order to steal money from the budget. It’s a lot of money too — enough to make even a London judge’s ears prick up. 

If the company wins, it stands to take in $10 billion, a sum that is picking up compound interest as time goes on. That’s around 2.5% of Nigeria’s economy, or around 20% of its foreign reserves.

The labyrinthine legal proceedings between the Federal Republic of Nigeria, on the one hand, and Process and Industrial Developments Limited (P&ID), of the British Virgin Islands, on the other, over a Gas Sales and Purchase Agreement (GSPA) signed in 2010, have been dragging on for the better part of eight years, and we have just had an update.

Judge Sir Ross Cranston found there to be good grounds to suspect that Nigeria’s own lawyer in the first stage of the arbitration – which it lost – paid $100,000 to two government officials so they would recommend that the government settle. The government’s lawyer bribed government officials to undermine the government’s own case. And that wasn’t the only suspicious payment involved.

  • “In my view Nigeria has established a strong prima facie case that the GSPA was procured by bribes paid to insiders as part of a larger scheme to defraud Nigeria,” the judge said.

This is not the end. All this latest ruling has done is allow Nigeria more time. The company Nigeria is fighting, meanwhile, looks like it believes in its case. VR Capital, a hedge fund which specializes in distressed debt, has bought a quarter of the firm. 

  • “Nigeria is peddling a conspiracy theory more suited for internet chat rooms than a London court room,” P&ID said in a statement before these hearings began. “Nigeria has bet everything on a narrative of enormous scandal, apparently hoping that the scale and intrigue of its conspiracy theory will distract attention from its utter lack of factual support.”

I have no idea which of the parties will come out on top, but I think it’s fair to say London lawyers are the real winners: they’ll be stroking their jowls at the fat fees still to come, and it’s a worrying prospect that – whatever happens – millions of dollars belonging to the Nigerian people will end up paying British lawyers’ private school fees. This is far from the first time observers have accused companies of using sham legal proceedings to launder money, and they say courts need to be much more aware of the prospect.

  • “Arbitration tribunals, the courts and the U.K. legal profession can be unwitting conduits to enforce corrupt contracts. Secrecy and privacy surrounding arbitration make this difficult to monitor. This case typifies why cases of such high public interest should be heard in public to enable due scrutiny of the process,” tweeted Spotlight on Corruption, a U.K.-based anti-corruption group.

MALTESE STEALING

This wouldn’t be an oligarchy newsletter if it didn’t include something about Malta, so here’s some information about how Maltese courts allow exactly the same kind of thing. In one case, a company belonging to a suspected fuel smuggler was allowed to settle with another company, run by his wife, despite its accounts being frozen.

  • “There is a possibility that clients set up, or are knowingly involved in, fabricated civil claims in courts of law. The existence of the dispute would be used to legitimize what could well be a fabricated claim. In most instances these would be disputes between parties acting in collusion, and they would tend to be settled between these parties so that the settlement would itself be fabricated,” said Malta’s Financial Intelligence Analysis Unit.

The more that banks and other financial institutions have worked to stop corrupt money, the more corrupt individuals have sought alternative routes for their hard-stolen wealth. If you overpay your lawyer, who then kicks some of the money back to you, for instance, it’s a nice way to get money out of a frozen account.

Jonathan Benton, a former investigator at Britain’s National Crime Agency, said he had once calculated the hourly rate that a sanctioned individual had sought to withdraw from his frozen accounts to pay his lawyer.

  • “It would almost certainly have been the highest possible rate for a lawyer in the world — if authorized. My case to stop the payment after a lot of hard work was accepted,” Benton wrote on Linkedin.

Lawyers’ client accounts, and money paid to settle cases, are just some of the mechanisms that can move suspicious cash in this way. 

There will be many many more: if you hear about them, please drop me a line.

SHOOTING THE MESSENGER

Any financial criminal investigator will tell you the same thing: it’s all but impossible to get a conviction if you don’t have an insider to show you around the evidence. This is why American courts pay whistleblowers, and why European countries should give them more protection.

One such whistleblower was British lawyer Jonathan Taylor, whose testimony against Monaco-headquartered SBM Offshore helped lead to large fines being levied in the United States, the United Kingdom, Brazil and elsewhere. Not everyone is happy with him, however: Monaco issued an Interpol red notice this year, and Taylor was arrested when arriving in Croatia on holiday.

  • “The targeting of a whistleblower in such circumstances has wider implications far greater than my fate,” Taylor said. “It will negatively impact on the necessary protection of whistleblowers and investigative journalists worldwide. For that we should all be very concerned.” 

It’s yet another example of how the Interpol Red Notice system is ripe for abuse. U.S. politicians have pushed for the system to be reformed, and the arrest of Taylor is more proof that such reform is overdue. At the very least, all arrest warrants should be thoroughly checked by Interpol before being approved.

WHAT I’M LISTENING TO

I finally got time to listen to the latest episode of Georgia Catt and Jamie Bartlett’s BBC podcast about the Onecoin scam, The Missing Cryptoqueen. If you haven’t listened to it yet, do yourself a favor, block out a day and settle down. It’s sensationally good.

See you next Wednesday,

Oliver

The story you just read is a small piece of a complex and an ever-changing storyline we are following as part of our coverage. These overarching storylines — whether the disinformation campaigns that are feeding the war on truth or the new technologies strengthening the growing authoritarianism, are the crises that Coda covers relentlessly and with singular focus. We work with dozens of local and international reporters, video journalists, artists and designers to bring you stories you haven’t seen elsewhere, provide you with context missing from the news cycle and illuminate the continuity between the crises we cover. Support Coda now and join the conversation with our team. No amount is too small.

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Oliver Bullough

Oliver Bullough is an author and journalist from Wales, who specializes in writing about financial crime, often when it has links to the former Soviet Union. His most recent book is Moneyland, why thieves and crooks now rule the world and how to take it back, and he is currently trying to write another one despite lockdown.