11 July 2018

Angola: Flying in the Face of Justice

Photo: Mdpc
Jean-Claude Bastos de Morais (file photo).
analysis

Jean-Claude Bastos de Morais, the Swiss-Angolan 'businessman' who is accused of masterminding a conspiracy to defraud the Angolan Republic of untold millions of dollars, is enjoying life as a free man in Angola, despite being the subject of police investigations and criminal and civil lawsuits in several countries.

Why, when he faces such serious criminal and civil charges in connection with his (mis)management of US $3 billion of the Angolan sovereign wealth fund and alleged fraud and money-laundering, is Mr. Bastos de Morais at liberty to continue to run the Banco Kwanza Invest (BKI) and the controversial project to build and run the Caio deep sea port project in Cabinda province?

He is said to have amassed an enormous fortune largely thanks to his association with one of the sons of former Angolan President José Eduardo dos Santos: José Filomeno, nicknamed Zenú. In one of his many acts of outright nepotism, the former President put Zenú in charge of Angola's sovereign fund, the Fundo Soberano de Angola (FSDEA), and Zenú appears to have handed the entire sum (US $5 billion) to Bastos de Morais to manage. The latter himself has boasted that the idea of a sovereign fund was his in the first place and that Zenú was too dumb to know how to manage it.

The two men now face charges, including conspiracy to defraud the Angolan state, in Angola, Switzerland and the UK. Experts in international financial fraud and money-laundering, including the highly respected Tom Keatinge of the Royal United Services Institute (RUSI), say this is just the tip of the iceberg. There are strong indications that the entire US$5 billion sovereign fund was placed at risk.

When he's not conducting international PR campaigns to boast about his philanthropy and investment acumen, Bastos sits on the boards of respectable institutions, such as the Graduate School of Business at the University of Cape Town in South Africa. In Angola, he tries to fly under the radar. And yet, his businesses and private life have been the subject of much speculation, as has the closeness of his friendship with Zenú.

A convicted criminal

Bastos is already a convicted criminal, found guilty by a Swiss court in 2011, along with his business associate Marcel Kruse, of "repeated qualified criminal mismanagement" of companies. The two did not appeal and paid a portion only of their fines, the larger part suspended for two years and forfeit only if they reoffended. Presumably they were so relieved to have escaped a lengthy prison sentence for illegally diverting funds they were supposed to manage on behalf of others into their own pockets that they declined to appeal the sentence.

A former associate, speaking on the condition of anonymity, said that when Bastos became aware he was under investigation by the Swiss authorities back in 2007, he left behind his Swiss wife and three children to decamp to Angola with Manuela Ganga, his long-term girlfriend and mother to another one of his children. There he set up his home in a rented seafront apartment just meters from the luxurious Hotel Presidente in Luanda. For a while he kept a very low profile, moving on to another rental, this time a two-story gated family home in the district of Alvalade.

Behind the scenes, however, he was busy. In 2008 he set up the Banco Quantum, renamed in 2010 as the Banco Kwanza Invest (BKI), with Zenú, and habitual associates Marcel Krause and a former German Central Bank (Bundesbank) CEO, Ernst Welteke. Astonishingly, he continues to manage it, releasing a statement just last month that the freezing of 91 accounts related to his Quantum group of companies by the authorities in Mauritius had no bearing on his activities with BKI.

That raised a few eyebrows. Bastos de Morais, Krause and Welteke have a long history of using banks and shell companies set up across various jurisdictions (preferably in tax havens), which they used for money transfers that are now the subject of money-laundering investigations.

In spite of the legal obligation to disclose any criminal conviction, Bastos de Morais apparently managed to "forget" to mention it in a range of business dealings thereafter, not least in setting up his Quantum group of companies from the tax haven of Mauritius, which benefited so richly from Angolan state funds.

The sovereign cash cow

Swiss journalist Christian Brönniman conducted an in-depth investigation into Bastos de Morais, in the wake of revelations from the Paradise Papers, interviewing him in person last year. He found that the Angolan sovereign fund monies that had been invested had been put into seven mutual funds set up in 2014 and 2015 by Quantum Global in Mauritius.

In 2014, when only two of the funds were active - and for only seven months of that year - Quantum received US$ 29 million in management fees. In that same period a further US$ 13 million was paid in dividends to QG Investment Ltd, another Bastos-owned company incorporated in the British Virgin Islands, another tax haven. Various other Bastos-owned companies received US$120 million that same year for "consulting services."

Legal and financial experts say such fees were far in excess of the global standard for sovereign fund asset management and that there is no legal or commercial justification for them.

Bastos was profiting handsomely from what he described as his "brainchild". It allowed him to have his fingers in many pies. One of the most high-profile is his involvement in the construction of the Caio deep-sea port in Cabinda in which he claims to have sunk a 'personal' investment of some US$70 million - not even half the money he'd pocketed from the FSDEA.

With no prior experience of deep sea ports or their construction, and without the project being subjected to public tender, Bastos de Morais was using money from the sovereign wealth fund, managed by his company Quantum Global, to "invest" in another company he had set up to build and manage the facility under a sweetheart deal. In the wake of revelations in the so-called Paradise Papers, Bastos de Morais was the subject of a scathing report that questioned the conflicts of interest from which he was benefiting so richly. In the face of overwhelming evidence to the contrary, Bastos de Morais denied any conflict of interest, referring to "aligned interests".

Perhaps by this he was alluding to a shared interest with Zenú and other associates in lining their own pockets at the expense of the Angolan people?

Unsurprisingly, as this business reporter noted, the FSDEA's annual reports did not publish any details of its investments nor details of the flow of funds between its asset manager Quantum Global and all the other entities owned or controlled by Bastos de Morais. However, Quantum and Bastos had worked with the Appleby Law Firm both in Mauritius and the British Virgin Islands. Hundreds of Appleby documents turned up in the Paradise Papers revealing the self-serving deals. Appleby documented their fear that Bastos was a "high risk" client due to his proximity to the Angolan power apparatus. Were international auditors KPMG complicit? Documentary evidence shows they also recognized this risk and advised Appleby to effect a rapid transfer of the Quantum companies to Lichtenstein.

The way Quantum worked was that for each of the seven funds, an "investment committee" involving Bastos and others would advise on investments. The Appleby papers included Quantum Investment Committee minutes that contained the incontrovertible evidence that in addition to the Caio Port, there were at least three other occasions in which the committee decided money should be invested in projects in which Bastos held an interest.

One was for a hotel to be built alongside the Caio Port, involving an "investment" of US$ 20 million to Messo Mi Tchoa, S.A. The owner is unknown but Bastos recused himself from voting for this on the grounds of a "conflict of interest" according to the committee minutes.

José Filomeno dos Santos "Zenú", the former head of the Sovereign Fund and long-time friend of Bastos de Morais.

Another was a Quantum recommendation that the timber fund commit up to US$89 million to a pine and eucalyptus plantation - another decision from which Bastos recused himself because of a "conflict of interest".

And then there was the High Tech Tower planned for Luanda. The minutes showed the hotel fund agreed to spend US$157 million to buy into the project, US$100 million to take over the debt already incurred by another investor "High Tech Tower One Ltd," and the remaining US$57 million to be paid in cash instalments after HTT One received the rights to the land for the tower project from a company named Afrique Imo Corporation, S.A. The beneficial owner of both HTT One and Afrique Imo was Bastos de Morais.

Interestingly, Bastos de Morais did not deny any of this when questioned for The Guardian report on the Paradise Papers' revelations. In a letter, he argued that as a "shareholder in the investments, his goals were aligned with those of the Fund" and volunteered the information that there were further projects under consideration.

Maka Angola has repeatedly published information from scandalized whistleblowers close to various schemes involving Zenú and Bastos de Morais.

Other criminal investigations led to the recent raids on Bastos companies in Switzerland and Mauritius. In May, the Swiss newspaper Tages-Anzeiger reported that federal tax authorities raided Quantum's Zug-based headquarters and his Turtle Management offices in Zurich. In June, it was revealed that Mauritius had frozen 91 accounts connected to Bastos entities in that country due to what the authorities called "a serious risk of dissipation or unlawful transfer of funds".

Angola versus Bastos de Morais et al.

Apparently both these developments came as a result of a lawsuit currently before the British High Court of Justice, filed by Norton Rose Fulbright LLP on behalf of the Angolan sovereign fund, which cites Zenú, Bastos de Morais and a further 19 co-defendants (four Quantum companies and seven general partners belonging to the Quantum Global group, as well as seven limited partnerships connected to them) and a 21st defendant, the Northern Trust bank, referred to only by the initials "NT," which held the US $5 billion from the FSDEA in accounts in London subject to the instructions of one of the Quantum companies; US $3 billion of which was transferred into accounts held in the names of those Limited Partnerships.

The details of the lawsuit make it clear that Quantum continued to charge fees based on the entire US $3 billion even after US $2.27 billion was drawn down and instead of being reinvested, was simply stored as cash. Over a five-year period, the 'Quantum Defendants' and 'General Partners' charged the FSDEA US $500 million "which is not commensurate with or justified by reference to the services actually provided".

Angola is seeking the return of the entire sovereign fund sum and fees as well as equitable compensation and punitive damages.

Consulted by Süddeutsche Zeitung, Tom Keatinge, director of the Centre for Financial Crime at the British think-tank RUSI concluded: "Whoever approved the structure and operations on the side of the Angolan [sovereign wealth fund] is either highly incompetent or complicit. Such a structure has only one goal: to hide something, namely the true beneficiaries of transactions."

A prominent beneficiary was of course Jean-Claude Bastos de Morais who paid himself enormous dividends: US$13 million in 2014 and US$28 million in 2015. He spent some of it on two custom Lexus SUVs in Europe, sending them to Canada to be armoured at an estimated cost of US $80,000 each. Might he have anything in particular to fear?

If he does, he has the means to make a speedy getaway. He also forked out some US $30 million on a private jet: a luxurious Dassault Falcon 7x from Russian billionaire (and Arsenal co-owner) Alisher Usmanov. Bastos registered the jet in Switzerland and public records show it has been used for flights to Angola, Namibia, China, Switzerland and the Spanish holiday island of Ibiza.

Surely it's only a matter of time before Bastos uses it to flee Angola or any other jurisdiction in which he might face justice? Under these circumstances, Angolans have every right to wonder why this man is not in custody pending his trial.

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