Billionaire Isabel dos Santos and Money Laundering Schemes

They may have trampled on international laws and guidelines, yet the authorities continue to apply the old maxim that the law only applies to enemies.

First, the facts:

In June 2015 it was announced that Isabel dos Santos, the billionaire daughter of the president of Angola with A fortune of unknown origin, would buy Efacec, a leading Portuguese engineering company . The purchase price would be € 200 million. Also in June 2015, reports were circulated that Efacec, after the purchase, would become the supplier of electrical equipment for three dams under construction in Angola, namely Cambambe and Lauca. The purchase made by the new star of the jet set of the Côte d’Azur would be made by a front company: a company that exists as a legal entity solely to do business on behalf of others. The front company set up for the purchase of Efacec is named Winterfell Industries. By September 2015, the purchase had already been effected and Winterfell Industries, owned by Isabel dos Santos, already held 65% of Efacec. And here comes the scheme. It is a matter of public record that on 18 August 2015, President José Eduardo dos Santos had issued a presidential decree according to which an Angolan public electricity company would buy 40% of Winterfell, for an unknown price. This technique is known in the financial world as a “cascade operation”. It allows an entity to be the majority shareholder in a company while spending little or no money.

The lack of transparency in this case forces us to speculate, as we don’t know how much of the state-owned company’s money went into Ms dos Santos’s company that bought the Efacec. But well informed media are assuming that the state-owned company was the main financer of this transaction. Or, in plain language, the Angolan state put money into Isabel’s hands to buy Efacec.

To confirm this conclusion should be simple: we just need to know the total inputs, supplies or other sums of cash that the state company put into Winterfell. Winterfell was not known to be active: it was merely a front company with no relevant equity. If we take a closer look, we find it is a limited company created in late December 2014, based in Funchal in the free economic zone of Madeira, supposedly with the purpose of undertaking consulting activities for business and management, and managing non-financial shareholdings. Its capital is € 50,000. This raises the question of how a young company that had existed only for six months and with capital of € 50,000 could spend €200 million. The answer is the Angolan state, which put up the money but remained a minority shareholder.

If this is indeed the case, we may be facing a number of serious illegalities, making the money invested in Efacec criminal. This indicates the ease with which these deals can be passed by the authorities no regard to laws and international standards.

Isabel dos Santos, a daughter of a head of state, is a Politically Exposed Person (PEP), according to the definition of the Financial Action Task Force (FATF), an intergovernmental organization that aims to set standards and promote effective implementation of legal, regulatory and operational measures to combat money laundering, among others. Portugal has been a member of FATF since 1991. Angola is considered by FATF to be a high-risk country and a non-cooperative jurisdiction.

This being the case, all Isabel dos Santos’s financial actions in Portugal should have been carefully scrutinized in accordance with the parameters set by the FATF (FATF Guidance on Politically Exposed Persons, Recommendations 12 and 22, 2013) that require information on PEPs’ source of funds or wealth. This check should not have been done superficially. The institutions are required to establish the source of wealth and source of funds of foreign PEPs, to obtain a clear picture of how the PEP acquired wealth, either generally or for particular businesses that they intend to pursue. In fact, the very use of a front company is regarded by the FATF as a “red flag” that merits investigation. In short, there is a clear duty under the law and the state’s international obligations, to research the origin of Isabel dos Santos’s funds, either in general or in particular.

In this Efacec deal, the duty is even more urgent and necessary, because it may be up against an operation to launder money obtained unlawfully removed from the Angolan State by politically exposed persons. It is not in the public interest for the Angolan state to finance the president’s daughter to buy a private company that will sell equipment for public dams. And the other jurisdictions, such as the European Union space, cannot turn a blind eye to international law.