A Corrupt French Connection

By Sebastian Mallaby
Monday, March 13, 2006

Last year was celebrated as the "Year of Africa." Tony Blair proposed a doubling of aid to the continent; the world's rich nations promised debt elimination; and the Bush administration talked up its remarkably good record in boosting foreign assistance. But 2006 is shaping up as the year of "What to do with Africa?" as donors grapple with the challenge of making aid work. And unless the development institutions demonstrate that they can spend the money effectively, 2007 may be the year in which Africa is once again abandoned.

Just look at the Republic of the Congo, a small oil state that lies to the west of the other, bigger Congo, which used to be Zaire. The Congo we're talking about has mountains of debt and canyons of poverty, so it's a candidate for the debt cancellation that was trumpeted last year. But it's also rotten with corruption, rendering most aid efforts pointless. When the matter of Congo's debt relief came before the boards of the World Bank and the International Monetary Fund recently, there was a chance to confront this dilemma. Instead, the institutions tried to have it both ways. Last week they acknowledged Congo's corruption but cut the country's debt payments anyway.

If the bank and the IMF aren't careful, Congo could emerge as their version of the oil-for-food scandal that discredited the United Nations last year. Congo's oil rogues are in cahoots with some of the same operators who cropped up in the Volcker report on Iraq's oil rip-offs. Both cases make the French establishment look odious. Both involve multilateral institutions whose staffs might want to blow the whistle on corruption but who are discouraged from doing so by political masters in Western capitals.

The workings of the Congolese kleptocracy have emerged thanks to three forces: Earlier efforts by the IMF and World Bank to demand transparency; court cases brought by frustrated creditors; and the investigative efforts of Global Witness, a British development group. The star of the story is Denis Gokana, the head of the state oil company, who has arranged for more than $400 million worth of Congo's oil to be sold to shell companies owned by none other than himself, according to British court records. Just as in the Iraq oil scam, these sales were discounted, enabling the shell companies to sell the oil at a nice profit to firms such as Glencore -- which, according to the Volcker report, was a leading provider of kickbacks to Saddam Hussein under the oil-for-food program.

Sales at suspiciously low prices were just one method for draining profits from Congo's national oil company and, therefore, from the Congolese people. Gokana's shell companies also lent money to the state oil firm at interest rates higher than 80 percent per year, according to Global Witness. Meanwhile, one of the Gokana firms acquired a tenth of a promising Congolese oil bloc known as Marine XI, at a price that has never been published. The lead investor in Marine XI is a company controlled by an oilman named Patrick Maugein, who also appears in the Volcker report. Maugein's company is reported to have bid considerably less for the concession than a Canadian rival but won it anyway with what the company describes as the "best" offer.

Last year Gokana appeared in a British court to answer some of these charges. The judge ruled that his testimony was riddled with lies. The creditor that brought that court case, Kensington International, has also brought a racketeering case in New York, alleging that BNP Paribas, a major French bank, has colluded with Congolese officials to hide oil revenue. BNP was the leading financier of Iraq's oil-for-food deals, and it was accused in the Volcker report of turning a blind eye to the use of front companies to hide the real identities of Hussein's oil partners. BNP disputes Kensington's allegations and has described the case as an "abuse."

Whatever the French bank's role, Congo's corruption appears not to offend the French government, which has led the charge to grant Congo debt relief even though the evidence of its unworthiness has been reported in the French press. In a detailed article in December, the French daily La Tribune explained how millions had been siphoned out of the national oil company and how yet more millions failed to make it from the national oil company to the national treasury. But, as La Tribune noted, President Jacques Chirac and Congo's ruling strongman are old friends.

This is a scandal, and it's hard to see why the rich world's taxpayers should tolerate even a hint of debt relief for Congo. Last year the country earned more than $2 billion from oil, or $600 per person; if it spent that money competently, it would not have two-thirds of its people living below the $1-a-day line. But rather than send that message, the World Bank and the IMF have cut Congo's debt payments and held out the hope of outright debt cancellation, provided that the country meets various anti-corruption conditions. In the past, Congo has mocked such conditions. It would probably mock them in the future the day after full debt cancellation went through.

Why does this seem likely? Because you don't have to guess what Congo's president thinks of the fight for transparent government. In an interview in February, he dismissed the critics of corruption as "people who search for lice in the heads of this country's authorities."


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