South Sudan: New Report Details Billion Dollar Scam in Massive Bank Credit Programme

Economic Future of South Sudan "Highjacked, Mortgaged, Then Stolen"

Banks in Qatar and Kenya, Qatar National Bank and CfC Stanbic, Provided Letters of Credit in Exchange for Projected Oil Revenues

Funds for Critical Fuel, Food, Medicine Vanished, Leaving People to Die

Nearly a billion dollars vanished in a massive bank credit scam that had devastating, deadly impacts on children and communities across South Sudan, according to a new investigative report released today by The Sentry. The funds, officially meant to deliver fuel, food, and medicine across South Sudan, disappeared into a maze of international shell companies that never provided any goods or services, leaving people to die as hospitals were gutted of medicine and neonatal ward generators went cold.

The three-year investigation "Cash Grab: How a Billion-Dollar Credit Scam Robbed South Sudan of Fuel, Food, and Medicine" details how massive credit lines provided by banks in Qatar and Kenya were turned into an opportunity to steal by corrupt leaders and their cronies, with the government of South Sudan left on the hook to pay back the loaned money.

John Prendergast, Co-Founder of The Sentry, said: "These massive kleptocratic schemes continue unchecked. Since this letters of credit scheme was launched, corruption in South Sudan has only escalated. Shockingly, billions of dollars' worth of contracts continued to be awarded to insiders connected to President Kiir, some of whom have already been sanctioned and involved in bribes and kickbacks. Several individuals spotlighted in our investigation who were paid but did not provide urgent services and supplies are still being awarded government contracts today."

South Sudanese President Salva Kiir's children, nieces, and nephews have held shares in at least five companies that received millions from credit-backed contracts, The Sentry found. Multiple individuals exposed in The Sentry's report for profiting in the complex scheme continue to receive government contracts.

Debra LaPrevotte, Senior Investigator at The Sentry and report author, said: "In South Sudan, opportunities to do a great deal of good are turned into a license to steal by President Kiir and his inner circle. Those involved in this billion-dollar scheme hijacked the ministry in control of the nation's most valuable resource, mortgaged the economic future of the nation, then simply grabbed the cash for themselves."

A report on the letters of credit program by the auditor general of South Sudan was presented to President Salva Kiir and the South Sudanese parliament in 2015 but was never made public, no action was taken, and no one was brought to justice or held accountable for the program's failures - legally or politically. The auditor general's report, reviewed by The Sentry as part of its investigation, shows that the disbursement process developed into a confusing, disjointed system that corrupt actors circumvented or subverted.

Brian Adeba, Deputy Director of Policy at The Sentry, said: "The letters of credit scandal captured the attention of the South Sudanese people, sparking discussion and speculation, but remaining a mystery for years. We now know that the corrupt profiteers in this scheme were deliberately hidden and protected by the government. With the beneficiaries now exposed, it is time for South Sudanese to hold their leaders accountable not only for this ongoing failure to counter corruption, but for active participation in the cover up."

The Sentry's report details how ineffective due diligence by the banks providing the credit facilities - coupled with the government of South Sudan's lack of transparency and capacity to properly oversee the massive program - failed the people of South Sudan.

Justyna Gudzowska, Director of Illicit Finance Policy at The Sentry, said: "This investigative report should be a reminder to banking compliance officers around the world of the importance of carrying out independent due diligence to prevent financial crime. Effective anti-money laundering measures could have allowed these banks to identify risk indicators for large-scale corruption. When you miss these red flags, it has real world impact. The connection between people sitting in cubicles and the life-and-death implications of their work could not be more stark."

Denisse Rudich, Senior Advisor at The Sentry, said. "One of the biggest problems with the letters of credit program is that the banks didn't require physical verification that the promised goods were delivered. The letters of credit were often paid out based on false or misleading documents presented by companies selected by the government of South Sudan. Banks need the right controls in place when offering loans to high-risk clients in high-risk countries, not only to protect themselves, but because the lack of controls can have potentially devastating consequences for millions of people."

The Sentry's investigation included the review of hundreds of corporate records and government documents, as well as dozens of interviews with former officials and banking experts with first-hand knowledge of the program.

South Sudan has been ranked for the past two years as the most corrupt country in the world.

Selected excerpts from the report:

The Sentry's three-year investigation into the letters of credit program found that multimillion-dollar contracts were awarded to foreign-run companies, companies that only existed on paper, and inexperienced middlemen.

The Bank of South Sudan - the country's central bank - signed several credit facility arrangements with the Qatari government-owned Qatar National Bank and CfC Stanbic, a subsidiary of South Africa's Standard Bank Group. The agreements allowed South Sudan to borrow $993 million in lines of credit: $793 million from QNB and $200 million from CfC Stanbic. The credit lines were supposed to be repaid through the oil production that the country was hoping to resume shortly.

Businesses with connections to the ruling class - including President Salva Kiir's family, the then-governor of the central bank Kornelio Koriom, and multiple military officials - were among those that received contracts collectively worth tens of millions of dollars under the program, according to official documents reviewed in connection with this investigation.

Almost $1 billion effectively walked out of the country, and the human cost remains to be calculated. At the peak of the letters of credit program, when hundreds of millions of dollars in goods should have arrived in markets, more than two million people went without food, hospitals and clinics had to treat patients without medicine, and fuel shortages resulted in black market price gouging.

Documents reviewed by The Sentry showed that contracts intended for local South Sudanese traders were awarded to companies owned by inexperienced middlemen, foreign-owned companies, and companies that existed only on paper.

The country was saddled with unmanageable debts that continue to constrain the government's ability to devote funds to crucial services. Food, medicine, and fuel shortages persist to this day.

Key policy recommendations (complete recommendations are detailed in the report):

South Sudan

Conduct a rigorous investigation into the allocation of letters of credit backed contracts and those companies that did not deliver products, in line with the auditor general's recommendation, and initiate asset recovery.

Strengthen the anti-money laundering and countering the financing of terrorism (AML/CFT) regime.

Implement Chapter IV of the Revitalised Agreement on the Resolution of the Conflict in the Republic of South Sudan (R-ARCSS) to address the crippling cycle of debt, economic mismanagement, and corruption undermining economic prosperity and fueling conflict.

Create a public register disclosing shareholders and beneficial owners.

Improve the public record-keeping and archiving system.

Create a centralized e-transparency system that allows access to government financial data in order to create government accountability and fair contracting.

Empower and resource oversight institutions. South Sudan has already developed much of the institutional infrastructure essential for accountability and good governance. However, a lack of independence and human and financial resources hamstrings key oversight institutions such as the Anti-Corruption Commission and the National Audit Chamber.

Implement an external third-party audit and investigation. The results of the audit should be made public. The government should allow a full third-party investigation into asset tracing and recovery to enable the identification and repatriation of funds.

United States

The Department of the Treasury's Financial Crimes Enforcement Network (FinCEN) and the Department of Justice should investigate the ways in which the proceeds of the corruption apparent in the letters of credit program were laundered out of the country. The transactions identified in this report involve the use of US dollars. FinCEN and the Justice Department therefore have the authority to seek information from financial institutions and foreign counterparts whose jurisdictions may have been involved in laundering the proceeds of corruption. This information can form the basis for potential further action, including the review of transactions with regional correspondents, Qatar National Bank, and CfC Stanbic to identify potential illicit financial flows.

Consideration should be given to applying network sanctions to any groups of companies connected to family members of the political elite that are found to be used for nefarious means.

Kenya and Uganda

Investigate illicit money flows. Authorities in Kenya and Uganda should investigate the transactions identified in this report in which money sent to bank accounts in the two countries raised red flags for possible trade-based money laundering. Financial intelligence units (FIUs) should investigate the movement of letters of credit transfers to and through Kenyan and Ugandan banks. Revenue authorities should determine if taxes were paid on the funds deposited in relevant corporate accounts, and customs authorities should determine if goods were exported to South Sudan. Law enforcement should investigate illicit flows to determine if funds were stolen.

The respective Kenyan and Ugandan customs and revenue authorities should investigate the Uganda and Kenya registered companies mentioned in this report for potential nonpayment of taxes and associated tax evasion as predicate offenses for money laundering.

Financial regulators, including the central bank and FIUs in Kenya and Uganda, should issue circulars to the country's financial institutions warning of the risks of dealing with South Sudanese entities, especially those with connections to political elites as identified in this report.

Banks

Conduct enhanced due diligence and enhanced ongoing monitoring, screening, and transaction reviews.

Global banks should work with their banking partners in Kenya and Uganda to ensure that their systems and controls are reasonably designed to identify and mitigate the risks from transfers involving illicit funds with connections to South Sudan. International financial institutions should also work with their branches and respondent banks in the region to provide facilities and financial services to legitimate South Sudanese businesses and transactions.

Banks involved in the letters of credit program

QNB and CfC Stanbic and the Kenyan and Ugandan banks involved in the letters of credit program should initiate independent, third-party audits to investigate the banks' roles in the letters of credit scandal.

Global and regional banks named in this report should sweep historical records to identify evidence of wrongdoing and fraud and report findings to local Financial Intelligence Units (FIUs).

At the same time, banks mentioned in this report should launch internal investigations into the circumstances that led to this grand-scale abuse and self-report to relevant regulators and, where evidence of criminality has been identified, to relevant law enforcement authorities.

Ensure compliance with AML/CFT, anti-bribery and corruption (ABC), and international trade finance standards and best practices. In particular, banks should carry out enhanced diligence and oversight in high-risk trade finance transactions.

World Bank and the International Monetary Fund

The International Monetary Fund (IMF) should work with South Sudan to realize a dramatic improvement in governance, including strengthening institutions and accountability mechanisms. The World Bank and the IMF should also condition future technical and financial assistance on a credible reform of the country's institutions of accountability.

Read the full "Cash Grab" report: https://thesentry.org/reports/cash-grab/

About The Sentry

The Sentry is an investigative and policy organization that seeks to disable multinational predatory networks that benefit from violent conflict, repression, and kleptocracy.

Pull back the curtain on wars, mass atrocities, and other human rights abuses, and you'll find grand corruption and unchecked greed. These tragedies persist because the perpetrators rarely face meaningful consequences. The Sentry aims to alter the warped incentive structures that continually undermine peace and good governance. Our investigations follow the money as it is laundered from war zones to financial centers around the world. We provide evidence and strategies for governments, banks, and law enforcement to hold the perpetrators and enablers of violence and corruption to account. These efforts provide new leverage for human rights, peace, and anti-corruption efforts.

Co-founded by George Clooney and John Prendergast, The Sentry is a strategic partner of the Clooney Foundation for Justice. Learn more at www.TheSentry.org