III. The Equatoguinean Economy: Corrupt, Mismanaged, and Non-Transparent

Corruption Defining the Oil Boom

Government corruption and nepotism, along with the lack of a civil society or human rights advocates, have defined the conditions under which businesses operate and the population lives and works in Equatorial Guinea. Since the discovery of oil in the mid-1990s, internationally there have been numerous allegations of corruption against the government, particularly against President Obiang and his family.

Most recently, in late 2008 a human rights group in Spain accused President Obiang and other current and former Equatoguinean government officials of siphoning US$26 million from an Equatorial Guinean state-owned oil company and using it to buy houses in Madrid, Asturias, and the Canary Islands.[48] Other questionable practices include ownership by government officials of land that is rented or sold to foreign companies or governments; contracting with companies in which government officials have significant ownership stakes; scholarships or other services paid to relatives of government officials by foreign investors; and transactions by government officials involving tens of millions of dollars in cash withdrawals or the purchase of luxury items such as mansions or exotic cars.[49]

Corruption and mismanagement do not go unremarked upon inside the country, but their pursuit appears highly selective. Two months after being installed as prime minister, Ricardo Mangue Obama Nfubea stated on October 20, 2006, “My Government will not permit any shred of corruption and we will fight for transparency.”[50] Nfubea introduced a telephone hotline, ostensibly for oil companies to report corrupt practices, but although five government officials were sentenced in November 2006 to prison sentences ranging from 6 to 12 months for embezzling $380,000 of public funds, Nfubea’s initiatives had little discernible impact on government corruption.[51] Moreover, in accepting the Nfubea government’s resignation on July 5, 2008, Obiang reportedly called it “one of the worst ever formed,” accusing it of corruption, irregularities, and mismanagement.[52] As noted above, however, half of the old cabinet was reinstated in the government installed a month later.

Nepotism

Equatorial Guinea does not keep updated statistics on employment but has an estimated unemployment rate of about 30 percent. Contracts of employment in Equatorial Guinea are generally done verbally and are not expressed in a document. Only in the oil industry are they formalized in writing, but because this is done through subcontracting, contracts of employment are made between workers and intermediary contracting agencies. According to a report published by Fundación Paz y Solidaridad Serafín Aliaga and the International Confederation of Free Trade Unions in 2006, these agencies, or “business centers,” include:

AMILOCASER (owned by Armengol Ondo Nguema, the president’s brother, army general, and national delegate for security), NOMEX (owned by Gabriel Mbega Obiang Lima, the president’s son and mining and energy secretary of state), MSS (owned by Antonio Mba Nguema, the president’s brother, army general, and minister of defense), ATSIGE (owned by Manuel Nguema Mba, the president’s uncle, army general, and minister of security), APEGESA (owned by Juan Oló Mba Nseng, the president’s father-in-law, former minister of mining and hydrocarbons, and Atanasio Elá Ntugu Nsa, currently minister of mining and energy) and BOMDEN (owned by Julian Ondo Nkumu, army colonel and director general of presidential security).[53]

USAID noted in a January 2007 report that in Equatorial Guinea’s economy “small contracting agencies are frequently owned by persons with close ties to [the government] and therefore unreliable in their capacity to provide quality personnel rather than political favourites.”[54] 

Equatorial Guinea Indications of Corruption

The bulk of information on governmental corruption has emerged from official investigations by the US Senate’s Permanent Subcommittee on Investigations, a body that has considerable investigative power (including subpoena power), of the US-based Riggs Bank, as well as from civil lawsuits filed against government officials for failure to pay for luxury goods or services rendered. The following is a sample of such instances.

The Riggs Bank scandal

In May 2002 Human Rights Watch learned that hundreds of millions of dollars of oil revenue were deposited in at least one account held by the government of Equatorial Guinea at Riggs Bank in Washington, DC.[55] In January 2003 the Los Angeles Times provided further details of the Equatorial Guinean government’s use of funds deposited at Riggs, including allegations of corruption.[56] Following that exposé, the US investigative television news program 60 Minutes aired a story on the misuse of oil revenue in Equatorial Guinea and the connection to Riggs Bank.[57] Those disclosures prompted the Democratic minority staff of the US Senate’s Permanent Subcommittee on Investigations to undertake in 2004 an investigation into the role of Riggs Bank in hosting the Equatorial Guinean government’s funds.

According to Riggs Bank, the accounts in question operated from 1995 until 2004 and totalled as much as $700 million. Offshore accounts are common among oil producers in order to receive payments in dollars, but, importantly, President Obiang and his close relatives maintained signatory authority over many of the Riggs accounts and had complete discretion over the use of those funds.[58] In 2003 Obiang told a British journalist, “I am the one who arranges things in this country because in Africa there are lots of problems of corruption. If there is corruption, diversion of funds, then I’m responsible. I’m 100 percent sure of all the oil revenue because the one who signs is me.”[59]

Since the late 1990s the International Monetary Fund has consistently advocated to the Equatorial Guinean government that all such accounts be merged into one treasury account with the Bank of Central African States (BEAC), the regional bank for central Africa.[60] This has never happened. In his book My Life For My People,Obiang explained why he ignored IMF advice:

I can understand economic and financial conditions but reasonable deadlines must be established and the local situation must be taken into account. There were additionally, purely political conditions that had to do with the alleged human rights violations and the so called lack of transparency in our political life. At the time I clearly said what I think about this. There was also an additional demand: we had to designate an auditor for payments and budget, a responsibility that I have always performed myself because it is so important for the development of the country. The IMF wanted me to entrust the responsibility to others, which I refused. If the Equatorial Guinea people had entrusted me with this responsibility, it was not up to the IMF staff to say the opposite.[61]

Despite Obiang’s claims that his decision to ignore the IMF was based on his concern for the welfare of the country, it is clear that some of those funds were actually used for his own personal gain. In its January 2003 article the Los Angeles Times reported that Riggs helped Obiang finance two mansions, then worth approximately $1.2 million and $2.6 million, in an affluent Maryland suburb of Washington, DC.[62] Property records show that those houses were purchased under the president’s name, with a Riggs Bank branch listed as his mailing address.[63] Such transactions highlight the opaque nature of the budgetary process in Equatorial Guinea and the potential for the diversion of state revenue into personal hands.

The Senate investigation report, released publicly on July 15, 2004, clearly detailed the extent of the misuse of public funds by individuals in the Equatoguinean government.[64] The amounts of money deposited at Riggs were so large that by 2003 the government of Equatorial Guinea was the largest client of the bank.[65] One account, set up in January 1996, was in the name of the Republic of Equatorial Guinea General Treasury. It received funds mostly from oil companies, primarily ExxonMobil.[66] This account needed two signatures, one from President Obiang and the other either from his son Gabriel Obiang Lima, then deputy mines and hydrocarbons minister, or his nephew Melchor Esono Edjo, secretary of state for the treasury. Any one of those same signatories could withdraw funds from another account, which held balances of up to $500 million at a time. Riggs subsequently allowed wire transfers to two companies that were unknown to the bank and had accounts in jurisdictions with bank secrecy laws.[67] The subcommittee concluded that at least one of these recipient companies is controlled in whole or in part by the president of Equatorial Guinea.[68] In 2004, when Riggs asked the president about these accounts, he declined to provide further information except to confirm the transfers of funds to them had been authorized.[69]

In addition to the accounts already discussed, five more accounts and three certificates of deposit at Riggs were held in the name of Constancia Mangue Nsue Okomo, Obiang’s senior wife. ExxonMobil made several payments into these accounts. Additional accounts were also opened in the names of other friends and relatives of Obiang.[70]

In 2000 Riggs helped to create a Bahamas-registered shell company, Otong SA, for the president using the confidential address of “The Presidential Palace, Malabo.” On two occasions Riggs accepted without due diligence $3 million in cash deposits for this account.[71] According to the Senate investigation report, from 2000 to 2002 Riggs accepted a total of $13 million in cash—often packaged in “unopened plastic-wrapped bundles” and carried in suitcases by the Riggs account manager for Equatorial Guinea—“with few questions asked.”[72] 

Government officials in Equatorial Guinea are required to declare their personal assets before a National Commission for Ethics. However, efforts by Human Rights Watch in 2003 and 2004 to gain access to this register failed. Human Rights Watch was told that this information was “confidential and only for the president to see.”[73]

Riggs was clearly aware of the corruption in the Equatorial Guinean government, as well as the human rights concerns in the country. In an internal document produced by the bank for a 2002 loan to Equatorial Guinea, the following observations show how the bank saw the country:

The World Bank and IMF are under pressure to engage with Equatorial Guinea.... Although the government recently announced a program to improve transparency and accountability, any changes are unlikely to meet IMF criteria. With the establishment of a state oil company, GE Petrol, later in 2001, management of the oil sector may even become more opaque, and standards of governance are likely to remain poor.... The government cash-flow situation improved considerably during 1999-2000 reflecting growing oil revenue, but fiscal policy performance continued to weaken, as evidenced by the lack of control over government financial operations.... The [EG] President has at least partly overcome US State Department concerns about human rights abuse and corruption.... Allegations of human rights abuses followed the announcement of the coup in March have been well documented, and have elicited international condemnation. However, any hesitancy on part of the US or European countries towards Equatorial Guinea will be temporary, due to the rising importance of the oil sector.... Human rights have been an endemic problem in Equatorial Guinea. The Human Rights Commission voted to keep Equatorial Guinea under scrutiny; however, it is believed that the government’s increasing capacity to buy diplomatic influence has caused several African countries to insist on softening the criticism.[74]

In January 2005 Riggs Bank pleaded guilty to violating the US Bank Secrecy Act by hiding millions of dollars controlled by senior officials from Equatorial Guinea (as well as funds controlled by Chilean former president Augusto Pinochet). In addition to agreeing to pay a $16 million fine, the bank agreed to five years’ probation and to cooperate in ongoing investigations of former Riggs officers.[75] The fine is the largest ever assessed under the Bank Secrecy Act. This criminal penalty came on top of an earlier $25 million civil fine levied by the Office of the Comptroller for the Currency in May 2004 for Riggs Bank’s handling of accounts held by diplomats and officials of Equatorial Guinea and Saudi Arabia.[76] The US Federal Reserve also issued a cease and desist order requiring Riggs National Corporation, the parent company of Riggs Bank, to improve its oversight of the bank, internal controls, and risk management.[77] On April 27, 2005, the Federal Reserve approved the acquisition of Riggs National Corporation by PNC Financial Services Group, Inc., for some $643 million.[78] The bank’s embassy and international banking operations were shut down.[79]

On June 3, 2005, federal prosecutors indicted Simon Kareri, a former Riggs Bank vice president, and his wife on charges of bank fraud, money laundering, wire fraud, and conspiracy, among others, in connection with his alleged embezzlement of funds from Equatoguinean accounts.[80] Kareri was the manager of the African and Caribbean division of Riggs Bank’s international and embassy banking department until he was fired in January 2004; he had been responsible for the Equatorial Guinea accounts. According to the government of Equatorial Guinea, “The transfer of one million US dollars from the Equatorial Guinea account to Mr. Kareri’s account is explained as payment to the construction company which built the industrial agricultural conservation plant in the Equatorial Guinean city of Bata.”[81] In November 2006 Simon Kareri pleaded guilty on fourteen counts, including five counts of bank fraud and six counts of money laundering.[82] He was sentenced to 18 months’ imprisonment on each count.[83] His wife pleaded guilty on seven counts, including three counts of money laundering; she was sentenced to twenty-one months of supervised release.[84] They jointly paid $631,000 in restitution.[85]

Companies owned by government officials and the role of multinational oil companies

The US Senate Permanent Subcommittee on Investigations report detailed how the pervasive role of companies controlled by members of the ruling family or their close associates in the country’s economy is another manifestation of suspect practices by government officials, their family members, or close associates. Regarding the Riggs Bank scandal the report concluded, among other things, that “[o]il companies operating in Equatorial Guinea may have contributed to corrupt practices by making substantial payments to, or entering into business ventures with, individual Equatorial Guinea officials, their family members, or entities they control, with minimal public disclosure of their actions.”[86]

The subcommittee’s investigation showed that Chevron; CMS Energy Corporation, whose Equatorial Guinea interests were purchased by Marathon in 2002; Devon Energy Corporation, which sold its assets to GEPetrol in 2008; ExxonMobil; Triton Energy Corporation, which was acquired in 2001 by Amerada Hess Corporation (now Hess Corporation); and Vanco all were engaged in such activities.

The records examined by the subcommittee showed that most of the payments made by these oil companies went to Equatorial Guinean government accounts, including those at Riggs Bank. They also showed that Marathon made a number of payments to Equatorial Guinea’s accounts other than the oil account, while Hess made some 33 different transfers to Equatorial Guinean government vendors.[87] According to the report, “[s]ome oil companies have also entered into business ventures with Equatorial Guinean officials, members of their families, or ventures they control.”[88]

Due to the pervasive role of the government and individuals with ties to government officials and their family members in the country’s economy, oil companies doing business in Equatorial Guinea often end up entering into a variety of business agreements and relationships which result in their contributing substantially to the Equatorial Guinean government’s funds. These relationships include various joint ventures, the lease or purchase of land, the purchase of security services, and contributions to scholarships for Equatorial Guinean nationals, usually awarded to relatives of government officials.

Lease and purchase of land

Between March 19, 1996, and June 22, 2001, ExxonMobil’s Equatorial Guinea subsidiary, Mobil Equatorial Guinea, Inc. (MEGI), leased the buildings and land that comprise the “Abayak Compound” directly from President Obiang’s wife. After June 22, 2001, MEGI continued to lease the property through Abayak S.A., a company owned by President Obiang and actively managed and administered by his wife. This relationship continues.[89]

Marathon paid the president over $2 million for the purchase of two plots of land at Punta Europa, a peninsula on the northwest corner of Bioko Island that is the closest point to the offshore Alba field. The purchases—one valuing $1.4 million—were negotiated through Abayak S.A., which was acting as the agent of President Obiang.[90]  In a letter to Human Rights Watch on April 28, 2009, Marathon stated that when it acquired CMS Energy’s stake in the Alba field in 2002, Marathon made significant investments that

required the construction of additional plants and therefore the acquisition of additional land. From every logistical, engineering, operational, economic and other reasonable perspectives, Marathon and its partners had no alternative than to build new plants adjacent to the existing facilities [on Punta Europa]. President Obiang had the title of the record to the Punta Europa land, having acquired it in 1984, long before any land was acquired for oil and gas operations.... Marathon negotiated a price of approximately $2,900 an acre which was within a price [sic] within the market price indicated by its analysis. The acquisition was then completed through an expropriation process which included the opportunity for public comment, including the public identification of the seller and purchaser of the property.[91]

Since the release of the Senate report in 2004, Marathon and its partners have not purchased any additional land in Equatorial Guinea.[92]

According to the Senate investigation report, “Amerada Hess ... paid Equatorial Guinea officials and their relatives nearly $1 million for building leases.”[93] In 2000 Triton was involved in negotiating and leasing one such property from a 14-year-old boy, a relative of President Obiang. Triton and subsequently Amerada Hess paid the boy and his mother (his representative) $445,800 under the lease.[94] In a letter dated May 5, 2009, from Hess to Human Rights Watch, Hess stated that they no longer retain this lease. However, Hess disclosed that it still maintains one lease inherited from Triton with a person who has since been appointed minister of foreign affairs; according to Hess, “This lease is believed to be at a fair market rate and is not material to our activities.”[95]

Security services

ExxonMobil and Amerada Hess told the subcommittee that they purchase their security services through Sociedad Nacional de Vigilancia (Sonavi), a company owned by the president’s brother, Armengol Ondo Nguema, as Sonavi has a monopoly on security services in Equatorial Guinea.[96] Four other oil companies told the subcommittee that they were able to shop around for their security services.[97]

Hess paid approximately $300,500 to Sonavi between January 2000 and May 2004.[98] Since moving its operations to Bata in 2004, Hess has had no further business relationship with Sonavi.[99]  As far as Human Rights Watch is aware, ExxonMobil continues its relationship with Sonavi, arguing that this relationship is “at arm’s length and that payments had been consistent with market rates.”[100] From August 1997 to October 2000 an ExxonMobil subsidiary paid Sonavi $683,900 for security services; between 2000 and 2003, another ExxonMobil entity paid Sonavi $26,400 for security.[101]

Scholarships

According to the subcommittee investigation, six oil companies made significant payments—in excess of $4 million—for the expenses incurred by more than 100 Equatoguinean students seeking education outside the country.[102] In some cases, payments to an Equatorial Guinean government account for training of Equatoguinean citizens were required by clauses within the production sharing contracts (PSCs) the companies signed. According to the investigation’s report, “Many and perhaps all of these students were the children or relatives of EG officials, but the evidence is unclear regarding the extent to which each of the oil companies was aware of the students’ family status.”[103] In letters to all six oil companies mentioned in the Senate report, Human Rights Watch inquired about the current nature of the payments made to support Equatoguinean student training. Of the five companies that have responded at this writing, no company specified funding students who were relatives of Equatoguinean government officials.

• Between 2001 and 2004 Chevron provided $150,000 each year for student training expenses.[104] According to a letter dated June 3, 2009, from Chevron to Human Rights Watch, information contained in PSCs regarding payments for expenses incurred by Equatoguinean students seeking training or education is “confidential.”[105]
• ExxonMobil did not provide the subcommittee with information on any scholarship payments made but Riggs documents stated that along with Marathon it funded between 28 and 35 Equatoguinean students in 2003.[106]
• Vanco made two payments of $158,000 between 2000 and 2001, and two payments exceeding $190,000 between 2002 and 2003, for student training.[107]
• From mid-2003 through mid-2008, the period Devon Energy operated in Equatorial Guinea, Devon supported the educational training of Equatoguinean students in three ways:
  • To fulfil a clause in Devon’s PSC with the Equatorial Guinean government, Devon made lump-sum payments of $200,000 per year toward Equatoguinean educational training. These payments, which were made directly to the Ministry of Mines and Energy, began in 2003 with a pro-rated payment of $150,000 and ended in 2007.[108]
  • Between 2004 and 2007, Devon donated $125,000 per year to GEGEO, a program administered by the University of South Carolina that provides support to students at the University of Equatorial Guinea.[109]
  • According to Devon, “In 2008, Devon was required, under the EG Hydrocarbon Law and an agreement between the government of EG and its PSC operators (including Devon), to pay approximately $350,000 to support a training program administered by ... an affiliate of Marathon Oil Corporation.”[110]
• Hess between 2001 and 2003 made payments totalling $1.9 million for Equatoguinean students studying in the US and Canada.[111]In a letter to Human Rights Watch, Hess wrote that they currently provide “significant financial support for a comprehensive education program in EG, managed by the Academy for Educational Development. This is a multi-year, $40 million dollar program which has established 40 model schools, trained over 1,100 teachers, and established new course work curricula throughout the country.”[112]Hess also selects and sponsors four Equatoguinean students to study in the United States. According to Hess, “Funding for these programs is given voluntarily by Hess as part of our social responsibility program and is outside of the contractual obligations in our PSCs.”[113]
• According to the Senate report, “Marathon is obligated under its PSCs to pay almost $300,000 per year for Equatorial Guinean student training.”[114] In 2002 Marathon paid $150,000 to the Equatorial Guinea student account at Riggs, and it expected to make $590,000 in similar payments for its 2003 and 2004 obligations.[115]In a letter to Human Rights Watch, Marathon stated that it “has made large investments in the training of Equatoguineans; some in conjunction with the government, but mostly on our own.”[116] Such investments include vocational training programs and support for Equatoguinean employees to study at universities in the United States, as well as participating in the development of a National Institute of Technology for the Hydrocarbons sector.[117]

Joint business ventures

The subcommittee investigation also found a few instances where oil companies entered into business ventures with companies controlled by senior Equatorial Guinean officials or their families.

• Although the Senate report asserted that Marathon had entered into two joint ventures with Guinea Equatorial Oil and Gas Marketing, Ltd. (GEOGAM), a state-owned company established in 1996 that is 25 percent owned by the Equatorial Guinea government and 75 percent owned by Abayak S.A., the company owned by President Obiang, Marathon stated in a letter to Human Rights Watch that it never had a business relationship with GEOGAM. According to Marathon, upon learning GEOGAM was a partner in two joint ventures Marathon inherited from CMS Energy and receiving documentation that GEOGAM was in fact partially owned by Abayak, Marathon insisted that GEOGAM’s interests in the two projects be transferred to a “wholly-owned government entity.”[118]
• Further, Marathon told the subcommittee that it obtained workers through APEGESA, an Equatoguinean company that was partially owned at the time by Juan Olo, a prominent Equatoguinean figure closely connected to the president.[119] According to the report, “Marathon reimburses APEGESA for the compensation paid to the workers and also pays a fee of approximately 20 percent of the salaries of the workers. Since 2002 Marathon has paid APEGESA about $7.5 million.”[120] In a letter from Marathon to Human Rights Watch, Marathon stated that Juan Olo had “transferred his interest in APEGESA in 2005.... [and that] our contract with APEGESA, which we inherited from CMS, is clearly a market-based, arms-length arrangement.”[121]
• Mobile Oil Guinea Ecuatorial (MOGE) is an oil distribution business venture between Abayak S.A. and ExxonMobil’s subsidiary Mobil International Petroleum Corporation.[122]

The US Securities and Exchange Commission inquiry

The US Securities and Exchange Commission (SEC) also embarked upon an investigation to assess whether US companies operating in Equatorial Guinea had broken the Foreign Corrupt Practices Act (FCPA) of 1977. Under the act, US companies can do business with foreign government officials but are not allowed to provide anything of value to anyone who can misuse a position of power to help them obtain or retain business.

Letters from the SEC to US oil companies Hess, Marathon, and Chevron were received in mid-July 2004. ExxonMobil and Devon received letters in early August 2004. All the companies have denied any wrongdoing and say they have cooperated fully with the SEC inquiry.[123] Human Rights Watch inquired about the current status of the SEC investigation in letters sent in early 2009 to Hess, Marathon, Chevron, ExxonMobil, and Devon. Marathon, Hess, and Devon have been informed by the SEC that they are no longer subject to any ongoing investigation on Equatorial Guinea,[124] while ExxonMobil stated that “[t]here has been no allegation or charge by any enforcement authority of any illegal activity by ExxonMobil or its affiliates in EG.”[125] According to Chevron, its “policy is not to discuss governmental inquiries.”[126] At this writing, the SEC has not issued any findings related to this investigation.

Multinational oil companies and FCPA compliance Many of the oil companies that responded to Human Rights Watch’s request for information about their current business dealings with Equatoguinean government officials or entities they control detailed myriad practices to ensure compliance with the FCPA. These practices include holding in-country seminars on the FCPA, performing internal and external annual audits of FCPA compliance, adopting company anti-corruption compliance guidelines, and providing for management accountability and disciplinary action for non-compliance.[127] Human Rights Watch welcomes these efforts and believes they comprise a key step toward combating corruption. However, as pointed out by ExxonMobil in a letter to Human Rights Watch, there are “practical realities” to doing business in a country in which “[m]any businesses have some family relations with a government official, and virtually all government officials have some business interests of their own, or through a close relative.”[128]  Given these “practical realities,” it is imperative that government law enforcement agencies act aggressively to expose and curtail corruption. In particular, the US government should provide more resources to the SEC and the Department of Justice to aggressively investigate violations of the FCPA, in order to ensure that companies do not become part of the cycle of corruption that plagues so many resource-rich countries.

Indications of corruption by President Obiang’s eldest son

Perhaps the most brazen and troubling examples of corruption are repeated instances involving the president’s eldest son, Teodorin Nguema Obiang, whose globetrotting and extravagant lifestyle is filled with purchases of multimillion-dollar houses and exotic sports cars throughout the world. Teodorin Obiang’s official title is minister of forestry, and from that position he earns a salary equivalent to approximately $4,000 per month.[129]  Nonetheless, Teodorin Obiang has been able to buy mansions in Los Angeles and Cape Town, and there have been press reports that he has purchased homes in Buenos Aires and Paris as well.[130]

From 1998 to 2006 Teodorin Obiang owned a 15,000 square foot property on a 16-acre estate at the Serra Retreat in Malibu, Los Angeles, through his company Sweetwater Mesa LLC.[131] In April 2006 he transferred ownership of this property to a second company of his, Sweetwater Malibu LLC. Incorporation records filed at the time indicated that the house was worth some $35 million.[132] According to Forbes Magazine this was the sixth most-expensive sale of a private house in the United States in 2006.[133]

In March and April 2004 Teodorin Obiang purchased two luxury homes in Cape Town worth a total of $7 million[134] and also spent approximately 10.2 million rand (approximately $1.45 million) on three luxury cars.[135] The purchase of the Cape Town houses came to light because George Ehlers, owner of South African construction firm Engineering Design and Construction Company, claims that he is owed nearly $7.8 million for a breach of contract to build an airport on the island of Annobon for the Equatorial Guinea government.[136] In order to recoup the funds, Ehlers identified these assets in South Africa and has been trying to gain ownership of the two mansions as collateral.[137] Elhers secured an attachment order from the Cape Town High Court in February 2006 for the properties, and this case has now gone to appeal.[138] At this writing, the case is ongoing.

Ehlers claims that Teodorin Obiang could not have afforded the houses on his minister’s salary of $4,000 per month, and therefore they must have been purchased with illicitly obtained government funds. In 2006 Teodorin Obiang filed a notarized affidavit in which he affirmed that the property is his and not the Equatorial Guinea government’s and, therefore, could not be seized as payment for government debts. In his affidavit, he provided a disturbing explanation of how he obtained the funds to purchase these houses and vehicles:

Cabinet Ministers and public servants in Equatorial Guinea are by law allowed to owe [sic] companies that, in consortium with a foreign company, can bid for government contracts and should the company be successful, then what percentage of the total cost of the contract the company gets, will depend on the terms negotiated between the parties.

But, in any event, it means that a cabinet minister ends up with a sizeable part of the contract price in his bank account.

It is in the context, therefore, of the law of Equatorial Guinea that my owning a company should be viewed by this Court, and not in terms of the South African law.[139] 

Teodorin Obiang also noted that he did not want his name to appear on the Cape Town property deeds because he “did not wish my names to be associated with the properties in any way.... I insisted on this because I did not want the newsmakers, journalists, and photographers to know where I lived in Cape Town, for the simple reason that I did not wish to be pestered by photographers, etc., invading my privacy whenever I was in Cape Town.”[140]

 

Government of Equatorial Guinea’s Response to Corruption Allegations

The government of Equatorial Guinea’s responses to allegations of corruption and mismanagement are in general characterized by the same denials and attempts to limit public access to information that Teodorin Obiang exhibited in the above-mentioned case in South Africa. Government officials deny the involvement of personal interests in the management of government finances, launch counter-attacks against those levelling allegations, and persecute those in the press who attempt to get to the bottom of these allegations.

The Equatorial Guinea government’s handling of the Riggs Bank investigation was indicative of this general approach. The Equatorial Guinea government was not caught unaware by the subcommittee inquiry. On February 23, 2004, Riggs officials met in Washington, DC, with President Obiang and other officials to discuss their accounts and certain transactions. Riggs subsequently advised the Equatorial Guinea government that the bank had decided to close the accounts. They were closed in June and July 2004, and the balances were transferred to the Bank of Central African States. According to the government, the Riggs deposits were “only transitory accounts meant to deal with local constraints and speed up payments of foreign oil companies to the Treasury of Equatorial Guinea.”[141]

The government responded to the controversy in July by admitting that “[t]he Equatorial Guinea Treasury, as an official institution of the state, holds an account at Riggs Bank in Washington to facilitate operations with various oil companies which operate in the country.”[142] A government spokesperson added, “The investigation that led the American Senate to Riggs Bank has nothing to do with our government nor our dignitaries ... consequently, there is no problem between the state of Equatorial Guinea, the Senate, and the Congress and the United States of America.”[143] In an interview in June 2005 President Obiang claimed that the Riggs issue “was the result of lobbying work by the mercenaries to undermine the legitimate government of Equatorial Guinea.”[144]

The sensitivity of the Riggs issue for the government was evident through its handling of the affair at home. On May 12, 2004, a government minister threatened to imprison the members of an Australian television news crew from that country’s 60 Minutes television program, who were investigating the allocation of Equatorial Guinean oil revenues, unless they left the country. At the airport, the director of national security supervised a search of the team’s baggage and confiscated their computer memory cards.[145] On July 22, 2004, Information Minister Alfonso Nsue Mokuy announced that his government would file “criminal and civil suits” against “the foreign press in general, and the Spanish press and television service in particular, for tendentious comments and the manipulation of the truth on the pretext of broadcasting” about the links between President Obiang and Riggs Bank.[146] He also announced that the government would sue Riggs for “the harm done to leading people in the country,” adding that “[n]obody says anywhere that the state treasury’s account with Riggs was manipulated by personal or private interests.”[147]

Beyond their response to the Riggs Bank scandal, the Equatorial Guinean government also released a report in 2004 refuting allegations of oil revenue misappropriation.[148] Throughout that year and in years following, the government has been very active in restricting press freedoms to cover the oil industry in the country or to look into allegations of corruption therein. In July 2004 the government confiscated digital satellite equipment from Spanish news agencies in Malabo because of their live broadcasting of features about government corruption.[149]  The following October Peter Maass, a foreign author doing research for a book on the oil industry in Africa, who was also on assignment for Mother Jones magazine, was given 15 minutes notice to pack his bags and leave the country. Maass was deported to Cameroon for “talking to people of concern to the government and actions not coherent with his stated purpose,”[150] and for being—in Maass’s words—a “spy who had met the enemy—the Spanish ambassador.”[151] He eventually received a verbal official apology about his deportation from the president via the US embassy and was invited back.[152]

John Ghazvinian, another foreign journalist and author who was in Malabo in February 2005 researching a book on oil in the Gulf of Guinea, was advised to leave the country or risk unspecified consequences after being threatened by a government official on February 9 for refusing to pay a bribe. After receiving advice from locals as well as from the US consul, Ghazvinian decided to leave the country on February 11.[153]

(Issues of media freedom and freedom of information in Equatorial Guinea are discussed more broadly in Chapter V.)

Financial Mismanagement and Lack of Transparency 

The government of Equatorial Guinea has not only failed to curb the endemic corruption, but it has also consistently mismanaged its oil revenue wealth, so that even money that has not been siphoned off by corrupt officials renders little benefit to Equatoguinean citizens. Moreover, Human Rights Watch believes that the degree to which citizens will benefit from natural resource revenues depends, in part, upon the level of transparency surrounding such revenues and the degree to which resource-rich governments are accountable for the allocation and spending of those revenues. The citizens of Equatorial Guinea have not benefited commensurate to the levels of oil revenue flowing into their country. This is partially because the Equatoguinean government refuses to operate transparently in a manner that would allow citizens to hold it accountable for its fiscal policies.

Financial mismanagement in the oil sector

One of the consequences of Equatorial Guinea’s rapid economic growth is a decreased sense of “urgency for macroeconomic and structural reforms.”[154]  In the 1990s a marked increase in spending led to budget deficits and debt; while this trend has been reversed in recent years, the government of Equatorial Guinea still faces a major challenge in implementing reforms to manage the country’s resources “in a manner that is efficient, transparent, and cognizant of the need to establish a solid foundation for future generations.”[155]

Production-sharing contracts and signature bonus payments

The Equatoguinean government earns money from corporate investment in Equatorial Guinea’s oil fields primarily through production sharing contracts—contracts signed between the government and oil companies that specify the fees and taxes the companies have to pay to the government of Equatorial Guinea—and bonus payments. However, the government “take” of the oil revenue, as set forth in these contracts, is much lower than in neighboring oil-rich countries: the World Bank estimated in 2003 that Equatorial Guinea receives only 15 to 40 percent of oil revenues under its agreements, compared to a typical government take of 45 to 90 percent in other sub-Saharan African countries.[156]

Contracts for two of the largest oil concessions in Equatorial Guinea, the Alba and Zafiro fields, were negotiated in 1990 and 1992, respectively, without outside consultation from the World Bank.[157] The contracts were extremely favorable to the oil companies, both because of the actual financial terms of the agreement and because the government, given its limited institutional capacity, had trouble monitoring the complicated financial transactions required by the terms of the contract.[158] In fact, the government would later claim to find $88 million in payment discrepancies from companies, including ExxonMobil, between 1996 and 2001.[159] The World Bank encouraged the Equatoguinean government to renegotiate both contracts soon after signing in order to obtain a more favorable take; the government, however, did not do so.[160] The Bank concluded that, at the time, the government had “a preference for immediate cash over long-term financial optimization (giving priority to negotiating advances on future oil revenues),”[161] a policy the International Monetary Fund encouraged the government to refrain from in 2001.[162]

There have been successive attempts to rectify this. A new “model” production sharing contract was drafted in 1998 to give the Equatoguinean government a larger portion of oil revenues; however, the new contracts were still very generous, according to regional standards, to companies. Equatorial Guinea’s oil petroleum law 1/2001 introduced a sliding-scale royalty rate for oil production of between 12 and 18 percent, up from previous royalty rates of between 10 and 16 percent.[163] However, government officials confirmed to Human Rights Watch in 2003 that Equatorial Guinea generally still received less money under its contracts than other countries.[164] In 2006 the government introduced a new law to again increase the government’s share of oil profits, which brings Equatorial Guinea’s take more into line with that of other oil-producing countries in the region,[165] but most of the provisions of the new law are not retroactive: they do not change the fiscal terms of the existing contracts.[166]

The fiscal terms of existing contracts are, to a certain extent, unclear (according to officials at the Ministry of Mines, Industry and Energy, PSCs are confidential).[167] Signature bonus payments—cash payments from oil companies in exchange for lucrative oil concessions[168]—are small, often less than $1 million, although Human Rights Watch is aware of one signature bonus concession package that granted the Equatoguinean government use of an aircraft for presidential activities.[169] In contrast, in 2004 Chevron reported paying $123 million with its partners for a block in the São Tomé e Príncipe/Nigeria Joint Development Zone adjacent to Equatorial Guinea,[170] while in countries like Angola, companies have paid hundreds of millions of dollars in individual signature bonus payments. In Equatorial Guinea, the amount of the bonus payments is kept confidential.[171]

IMF reports on Equatorial Guinea’s economic policies

The IMF was troubled by the management of oil revenues in Equatorial Guinea and issued a strongly worded critique in August 2001 following its annual Article IV consultations with the government on the implementation of Equatorial Guinea’s economic policies. In the report, the IMF noted that there was a “continued weakness in economic policy performance, macroeconomic management, and governance” and a “serious lack of fiscal discipline and transparency.”[172] The IMF also urged the authorities to refrain from extra-budgetary spending financed against future oil revenue at high interest rates, and noted that the oil companies had been withdrawing government oil funds at source to repay these advances.[173] It reported,

Although undertakings were reached with the authorities to channel all government oil revenue into a single account at the BEAC at the time of the 1999 Article IV consultation, oil companies continue to pay royalties, bonuses, and other oil revenue into government accounts held abroad. Moreover, the oil companies have been withholding government oil revenue at source to repay advances extended in previous years. As a result, actual oil revenue collection rates have remained very low by international standards.[174]

The full IMF report was never made public, as it was even more explicit than the summary.[175]

No Article IV consultations with the IMF occurred in Equatorial Guinea in 2002 due to presidential elections and a restructuring of key ministries. A further round of consultations took place between July 29 and August 12, 2003, after which Equatorial Guinea’s then-Prime Minister Cádido Muatetema Rivas told Human Rights Watch that “[w]e have asked the IMF to publish the Article IV staff report for their 2003 consultations with us.”[176] Since then, the Article IV staff reports on consultations with Equatorial Guinea have been published on a 12-month cycle (for 2004, 2005, 2006, 2007, and 2008). All the missions and their reports have emphasized the need for greater transparency in resource management and improved public accounting procedures. They have also called for a halt to borrowing against future oil revenues, containment of non-priority expenditures, and increased spending on education, health, and infrastructure.[177]

Efforts to improve transparency in the oil sector

The lack of transparency regarding oil revenue in Equatorial Guinea has been an issue of concern for human rights groups, international financial institutions, and some governments for a number of years. Yet efforts to improve reporting and accounting have been met with resistance from the Equatorial Guinean government and have resulted in few meaningful positive developments.

The first National Economic Conference in Equatorial Guinea, held in September 1997, touched upon transparency in oil revenue spending. The conference recommended that an independent agency, accountable to parliament, be established to audit and expose corruption cases and other irregularities; the recommendation was never acted upon.[178] A follow-up meeting to evaluate government economic strategy was held in 1999, at which a program for good governance was drawn up in consultation with the United Nations Development Programme (UNDP). The program envisaged a three-year, multimillion-dollar joint UNDP and Equatoguinean social project beginning in September 2000 that was to include ambitious plans for increased transparency of the oil sector and institutional capacity building for those administrative structures capable of managing oil revenues. As with the 1997 initiative, this good governance plan never made it off the paper.[179] According to UN officials the government reacted negatively to the plan because it advocated revenue transparency, and pulled out.[180]

By 2003, however, encouraged by the IMF and oil companies such as Marathon, then-Prime Minister Rivas signaled to Human Rights Watch that “[w]e have nothing to fear from transparency.... From now on we will show the world that we are a leader in this transparency field.”[181] Although Equatorial Guinea has taken steps in the past five years to improve revenue transparency—including by deciding in 2004 to participate in the UK-sponsored Extractive Industries Transparency Initiative (see below) and allowing the release of an IMF fiscal transparency report on the observance of standards and codes in 2005—progress to date has been slow.

The Extractive Industries Transparency Initiative

EITI is a voluntary initiative aimed at encouraging oil and mining companies to publish the payments they make to the governments of developing world countries in which they operate. Human Rights Watch has participated in EITI’s development as well as that of the complementary, NGO-led Publish What You Pay (PWYP) campaign.[182]

Like other international initiatives, EITI suffers from inherent limitations, in that it currently extends only to enhancing the transparency of government income. The value of that alone is tremendous, but EITI does little to enhance the transparency of government expenditures—of particular importance in Equatorial Guinea given the abysmal socioeconomic indicators and the lack of information about government spending.[183]

In September 2004 the government of Equatorial Guinea announced its intention to implement EITI and requested technical assistance from the World Bank to do so.[184] However, Equatorial Guinea has been slow in its implementation of the EITI protocols. In 2005 the government announced that its first EITI compliance report would be published in the fourth quarter of 2005; to date, this report has not been published.[185] The IMF stated in its 2006 Article IV consultation that “[t]he momentum supporting the initiative has waned somewhat, and the mission encouraged the authorities to reinvigorate the process.”[186] By 2007 the IMF had become more pointed in criticizing the government’s implementation of EITI, noting in its country report from that year that Equatorial Guinea’s implementation of EITI had “stalled.”[187] It reported that “transparency and accountability are particularly weak” and that “[a]lthough Equatorial Guinea was one of the first countries to publicly commit to the EITI, there has been relatively little progress toward compliance.”[188] 

Nonetheless, Equatorial Guinea was accepted as an EITI candidate country in February 2008 following intensive lobbying by several EITI members and despite serious reservations by nongovernmental organizations that are part of EITI.[189] Eight months later, the IMF called Equatorial Guinea’s progress toward meeting the EITI requirements “slow,” although the World Bank was expected to assist the Equatorial Guinean government in producing the first EITI report by mid-2009.[190] It will have until 2010 to come into compliance with EITI’s standards.[191]

It is unclear whether the government will fully implement EITI: not only does it have a poor track record but EITI requires that civil society be allowed to fully participate, and there is little independent and fully functioning civil society in the country.