Sanctioned Billionaire Finds a Haven in Tiny Congolese Bank

KINSHASA (Capital Markets in Africa) — A year ago in June, a group of bankers marched into a U.S. Treasury office in Washington on perhaps the most important mission of their careers: to save a country from financial collapse. Among them was Willy Mulamba, Citigroup Inc.’s top executive in the Democratic Republic of Congo, a resource-rich but devastatingly poor nation in central Africa.

Mulamba, a 51-year-old Congolese banker who had returned home after years abroad, was part of a small team desperate to dissuade Treasury officials from cutting the nation off from the U.S. banking system, even though corruption scandals swirling around recently departed President Joseph Kabila had infected several local banks. Global firms including ING Groep NV and Commerzbank AG had stopped processing most dollar transactions from Congo out of concern about violating U.S. anti-money-laundering rules or sanctions imposed on generals, government officials and, in December 2017, on one of Kabila’s most important financiers: Dan Gertler. The Israeli billionaire, Treasury said, had amassed a fortune “through hundreds of millions of dollars’ worth of opaque and corrupt mining and oil deals.”

By the time of the meeting, Citigroup was handling more than 80% of Congo’s international dollar transactions, an exposure well beyond the bank’s comfort level. Citigroup had come to Congo in 1971 and weathered decades of dictatorship, corruption, and war. It would be an unusual twist of fate if this bastion of American finance was forced to close its Congo branch because of sanctions imposed by its home country.

More importantly, Mulamba knew that if Citigroup pulled out, the dollars would stop flowing to Congo. That would be tantamount to a death sentence for an economy where 90% of bank deposits and loans are in dollars. Congo’s 84 million people would face hyperinflation and financial uncertainty, and its businesses could seize up.

Across the table from Mulamba and his colleagues was Sigal Mandelker, then Treasury undersecretary in charge of the Trump administration’s burgeoning roster of sanctions. Mulamba told her the bankers were doing their best to respect the restrictions, even though it exposed them to threats and lawsuits from powerful people in Congo. Mandelker promised to work with the group to help them comply, according to six people who attended the meeting. That was enough for the bankers.

Returning to Kinshasa, Congo’s capital, the bankers felt reassured. They held a press conference stating their intention to toughen controls, and Mulamba delivered a clear warning. “I ask our banks and our monetary and political authorities to focus on the questions of the fight against money laundering and terrorist financing,” he said. “We are a strategic sector, and we have to be protected.” To anyone who knew Congolese finance, it was obvious what he was saying: Stop holding suspect money because one slip up could ruin all of us.

What the bankers didn’t know was that a mile down Kinshasa’s main boulevard from where the press conference took place, in a two-story building with reflecting windows, one bank had made holding suspect money its business model, according to documents provided to Paris-based anti-corruption group Platform to Protect Whistleblowers in Africa, known by its French acronym Pplaaf, and shared with Bloomberg News.

The bank was the Congolese subsidiary of Cameroon’s Afriland First Bank Group. Citigroup wasn’t processing dollar transactions for the unit, but it serviced the parent company — one of only two so-called correspondent banks doing so, according to Afriland’s website.

In January 2018, a few weeks after the U.S. imposed sanctions on Gertler, a family friend named Shlomo Abihassira had walked into Afriland’s Kinshasa headquarters and opened an account for a newly registered company with the unpronounceable name RDHAGD Sarlu, bank documents show. Over the next five months, Abihassira, who lives in Israel, made 17 deposits totaling $19 million. That August, he transferred the funds in one go to another Afriland account registered to a company called Dorta Invest SAU, according to bank records. Dorta Invest, set up by French businessman Elie-Yohann Berros, sent most of the funds abroad to recipients, most of whom aren’t identified in the documents.

A little more than a year after Abihassira opened the account, whistle-blowers shared with Pplaaf a cache of Afriland documents describing the flow of money. With the help of London-based corruption watchdog Global Witness, researchers spent more than a year making sense of the transactions. They scoured publicly available company registers, statements from firms and social media.

What they found was a network of companies that emerged in Congo after the sanctions went into effect. Although Abihassira and Berros say they have no financial ties to Gertler, their associations with others connected to the Israeli businessman raise questions about whether they were effectively helping him continue doing business after the restrictions were in place.

Whatever conclusions are ultimately drawn about Gertler’s relationship with Afriland, the tangle of undisclosed, informal linkages offers a view into what might be described as the last-mile problem for financial sanctions regimes. Regulators in Washington can impose weighty know-your-customer obligations on banks such as Citigroup. But on the fringes of banking, in corners of the world where corruption runs rampant, rules based on legal concepts like beneficial ownership or majority control can seem ineffectual in the face of personal loyalties, unwritten obligations and impenetrable corporate records. In the end, it’s a system that relies on whistle-blowers to expose the truth.

“This is how, despite being sanctioned, Gertler appears to have continued reaping the vast financial benefits of his business activity in DRC — a country where over 72% of the population lives on less than $1.90 a day,” Pplaaf and Global Witness wrote in a report published on Thursday. The report said the organizations couldn’t prove that the network was used to evade U.S. sanctions and it doesn’t allege any criminal behavior.
 
Gertler declined to comment for this story, or for the report. But in a series of letters to Bloomberg News and the two groups, his lawyers at Carter-Ruck in London said the Afriland documents do not show that Gertler engaged in sanctions evasion. The lawyers said he has no business relationship with Abihassira or Berros. They also said the bank records were stolen, that some documents were falsified, and that an internal audit found that one of the whistle-blowers stole money from unrelated client accounts. Neither Afriland nor Gertler’s lawyers provided evidence for that last claim or proof that documents had been fabricated.

Bloomberg, Le Monde in Paris and TheMarker, a business publication in Israel, were given access to the documents, findings, and other information before the report’s release. Over the course of several months, Bloomberg independently obtained additional documents and spoke with people on three continents involved in banking in Congo and the U.S. and with knowledge of sanctions enforcement to confirm and complement the findings.

The report describes how Gertler appears to have been connected to a complex structure to move money abroad, with more than a dozen shell companies, subsidiaries, local and foreign intermediaries, and an octogenarian living in Moscow. While the bank documents provide a window into the network, they don’t show why transactions were made or where, in many cases, the money ended up. But they do offer clues.

At the center of the network was Afriland. By the end of 2018, deposits by companies and individuals connected in some way to Gertler made up more than one-third of the Kinshasa unit’s total, which had jumped almost fivefold to $279 million from a year earlier, according to a PwC audit reviewed by Bloomberg. Whether Afriland knew it was handling dollars linked to Gertler or its compliance procedures weren’t thorough enough, the bank and its employees were exposing themselves to possible sanctions and fines if U.S. law was being violated.

Afriland DRC and its parent company in Cameroon didn’t respond to numerous requests for comment. The Congo unit told Global Witness and Pplaaf that it hasn’t violated any regulations or assisted any of its customers in circumventing U.S. sanctions.

Abihassira, whose father is Gertler’s rabbi in Israel, said in an email that he opened the account at Afriland to invest in Kinshasa real estate and that the company name stood for Royal Development Housing and General Design. Abihassira, who had little experience in Congo, confirmed the deposits and the transfers to Dorta Invest. He said he was returning the money he borrowed from Berros after giving up on his real estate dreams.

Patrick Klugman, a lawyer in Paris who represents Berros, matched the account given by Abihassira. He said his client was a businessman whose investments in Congo had nothing to do with Gertler.

That lack of connection doesn’t help explain why, just a week after sanctions were imposed, Berros set up a company with an identical name — Fleurette Mumi Holdings — to one previously used by Gertler. Or why Abihassira hired a lawyer who has worked for Gertler to register his company. Or why Berros and Abihassira opened accounts at the same small Congolese bank that Gertler, his companies and several associates were using.

Abihassira said the timing was coincidental and that he didn’t know the Congolese lawyer he hired had worked for Gertler. The lawyer, Simon Niaku, said in an email that he had not helped Gertler or any of his firms since the sanctions were imposed and had never met him, although his email signature bore the name and logo of Jarvis Congo, one of Gertler’s sanctioned entities. Within an hour, Niaku sent a second email requesting that Bloomberg ignore everything in the previous message that wasn’t about him. He didn’t reply to a follow-up email asking about his connection to Jarvis.

Berros told Global Witness and Pplaaf that he copied Gertler’s company name because he saw him as an entrepreneurial role model.

No other businessman wields the influence Gertler has had in Congo over the past two decades. The scion of Israeli diamond dealers, he mastered the family trade as a boy. At the age of 23, Gertler landed in Congo, stepping into the ruins of Mobutu Sese Seko’s 32-year reign. A rabbi in Kinshasa introduced him to Joseph Kabila, then 26, who became head of the army after his rebel leader father toppled Mobutu. The younger Kabila assumed the presidency four years later.

Over more than 20 years of friendship, Gertler lobbied the White House on Kabila’s behalf, conducted secret peace talks and became Congo’s honorary consul in Israel. At first, Gertler dealt in gems, at one point holding a monopoly on Congo’s diamond exports. But the country’s real riches are its copper and cobalt deposits. Gertler started facilitating access for mining companies such as Glencore Plc and Eurasian Natural Resources Corp. On top of that, as Bloomberg News has reported over the past decade, the Congolese government sold him cut-price mining stakes, often in the lead-up to elections. Instead of trading in packages of precious stones, Gertler was now dealing in enormous mines.

But his entanglements with Congolese politicians came back to haunt him. The U.S. Justice Department opened investigations into Glencore and New York-based hedge fund Och-Ziff Capital Management LLC. The U.K. Serious Fraud Office launched separate probes into Glencore and ENRC. Among other things, investigators looked at deals involving Gertler.

In a 2016 settlement with the Justice Department and Securities and Exchange Commission, Och-Ziff, since renamed Sculptor Capital Management Inc., admitted to its role in a bribery conspiracy in Africa. An unidentified Israeli businessman, who was said to be Gertler in a related civil case, paid more than $100 million to Congolese officials over a decade to gain access to mineral rights. Gertler wasn’t charged with a crime in that case or any other, and he has denied wrongdoing. Glencore has said it is cooperating with the investigations, and ENRC has said it did nothing wrong.

Meanwhile, Kabila’s grip on power was loosening. He had won elections in 2006 and 2011, but the constitution barred him from running for a third term. He delayed the vote, and when his security forces tortured and killed protesters, the U.S. imposed sanctions on some of his generals to pressure him to hold elections and curb human rights abuses. When that didn’t work, it went after Gertler, who “acted for or on behalf of Kabila” to set up offshore leasing companies, the Treasury Department said when it announced the action in December 2017.

The sanctions prohibited Gertler, any companies in which he owned a majority stake and 19 designated entities linked to him from doing business with U.S. banks or effectively making transactions in dollars. Any assets under U.S. jurisdiction could also be frozen. In June 2018, Treasury added another 14 entities to the list because of their alleged links to Gertler.

Not long before the December 2017 announcement, Gertler reincorporated and relocated several of his companies to Congo from offshore jurisdictions. Fleurette Mumi Holdings Ltd., a British Virgin Islands-registered company that collects royalty payments from Glencore’s two copper and cobalt mines, was moved to Congo and renamed Ventora Development Sasu, according to company records. The entity that had exploration rights for an oil block on Congo’s eastern border also was moved and renamed. And Gertler established a new holding company in Congo called Gerco SAS, whose owners are his wife and nine family members, filings show.

Some banks in Congo, including Citigroup, had long refused to take on Gertler as a client, according to people familiar with the industry. But Afriland opened accounts for his new companies, as well as for Gertler, bank documents show. It did the same for Pieter Deboutte, the long-serving head of Gertler’s operations in Congo, who’s also sanctioned. Deboutte said the funds in his account were for private use.

In all, Pplaaf received records for 20 accounts that can be traced to Gertler or people connected to him through common directors, lawyers, addresses or shareholdings. Some, including ones for Gertler and Ventora, are in euros or Congolese francs. Others are in dollars.

Banks conducting transactions involving the U.S. financial system, whether based in the U.S. or abroad, are generally barred from processing payments involving sanctioned entities and individuals. Transactions in euros or other currencies also can run afoul of the Treasury Department if they involve a U.S. person or are deemed to be for the purpose of evading sanctions. In addition, the U.S. urges caution when considering transactions with entities that a sanctioned person “may control by means other than a majority ownership interest.”

The bank records for the 20 accounts cover November 2017 to May 2019. Because money often moved among companies or individuals, and sometimes appeared to flow back again, it’s impossible to tally a total without counting some funds twice. But Berros’s Dorta Invest was likely the biggest recipient, recording $49 million of deposits in a five-month period.

A week after sanctions were imposed, Berros registered a company in Hong Kong called Fleurette Mumi Holdings, identical in name to one of Gertler’s BVI entities. Berros told Global Witness and Pplaaf that he started planning the venture before Gertler was sanctioned but never got permission to use the name. His lawyer, Klugman, said Berros abandoned the project when he heard about the sanctions.

Berros’s sudden success in securing rights from Congo also raises questions. A month after registering Evelyne Investissement SAU in September 2018 he obtained the rights to develop cobalt and copper permits bordering one of Glencore’s flagship operations. It was the kind of transaction Gertler would have been proud of: Out of nowhere, a new entrant to the industry positioned himself in the premier league of resource deals.

In December 2019, Glencore said it had agreed to pay state-owned mining company Gecamines as much as $250 million for land rights adjoining one of the world’s biggest copper-cobalt mines. Some of these sites overlap those acquired by Evelyne. Glencore said in an email that Gecamines agreed to hand over the purchased territory unencumbered by claims from third parties such as Evelyne when the deal closes and that it had obtained assurances that none of its funds will benefit any sanctioned entities. Glencore also said it understands that Evelyne is now part of Eurasian Resources Group, the parent company of former Gertler partner ENRC, but Berros’s lawyer Klugman said his client remained the owner and that neither Gertler nor any of his companies has any association with Evelyne. ERG declined to comment, and Gecamines didn’t respond to requests for comment.

An 87-year-old Moscow-based businessman named Ruben Katsobashvili loaned Berros $10 million for his mining project, Klugman said. A company registered under Katsobashvili’s name also bought its own copper and cobalt deposits for $75 million, according to a copy of the agreement and Gecamines financial statements. Like Dorta Invest, two companies belonging to Katsobashvili were established in Congo soon after Gertler was added to the sanctions list. Katsobashvili was also the source of the funds that Berros invested in Abihassira’s real estate project, Klugman said.

A Wikipedia page created by an employee at one of Katsobashvili’s companies describes him as a billionaire commodities trader born in Georgia, the former Soviet republic. The page says

Katsobashvili was a chess prodigy and the CEO and founder of several energy companies. But neither he nor any of those entities show up in company registers in Georgia or Russia. A company he controls in the U.K. lost 200,844 pounds ($250,000) in 2018, according to the most recent accounts. And a Swiss firm he owns hasn’t filed paperwork with the authorities there since 2016, save for a recent change in director, a public register shows.

Katsobashvili owns a three-room apartment on the seventh floor of a 24-story residential building in a middle-class Moscow neighborhood. It was valued at about $380,000 in 2017, according to Russian land records. Russian vehicle records show that as of 2016 he owned a 2007 Peugeot 407. When a Bloomberg News reporter called Katsobashvili in June, he handed the phone to his wife, who said he couldn’t hear very well. She referred Bloomberg to Klugman, who also represents Berros. Klugman said Katsobashvili had set up a gold-trading company in Congo in 2012 that had no ties to Gertler, but Bloomberg couldn’t find any trace of it in public corporate registries.

How Gertler, Berros, Katsobashvili and others came to have accounts at Afriland is a story that begins in 2006, when the bank opened an office in Congo. Afriland’s founder, Paul Fokam, presents himself more as an anti-poverty messiah than a banker, evangelizing about generating wealth through grassroots businesses. The bank’s expansion has also made him rich. Forbessays he has a fortune of $900 million, making him the second-wealthiest man in francophone Africa, a region of more than 20 countries.

People familiar with the bank say that until Gertler was sanctioned they couldn’t recall a transfer of more than $500,000 or the subsidiary holding more than $2 million in cash on site. But in 2018, Afriland’s total assets more than tripled from a year earlier to $351 million, according to the PwC audit. Income from banking operations more than doubled to $16 million that year, with transfer and foreign-exchange fees making up 80% of the total.

In Congo and Cameroon, as in the U.S., banks are required to know their customers and report suspicious transactions to regulators. They’re supposed to establish who owns an account or makes a transfer, what their reason for a transaction is and where they obtained the funds. Afriland’s due diligence left much to be desired, according to documents provided to Pplaaf. For one person who withdrew $14 million from Dorta Invest’s account, the bank recorded just a single name.

PwC didn’t raise questions in its audit about Afriland’s clients, even though it cited a 28.5 million-euro loan to “a company which is a related party to another company under sanctions from the authorities.” The auditor didn’t suggest this transaction was related to Gertler and said it didn’t affect its overall conclusion. PwC declined to comment, saying it couldn’t discuss matters relating to a client. Fokam didn’t respond to requests for comment sent to the bank and to an institute he heads.

As global lenders began limiting their exposure to Congolese banks amid an expanding U.S. sanctions program, it became difficult for Afriland’s Congo subsidiary to find a partner that would clear its dollars. So it had to rely on its Cameroonian parent to conduct business in U.S. currency, a practice known as nesting. That entity has two correspondent banks that allowed Afriland customers in Congo to access the U.S. financial system. One is Citigroup.

Correspondent banks are required to conduct due diligence on the financial institutions they service — to know their customers, in anti-money-laundering parlance. But they aren’t required to do the same for their customers unless they suspect those clients are dealing in illicit funds. Citigroup said it couldn’t comment about clients but that its correspondent banking network
“is fully compliant with local and international laws.”

A person familiar with the biggest clients at Afriland’s Congo unit recently ran a finger down a list of the companies identified in the PwC audit, pointing them out one by one. Almost every one, the person said, was connected to Gertler.

Congolese President Felix Tshisekedi, right, with outgoing President Kabila at his inauguration in Kinshasa on Jan. 24, 2019. 

Gertler, who lives in Israel, has tried to get the sanctions lifted. He hired former FBI Director Louis Freeh and former Harvard law professor Alan Dershowitz, who represented Donald Trump at his impeachment trial, to help make the case. Dershowitz acknowledged in an email that he’s working to get Gertler delisted. Freeh didn’t respond to requests for comment.

For a while, despite the sanctions, Gertler’s status in Congo didn’t change much. And Kabila, who allowed elections to take place in December 2018, retains immense influence even though his handpicked successor didn’t win. The new president, Felix Tshisekedi, formed a coalition with Kabila, whose allies had secured commanding majorities in both chambers of parliament, as well as control of most governorships and provincial assemblies. Key ministers in Tshisekedi’s cabinet are Kabila loyalists. Despite evidence of fraud obtained from leaked electronic polling data showing that neither Tshisekedi nor Kabila’s candidate won the election, the results stood.

Erich Ferrari, a Washington lawyer representing Kabila, said in a letter marked “cease and desist,” that the elections were legitimate, certified by Congo’s constitutional court and accepted by the U.S. and United Nations. He also denied that the legal basis for the sanctions against Gertler had anything to do with his alleged dealings with Kabila or that the ones against officials in his government were intended to pressure him to hold elections.

But desperate for financial support from the International Monetary Fund and other donors, Tshisekedi has been making moves to clean up corruption. In December, a prosecutor opened an investigation into how Gecamines used a 128 million-euro loan Gertler gave the mining company before sanctions were imposed. That kind of scrutiny from the Congolese authorities is unprecedented. While Gertler isn’t under investigation, government mining officials face questions about where the money went, according to two people familiar with the case. In June, Tshisekedi’s chief of staff was convicted of corruption charges and sentenced to 20 years in prison, a verdict he’s appealing.

If the spotlight shines on Afriland’s Congo unit, that could make things worse for Gertler. It could also put pressure on Citigroup to end its banking relationship with Afriland’s parent, or lead the U.S. to take further action — the scenario Willy Mulamba feared when he met with Treasury officials last year.

Still, recent anti-corruption actions give him some hope. “The new government recognizes the need to be part of the global financial ecosystem if the country is to attract investment flows and see growth,” Mulamba says. “As such, they are working with Citi, the U.S. government, and others to make this happen.”

If it doesn’t happen, one former president, one businessman, and one tiny bank could cast a country deeper into ruin.

Source: Bloomberg Business News