Scandal of Fundo Soberano de Angola and the Paradise Papers
For oil rich countries, it is not unusual to establish a sovereign fund whose main objective is to manage and invest proceeds from this natural resource. This is aimed at ensuring that future generations are guaranteed of a steady income when oil reserves start to dwindle. Angola is among the oil-rich countries and is ranked as the continent’s second largest oil producer, after Nigeria. In fact, oil production accounts for about 95 percent of the country’s exports, and nearly half (45 percent) of the GDP (gross domestic product) (OPEC). Accordingly, the fund, known as FSDEA (Fundo Soberano De Angola) was launched in 2011 with an initial amount of $ 5 bn.
Jose Filomeno, a son of the former long-servicing Angolan president Eduardo dos Santos, was appointed as head of the fund. This sparked controversy among government critics and activists. The controversy escalated even further after Jean-Claude Bastos de Morais was appointed as the asset manager for the fund. He is a close friend to Jose Filomeno. It was unusual to appoint a single asset manager for such a sizable fund, with the expectations form many being that several asset managers would have been chosen in a bid to spread the risk further. The Paradise Papers investigation has revealed that Mr. Bastos manages nearly 85% of the entire fund, thus affording him near complete control over it (Meisel and Grossman). Further investigations show that between May 2014 and December 2015, QG Investments Africa management, a Mauritius-based company owned by Mr. Bastos, received mover $ 90 m in management fees from the fund. It has further emerged that Mr. Bastos established seven sub-funds of the Angolan “sovereign wealth fund”. The management fee received by Mr. Bastos’s company was divided into two chunks. The larger chunk of $ 41 m was declared as dividends, while the other chunk of $ 34m was identified as advisory fees payable to a Swiss company in which Mr. Bastos has the majority stake.
Moreover, a number of companies owned by Mr. Bastos, such as Afrique Imo Corporation, are beneficiaries of the fund’s investments. This creates a conflict of interest. Such lack of transparency in the management of state funds is indicative of the entrenched corruption in Angola, where one out of three persons lives below the poverty line (Meisel and Grossman). Corruption is rampant in Angola, especially among government officials. This has therefore created concerns regarding the management and structure of the FSDEA. There is a growing sense that the choice of the founder Dos Santos to oversee the fund was politically driven, and that it influenced the choice of Mr. Bastos as the fund’s managers.
In yet another Paradise Papers document, it has emerged that Mr. Bastos’s initial application as a fund manager for the Angola sovereign fund was declined in Switzerland by an
offshore regulator due to “qualified cases of misappropriation” further calling into question his independence. Appleby, an offshore law firm on whose records the leaked Paradise Papers are based, had raised a red flag on Mr. Bastos and even labeled him a “risky client” (Fitzgibbon). Nonetheless, Appleby’s Mauritius office still went ahead to process the application of Mr. Bastos for the management of Angolan sovereign fund.
In sum, the leaked Paradise Papers have helped to shed light on the intricate details of managing FSDEA. Mr. Bastos manages almost the entire fund, as opposed to multiple fund managers, thus raising the issue of risk of spreading the risk. Moreover, he is a close associate of Jose Filomena, a son of a former president and head of the fund. This raises a conflict of interest, which is further exacerbated by the fact that companies affiliated with Mr. Bastos have received dividends on the fund investments, even after receiving management fees.
Fitzgibbon Will. Paradise Papers: Tax screws tightened on Mauritius. November 08, 2017.
Web. 10 November 2017. https://www.businesslive.co.za/bd/opinion/2017-11-08
Meisel Anna and David Grossman. Paradise Papers: Tycoon made $ 41m from ‘people’s fund’.
November 7, 2017. Web. 10 November 2017. http://www.bbc.com/news/world-africa
OPEC (Organization of the Petroleum Exporting Countries). Angola facts and figures. 2017.
Web. 10 November 2017. http://www.opec.org/opec_web/en/about_us/147.htm