The Wonga Coup: Transparency and Conspiracy in Equatorial Guinea
January 23, 2008
On March 7, 2004, Zimbabwean authorities arrested seventy men at the Harare airport for illegal arms trafficking and immigration violations. Simon Mann, the Eton-educated leader of the group and a former partner in the defunct private military firm Executive Outcomes, claimed that they were picking up weapons for a security job at a mine in the Democratic Republic of the Congo. But Zimbabwean authorities said that the men were mercenaries on the way to Equatorial Guinea to overthrow the government there. A day later, fifteen more men were arrested in Equatorial Guinea on similar charges. After about two weeks, the conspirators in each country signed confessions admitting that they were headed to Equatorial Guinea to stage a coup.
The plan they admitted to was deceptively simple. The main force, after picking up the weapons in Harare, would fly to Equatorial Guinea and rendezvous with another team that had been in-country for about a week. The Equatorial Guinean president, Teodoro Obiang, would be lured to the airport to inspect cars that the advance team was ostensibly going to give him as a gift. Once he was away from the safety of his palace, the plane with the Zimbabwean forces would arrive and overpower the president’s Moroccan guards. About an hour after Obiang had been detained or killed, the exiled opposition leader Severo Moto would be installed as the new president. In exchange for putting Moto in power, the mercenary force was to be given about $1.8 million and valuable oil concessions.
Although the broad outlines of the plan were revealed within weeks of the arrests, a question still remained as to who was financing such an expensive operation. The answer would be partially revealed with the arrest of Mark Thatcher in Cape Town. Thatcher, the favorite son of former British Prime Minister Margaret Thatcher, was taken into custody after prison authorities intercepted a letter from Mann to his wife. Mann wrote, "Our situation is not good and it is very urgent…We need heavy influence of the sort that Smelly, Scratcher, [and] David Hart [have] and it needs to be used heavily and now…It may be that getting us out comes down to a large splodge of wonga!” Scratcher is the nickname for Thatcher - a reference to the scars left behind by a bout with bad teenage acne. After receiving a copy of the letter, South African authorities traced significant deposits in Mann’s bank accounts back to Thatcher. Although repeatedly denying that the money he had given Mann was part of the coup financing, Thatcher eventually pleaded guilty to charges of supporting foreign military activities and paid a fine equivalent to roughly $500,000. Who the other financiers of the coup might have been, if any, remains a subject of speculation.
The basis for fact in this case is anything but solid since the facts as we know them principally come from a series of coerced confessions made in prisons run by two of the world’s most corrupt governments. Moreover, the leaders of the alleged conspiracies eventually retracted their confessions claiming that they had been signed under duress during torture. However, rumors had been circulating widely in the international community about the likelihood of a coup in Equatorial Guinea for some time. According to reports, the plotters unwisely held drunken discussions of their plans at restaurants around Johannesburg, unwittingly fostering rumors that reached African and European intelligence services.
In any event, we know enough about the “wonga coup” to try to draw some lessons from it. What, if anything, does this unusual story of a coup gone wrong in a little studied and often ignored dictatorship tell us about the current African disorder? Can we learn something broader about the functioning of the global economy and how actors both legitimate and illegitimate interact with one another to shape the development path of a particular country?
Transparency and Markets in Equatorial Guinea
Transparency has been a watchword in development circles for some time now, and the concept is usually linked to a faith in the rational workings of free markets. Researchers and policy makers have argued that overweening state structures in Africa have allowed corruption to proliferate, undermining prospects for broad based growth. Large state structures allow state officials to capture resources and corruptly funnel them through patronage networks. Such invisible patron-client networks work behind the formal state structure, causing distorted development outcomes. The solution, the experts argue, is to free the market from the state and allow it to work with as little government intervention as possible. As this happens, a state’s economy can more readily become embedded in the global market, which will strengthen the incentives for rational economic behavior and serve as a further check on corruption.
In Equatorial Guinea, however, the process has not worked out this way. Formal financial networks have proven opaque rather than transparent because they exist alongside and in conjunction with informal markets. This combination provides increased opportunities for illicit graft, but also simultaneously produces the conditions for wealth creation in licit markets. In this case, greater embeddedness in global markets did not solve the problem of corruption; it merely added new mechanisms through which officials could engage in graft. This ability to derive profits from the overlap between formal and informal markets drew both the mercenaries and the oil companies to Equatorial Guinea.
The market in Equatorial Guinea is not only far from transparent, but also far from rational. In the case of the wonga coup plotters, exuberant speculation fueled irrational, high-risk behavior. Something similar may be happening in Equatorial Guinea’s oil sector. The excitement surrounding the possibility of huge profits on a speculative gamble brings investors out, and these investors may not be making purely rational calculations of a risk to reward ratio.
We clearly see an excited, irrational mode of behavior in the decisions made by those involved in the coup. Financing and staging a coup is a risky venture, but we get the sense from Mann’s jailhouse wonga letter that none involved were thinking about risk. Angry over what he perceived as his financiers’ unwillingness to bribe his release from jail, Mann wrote “Of course investors did not think this would happen. Did I? Do they think they can be part of something like this with only upside potential, no hardship or risk of this going wrong? Anyone and everyone in this is in it - good times or bad." We get the sense that while both Mann and the investors should have been conscious of the risks involved in staging a coup, they were much more focused on the rewards that would follow its success.
We see a similar speculative imagination at work in Equatorial Guinea’s economic surge over the last decade and a half. Journalistic narratives of Equatorial Guinea’s newfound oil wealth often begin with a description of the country’s historic backwardness and contrast this with the surge in wealth that came with the discovery of oil. Among other details, journalists often note that before the oil discovery that there were so few telephones in the country that the local phone book listed users by their first names, that the one gate at the airport was made of wood, and that the United States once considered the country sufficiently unimportant that it closed its embassy there to cut costs. However, by the late 1990s, oil men, in a frenzy of excitement over the new finds, were describing the changes in Equatorial Guinea as almost miraculous. The New York Times (Feb. 15, 1998) quoted one as saying, “Now it's just a turmoil of traffic here. Three years ago only a few ministers had cars, and now it seems like every engineer has one…” Another referred to Equatorial Guinea as transforming overnight into the “Kuwait of Africa” (The Nation, April 4, 2002). President Obiang himself compared the oil discovery to “manna that the Jews ate in the desert” [The Independent, March 16, 2004]. Tying into visions of the intrepid explorer stumbling onto a great find, these images of a backward Equatorial Guinea suddenly transformed stoked imaginations and drove massive investment.
To date, the risks in Equatorial Guinea must seem well worth taking to the oil companies, although surprises and disappointments, like those encountered by Mann and his co-conspirators, could well lie ahead. Working in such a corrupt and repressive country always entails unexpected risks and costs, although these risks are hardly reflected in official statistics about the country. Overall economic growth rates certainly seem miraculous, ranging anywhere from 52 to 72 percent in the first years of this decade. According to UNDP, between 1990 and 2003, no country in the world grew faster. Stunningly, the CIA World Fact book lists Equatorial Guinea as having the second highest per capita income in the world behind only Luxemburg. Such prosperity seems almost hallucinatory or otherworldly, but the statistics and anecdotes of sudden riches mask the grossly unequal way that wealth is being distributed within the country. Despite official per capita income measures ranging from $2,000 to $50,000 most people in the country remain desperately poor. Most of the oil profits leave the country as soon as they are produced, either accruing back to the oil companies or into the secret off-shore bank accounts of the president and his family. If the oil wealth is a surprising gift from heaven, it is manna only for Obiang and his kin, and for the oil companies, rather than for the people of Equatorial Guinea.
The quick extraction of wealth from the country and the sudden enrichment of the Obiang regime has been made possible by a global economic system that turns out to be opaque rather than transparent. Access to global financial circuits and an impressive ability to take advantage of regulatory gaps have allowed the president to export the state’s revenue with impressive efficiency. A 2004 U.S. Senate investigation into accounts used to launder money – including those held by President Obiang – at Riggs Bank in Washington, D.C. shed light on this process and showed how the licit and illicit economies are so well integrated with one another.
Until recently, Riggs was one of Washington’s most respected financial institutions, but it was also a convenient conduit that allowed Obiang to move ill-gotten petroleum proceeds out of his country and into the formal economy. The Senate report turned up evidence that the bank held over sixty accounts for President Obiang and his family members. The total of all of the accounts was valued at between $400 million and $700 million, which included about $300 million in what Senate inspectors suspected were bribery payments from American oil companies. The oil companies denied any wrongdoing and insisted that payments to the Equatorial Guinea government were legal. Nonetheless, the Riggs case seems to show that opacity in the global banking system may have helped boost corporate profits in the licit world, not only at Riggs but also for the oil companies.
The bank’s main service to Obiang seemed to be its willingness to conduct “massive, no-questions-asked transfers of cash into offshore shell corporations that Riggs created” [The New York Times, July 19, 2004]. Doing so allowed the bank to perform a type of alchemy in which illicit money was made licit, creating new wealth in the formal sphere. For a time, at least, the bank achieved what Mann and his associates had hoped to do, but failed.
The Equatorial Guinea case suggests four lessons for policymakers. First, formal and informal markets are intertwined with one another in complex ways, and any development policy that does not recognize the importance of informal markets is bound to fail. Second, the informality which policy makers often think prevents economic growth is actually a powerful source of economic dynamism in formal markets, albeit a dynamism that may not stimulate broad-based development. Third, because informal economic activity is such a powerful mechanism for creating wealth in formal markets, simply advocating transparency is not enough to bring about real change. There are powerful interests in the formal sphere that would have a great deal less access to extractable resources were they not able to work through informal means. Finally, advocacy of free markets or “market fundamentalism” is not adequate to solve the problem. Markets – as much as states – can be opaque.
The question is where policy makers can most effectively target interventions. From the Equatorial Guinean case it is unclear what policy makers can do to incentivize a leader like Obiang to reform, since he has such a massive inflow of money from graft. In resource extracting countries like Equatorial Guinea, interventions that give incentives for leaders to better govern will likely prove ineffective because they can capture resource revenues so easily.
An alternate strategy might be for development policy makers to work more closely with regulatory agencies like those that investigated Riggs Bank, including the Securities and Exchange Commission and the Department of Justice. These agencies should be encouraged to be particularly vigilant in monitoring the activities of U.S. banks and corporations in resource-rich countries. Congressional committees beyond the Senate Permanent Subcommittee on Investigations, which handled the Equatorial Guinea case, should continuously monitor the activities of U.S. firms involved in resource extraction in Africa, and exercising their oversight powers, assure that law enforcement agencies are engaged on the issue. These committees should include the House Foreign Affairs and Senate Foreign Relations committees as well as their subcommittees dealing with Africa, where knowledge of Africa is deepest. By targeting U.S. businesses rather than relying on international codes of conduct or positive incentives for corrupt rulers, policy makers could significantly limit the amount of resources flowing from the illicit to the licit economies. _____________________________________________________________________
Nick Smith is a PhD student in the political science department at the University of Chicago. He researches the relationship between crime and trust in South Africa.
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