The Nigerian Money Laundering Case

The Nigerian Money Laundering Case

Money to the value of £211,000,000 has been seized from a Jersey bank account that belonged to a former dictator. General Sani Abacha was a Nigerian army officer and de facto president between 1993 until his death in 1998.

He laundered money through the US into the Channel Islands and now that money has been recovered. The money was put in accounts held in Jersey by Doraville Properties Corporation, a British Virgin Islands company.

The money was stolen by two means: (1). A bogus “national security” funds disbursement of money from the government to private accounts (2) A debt buy back fraud in which the government debt was “bought out” at a significantly higher sum that should have been the case, and millions creamed off as a result.

Most accounts in the media are sketchy, but this chronology sets out in detail what happened.

Security Votes Fraud

The “Security Votes Fraud,” which began when, between January 1994 and June 1998, General Abacha, National Security Advisor Gwarzo, and others “stole more than $2 billion from Nigeria by fraudulently and falsely representing that the funds were to be used for national security purposes.”

The theft of funds was allegedly committed by General Abacha and Gwarzo when they “executed false national security letters [referred to as “security votes letters”] directing the withdrawal of funds from the Central Bank of Nigeria.”

General Abacha “endorsed each letter with his signature” to approve the disbursements. Over sixty such endorsed security votes letters were sent to the Central Bank of Nigeria in Abuja, Nigeria, where the bank disbursed the funds as requested in each letter, “in cash or traveler’s checks, or through wire transfers.”

Instead of using the funds for national security purposes, “the stolen money was transported out of Nigeria and deposited into accounts controlled by General Abacha’s associates, including his son Mohammed Abacha and Bagudu.”

After General Abacha’s death, Nigeria established a Special Investigation Panel, “which found that General Abacha and his coconspirators had used the false security votes letters to steal and defraud more than $2 billion in public funds, including: (1) at least $1.1 billion and £413 million pounds sterling (GBP) in cash; (2) at least $50,456,450 and £3,500,000 GBP in traveler’s checks; and (3) at least $386,290,169 through wire transfers.”

“In order to move the money overseas,” Bagudu deposited the money, which he referred to as his “‘cash swaps,’” in two local Nigerian banks, and then he “and/or Mohammed Abacha” instructed those banks to transfer the funds to accounts overseas owned by Mohammed Abacha and Bagudu. At least $137 million” of these funds were “transported into and out of the United States.”

In 2001, $1.3 billion (£835 million) in funds linked to Abacha had passed through accounts at no fewer than 23 UK-based banks between 1996 and 2000. These included Barclays, which alone handled $170m, HSBC and NatWest, as well as Citibank.

Of these 23 banks, furthermore, 15 suffered from 'significant' weaknesses in their anti-money laundering controls, the City watchdog said. Some had failed to identify the ownership of offshore companies, others had not reported suspicious transactions to the authorities.

Debt Buy-Back Fraud

The second scheme, referred to as the “Debt Buy-Back Fraud,” began in 1996, when Bagudu and others arranged for the Nigerian government, with General Abacha’s approval, to repurchase its own debt from Mecosta—a company owned by Bagudu and Mohammed Abacha—at a price significantly higher than what Nigeria would have paid on the open market. General Abacha “personally approved” Nigeria’s purchase of the debt, “even though Nigeria would have saved hundreds of millions of dollars by buying the debt on the open market”.

Proceeds from the Debt Buy-Back scheme were wired from Nigeria, through New York, to corporate accounts at Goldman Sachs in Zurich, Switzerland controlled by Mohammed Abacha and Bagudu.

Shortly thereafter, “officials at Goldman Sachs informed Bagudu and Mohammed Abacha that the bank was ending their relationship over concerns about the source of the money.” As a result, Bagudu and Mohammed Abacha moved the funds from the account at Goldman Sachs to an account for Mecosta at Banque Baring Brothers in Geneva, Switzerland.

Officials at Banque Baring Brothers then “informed Bagudu and Mohammed Abacha that the bank was terminating its relationship with Mecosta over false representations made by Bagudu and Mohammed Abacha about the source of their money.” “Bagudu and Mohammed had falsely represented . . . that the funds came from the oil and gas industry.”

Bagudu and Mohammed Abacha then moved the money from Banque Baring Brothers to an account for Mecosta at Deutsche Bank International in Jersey, which “relied on false representations of Bagudu and Mohammed Abacha and false documents purportedly showing legitimate sources of the Mecosta money.” “For example, Bagudu and Mohammed Abacha represented to DBIL that the Mecosta funds were the proceeds of oil, construction, and energy trading.”

The proceeds of these schemes and other criminal activity were used to purchase US dollar denominated Nigerian Par Bonds paid through New York and guaranteed by the US, on which very substantial sums of interest were earned. The interest and proceeds of sale of the Nigerian Par Bonds were paid into the accounts of corporate entities registered in the BVI of which a company named Doraville was one. Doraville itself was incorporated on 2nd July, 1997.

At the time other banks were cutting their ties with the Nigerian regime because of allegations of corruption, but Deutsche Bank International was deceived by false documents and false representations as to the source of the money, namely that it was the proceeds of oil, construction and energy.

Bagudu is arrested

On 18th May, 2003, Abubakar Bagudu was arrested in Houston, Texas on warrants issued by Jersey. He subsequently entered into an agreement with Nigeria and Jersey to return more than $163M of Doraville’s assets to the Nigerian government, in exchange for Jersey’s withdrawal of its extradition request and the requirement for his return to Nigeria for possible prosecution. He transferred $163M from the Bank Account to Nigeria which, according to him, represented his half of the assets of Doraville, the inference being that the remaining half were the assets of Mohammed Sani Abacha

Doraville accounts are frozen

On 25th February, 2014, and on the application of the Attorney General, the Court imposed a property restraint order over the recoverable property of General Abacha’s son, Mohammed Sani Abacha, and specifically over the bank account of Doraville at Deutsche Bank International in Jersey, and this pursuant to Article 6(3) of the Civil Asset Recovery (International Co-operation)(Jersey) Law 2007 (“the 2007 Law”), the effect of which was to vest the funds within the bank account in the Viscount (Article 7(1) of the 2007 Law) who has taken possession of those funds.

This was the first occasion on which the Court has been asked to construe the 2007 Law, which apparently has no direct equivalent in any other jurisdiction. It is described under its heading as a law “to enable Jersey to co-operate with other countries in external civil asset recovery proceedings and investigations and for related purposes.” An “ ‘external civil asset recovery order’ means an order or other judicial authority, that (a) is made, other than in the course of criminal proceedings, by an external decision-making body in a country or territory outside Jersey; and (b) specifies that property specified in the order is tainted property, or specifies an amount of money to be money to be forfeited or recovered in lieu of tainted property.”

The Doraville Legal Challenge

Attorney General Robert MacRae said: ‘In restraining the funds at the request of the United States of America, through whose banking system the funds were laundered prior to arriving here, and in achieving the payment of the bulk of the funds into the Civil Asset Recovery Fund, Jersey has once again demonstrated its commitment to tackling international financial crime and money laundering.’ In 2014, at the request of the US authorities, the Island’s Attorney General applied for, and the Royal Court granted, a restraining order over the Jersey bank account balance of Doraville. The purpose of the restraining order was to preserve the money until a final civil asset recovery order could be registered in the Royal Court.

Doraville applied to the Royal Court for the restraint order to be discharged.  Doraville’s lawyers argued that because the US had obtained the American judgment after Doraville failed to defend the action in Washington, there could be no basis in Jersey law to hold that the funds had been found to be criminally derived for the purposes of Jersey law. They also argued that affidavit evidence relied on by Federal prosecutors demonstrated that most of the money was clean. On both bases they argued that the restraint order should be quashed, but the Royal Court dismissed the application in 2016.

Then in 2017, Doraville challenged the Royal Court’s decision, taking the case to Jersey’s Court of Appeal. That challenge was again rejected. Finally, following the decision of Jersey’s Court of Appeal, Doraville made an application to appeal against the restraint order before the Privy Council – Jersey’s ultimate appellate court.

In February 2018 the Privy Council announced its rejection of this final legal challenge. Last week, Solicitor General Mark Temple gave a presentation in Vienna, Austria, about Doraville at a UN conference on corruption. He said: ‘The conference of the States Parties to the United Nations convention against corruption is an important international forum concerned with anti-corruption measures and asset returns. ‘The conference was a good opportunity to demonstrate progress with the Doraville case, as well as Jersey’s determination to deal with international financial crime more generally.’

And in conclusion....

Jersey has demonstrated that it can no longer be a safe place for "tainted money" which has been laundered and which comes from criminal activity. But a number of banks, along the way, including Deutsche Bank International in Jersey, as well as banks in the USA, France, Switzerland and elsewhere evidently did not conduct as much investigation into the source of the funding as they should. 

Only two banks are noted for closing the accounts, namely Goldman Sachs and Banque Baring Brothers, but it is not clear whether they also filed any suspicious activity report (SAR) wioth any regulators.

Speaking of regulators, BVI seems to have a rather lax attitude to beneficial ownership, as the main company in question, was formed there.