Equatorial Guinea is a nation of under 1 million people that has been gushing oil for 15 years. It enjoys a real per capita GDP higher than France’s, according to the World Bank, but—perhaps because it is tied with Zimbabwe on Transparency International’s Corruption Perception Index—its place on the United Nations’s Human Development Index is closer to South Africa’s. Much of Equatorial Guinea’s wealth allegedly flows to two people: President Teodoro Obiang Nguema Mbasogo, who has ruled the country since executing his uncle in 1979; and Vice President Teodoro Obiang Nguema Mangue, who is the president’s son and heir apparent. Known locally as Little Theodor, the younger Nguema may be remembered by history as the kleptocrat who went too far.
Beginning in 2000, prosecutors say, the younger Nguema embarked on a $315 million buying spree in Europe and—with the help of U.S. lawyers—in the United States. Corruption monitoring groups call his actions money laundering, and prosecutors agree. His defense lawyers say that the ways Nguema earned his money are perfectly legal in Equatorial Guinea. Still, in a startling policy departure, France and the U.S. are each trying to claw back what they see as ill-gotten gains from a sitting leader of a nation with close ties to the West.
The American Bar Association has closely followed the Nguema forfeiture cases, because a Senate investigation has linked two California attorneys to the scandal. Yet the absence of anti–money laundering reporting obligations for lawyers makes it hard to hold them accountable for their role in helping Nguema make local purchases. And the bling that Little Theodor bought is so distractingly tawdry that the lawyers have until now escaped press scrutiny.
In a forfeiture action filed October 2011 in Los Angeles federal district court, the U.S. Department of Justice accuses Little Theodor of laundering money looted from his people to buy U.S. real estate and Michael Jackson kitsch. (The defense says he’s only guilty of bad taste.) Soon after the memorably captioned U.S. v. One White Crystal-Covered "Bad Tour" Glove and Other Michael Jackson Memorabilia was filed, U.S. bailiffs seized seven life-size statues, four fedoras, a life mask, and a wig of the Gloved One. The bailiffs also took title to an eight-bathroom Malibu bachelor pad with a four-hole golf course and a 32-vehicle garage. In a Washington, D.C., companion suit, Justice is seeking a Gulfstream jet. Not to be outdone in the luxury goods department, French bailiffs in August 2012 seized from Nguema a 101-room villa near the Arc de Triomphe that featured its own Turkish bath and small Rodin gallery. A year earlier, they took the keys to two Ferraris, two Bugattis, and seven other luxury cars.
That an accused kleptocrat might purchase Western baubles with the aid of Western lawyers is unremarkable. What’s remarkable is that the suspected kleptocrat is being prosecuted for spending his people’s wealth—while his alleged enablers have so far suffered no consequence. The Nguema affair tests the power of the law to combat kleptocracy, and exposes gaps in the regulation of money laundering by attorneys.
To anticorruption activists, the Nguemas are the first family of money laundering. A 2003 expose by Ken Silverstein in the Los Angeles Times led to a U.S. Senate report the next year showing that Riggs Bank had allowed the Nguemas to funnel hundreds of millions of dollars through its accounts with no money laundering controls. Under pressure from regulators, Riggs Bank in 2005 pleaded guilty to one felony count, paid $41 million in fines and penalties, and merged out of existence. The Nguemas emerged unscathed.
But in 2006 nonprofits started pointing fingers at the Nguemas in France and Spain. The Open Society Justice Initiative, George Soros’s nonprofit, linked transfers from Riggs accounts to Little Theodor’s purchases of trophy Spanish properties, and the Spanish Association for Human Rights demanded that Spain seize the properties. A Spanish judge opened an investigation, which is pending.
Meanwhile, the French Catholic nonprofit CCFD began to document Nguema’s French excesses. French groups, led by the human rights organization Sherpa, urged French prosecutors to seize assets from him and other African political figures. When the prosecutors declined, the nonprofits brought an " action civile " to compel a criminal investigation. French law declares certain kinds of nonprofits to be "victims" with the right to bring such suits, but anticorruption groups historically have not been among them. Nguema’s foes won a landmark 2010 ruling in the Cour de Cassation, holding that any established nonprofit may bring an action civile within the scope of its mandate. Provisional seizure of the 101-room palace soon followed. Sherpa head William Bourdon foresees a two- or three-year legal fight on the question of whether international law protects the assets of a sitting vice president from seizure.
In contrast to France, authorities in the U.S. took their cue from civil society without prompting. By 2007 the Justice Department had opened the investigation that would lead to the Malibu seizures. In 2009, while that investigation was under way, Attorney General Eric Holder announced the formation of a Kleptocracy Asset Recovery Initiative, with the ringing statement: "When kleptocrats loot their nations’ treasuries, steal natural resources, and embezzle development aid, they condemn their nations’ children to starvation and disease. In the face of this manifest injustice, asset recovery [of that loot] is a global imperative." He backed it up by putting six prosecutors on the kleptocracy team (with another dozen devoted to money laundering and bank integrity). So far the Kleptocracy Initiative has pushed two cases to completion, recovering small assets from a Nigerian ex-governor and a Taiwanese ex-president’s daughter-in-law.
The Nguema cases are on a different scale of ambition, and not only because of the money. Both the prosecutors and defense counsel believe them to be the first cases in the U.S.—and possibly the world—to go after the assets of a sitting political figure against the wishes of his state. There’s a big difference between hunting former Philippines president Ferdinand Marcos’s funds after he’s dead and while he’s in power. "The traditional problem with recovery of corrupt assets is that the assets have already been stolen for decades," says Open Society senior legal officer Ken Hurwitz. "We’re trying to speed things up."
But Little Theodor did not go shopping for criminal defense lawyers in the bargain bin. Duane Lyons of Quinn Emanuel Urquhart & Sullivan in Los Angeles and Juan Morillo of Cleary Gottlieb Steen & Hamilton in Washington, D.C., are defending the seizure cases ably. In April, U.S. District Judge George Wu dismissed the Malibu seizure case on the novel grounds that its recitation of tawdry purchases was nothing but "spender’s porno." In particular, the judge asked Justice to specify what illegal conduct in Equatorial Guinea might be linked to the U.S. bank accounts, in order to establish money laundering.
The government’s newest complaint, filed in June 2012, explains that Nguema was awarded a 20-year franchise to harvest 88,000 acres of rain forest when he was in his mid-twenties. He became forestry minister at age 30, in 1998, and five years later added infrastructure to his portfolio. After repleading, the government argued that Nguema could not have amassed his fortune on a minister’s salary. Rather, it alleges that Nguema extorted much of his money from timber exporters, and embezzled most of the rest through inflated construction bids, pointing to a handful of alleged examples.
The defense argues that extortion and self-dealing by high ministers are legal in Equatorial Guinea, and that prosecutors still haven’t pleaded the alleged illegalities in enough detail. More fundamentally, the defense argues, Nguema earned his money through his own legitimate timber and construction businesses. According to a 2009 diplomatic cable that was leaked through Wikileaks, Nguema said succinctly: "I’ve been very lucky in business, and I like to live well." The government offers different interpretations of Equatoguinean law, and says Nguema’s personal busi­nesses are fronts. Now Judge Wu demands that the government establish through discovery that the money used to purchase the assets seized in the U.S. may be traced to acts of illegality in Equatorial Guinea.
Even if the government can establish the facts, does attacking a sitting minister violate the comity and act of state doctrines, by disrespecting a state’s right to enforce its own laws? That’s the way the defense sees it. As Cleary’s brief politely puts it: "Many of the closest allies of the United States in Africa and the Middle East have derived their wealth . . . in a perfectly analogous manner."
Nobody expects the U.S. government to target the assets of Saudi princes—or the mother of China’s outgoing prime minister. Then again, few expected the U.S. to finger Guinea, which is a major oil exporter dominated by U.S. business. To anticorruption campaigners, they’re all fair game. The Nguema rulings will determine how far prosecutors can push the envelope, if they gather the nerve.
Of course, the next obvious targets for prosecution are the attorneys who allegedly enabled Nguema. And here we come to the dog that hasn’t barked. In 2010 Senator Carl Levin’s permanent subcommittee on investigations issued a report that focused on two solo attorneys who worked for Obiang Nguema—Hastings College of Law graduate Michael Jay Berger of Beverly Hills and Harvard Law School graduate George Nagler of Los Angeles. "The Obiang case history," it concluded, "demonstrates how a determined [suspect person] can employ the services of U.S. attorneys to bring millions of dollars in suspect funds into the United States. . . ."
The Levin report alleges that Berger and Nagler each formed shell companies for Nguema with names like Sweetwater Management Inc. They then set up bank accounts for those shells while allegedly hiding the "beneficial" owner—thus circumventing the banks’ anti–money laundering controls. After Union Bank of California and Bank of America caught up to Nguema and closed his shell accounts in 2005 and 2006, Levin alleges that Berger knowingly let Nguema move millions in suspect funds through his client and law office accounts at the very same banks until they were shut down. Similarly, Levin alleges that after California National Bank caught up to Nguema in 2006, Nagler passed $400,000 in suspect Nguema funds through his attorney-client and law office accounts at other banks. Allegedly, Nagler even printed checks for his client and office accounts under the name Sweetwater Management. The Levin report alleges that Berger and Nagler were at least aware of Nguema’s political status and suspect wealth, and of press articles accusing him of corruption.
Berger’s emails to his client suggest that his judgment may have been clouded by the perceived glamour of mingling in Nguema’s circles at the Malibu villa and the Playboy Mansion. After one party, Berger wrote: "I appreciate the super VIP treatment that you gave me. . . . The food was great, the drinks were better than great, the house, the view, the DJ, the white tiger were all SO COOL!"
Berger and Nagler both took the Fifth when called to testify in the Senate in February 2010, and declined to comment for this piece. Neither has been charged by criminal or bar authorities. The government’s forfeiture complaint names Berger and Nagler as unindicted conspirators with Nguema in bank fraud. But the Quinn Emanuel brief argues that any bank fraud theory will fail because no bank suffered harm. A money laundering theory might be more straightforward, but money laundering has a five-year time bar. Observers believe that Justice has not yet decided whether to charge the attorneys. Justice declined to comment.
What about ethical consequences for the attorneys’ alleged actions? The California Bar informed a federal official that it would not investigate Berger and Nagler because it could identify no ethical violations, according to four sources familiar with the correspondence. The U.S. suggested otherwise in its Malibu complaint, noting that the California bar’s rule 4-210 forbids using a client account for the client’s personal or business expenses. However, the California rules lack the model rule provisions on deceit or on conduct prejudicial to the administration of justice. Ethicist William Ross, of Cumberland School of Law, says that "an ideal code of conduct would prohibit the use of law office and client accounts to disguise funds in a manner prejudicial to the administration of justice." The California bar declined to comment.
More broadly, the Levin report has sparked debates over the identification of a company’s beneficial owners, and over the obligations of attorneys to combat money laundering. A 2011 World Bank study, "The Puppet Masters," found that the U.S. is the world’s leading haven for anonymous shell companies that have been caught in corruption on a grand scale.
In response to these problems, the Levin report recommended that the U.S. Department of Treasury require attorneys to certify that all client and law office accounts aren’t used to circumvent money laundering controls. More concretely, Levin in 2011 cosponsored an Incorporation Transparency Act, requiring licensed formation agents to collect the names of beneficial owners for the companies that they form—and to establish anti–money laundering programs. Big-firm lawyers would likely farm out such work, but lawyers that do the incorporation themselves would be obliged to disclose their clients’ information if subpoenaed.
The ABA has made common cause with the U.S. Chamber of Commerce and the National Association of Secretaries of State to stall this bill in committee—despite the enthusiastic support of anticorruption nonprofits, law enforcement lobbies, and the Treasury Department. "Any anti–money laundering measure needs to fit with American legal tradition," says Venable’s Kevin Shepherd, who chairs the ABA’s gatekeeper task force. "We cannot ignore the bedrock importance of protecting the attorney-client privilege, the confidential lawyer-client relationship, and the historic tradition of effective state court regulation of lawyers." A federal law that may make lawyers snitch on their clients is not what the ABA has in mind.
The ABA also opposes the money laundering reporting requirements that the Financial Action Task Force, an influential global standard-setting body, wishes to impose on lawyers. Laurel Terry of Penn State Dickinson School of Law argues that such rules will not deter bad apples who are already adequately covered by criminal law and disciplinary rules. She cites a study by England’s Law Society concluding that new anti–money laundering rules for lawyers in the United Kingdom have imposed high costs (up to 16 compliance staffers at large law firms) with no discernible benefit. Most fundamentally, Terry thinks it’s dangerous for Congress or Treasury to be in the business of approving lawyers’ clients. "We really want a system where lawyers are independent from the government," she says. "Look at Pakistan, Egypt, or China."
Instead, the ABA would like to see more education. It garnered praise from Treasury and Levin himself, only weeks after the Levin report was issued in 2010, for its Voluntary Good Practices Guidance for Lawyers to Detect and Combat Money Laundering. The ABA’s hero is Scott McCreary of McAfee & Taft in Oklahoma City, who heeded the red flags and declined to do business with Nguema when he sought help in purchasing a $38 million Gulfstream jet.
Heather Lowe of the nonprofit Global Financial Integrity retorts that if the existing U.S. framework for attorney money laundering were adequate, then Berger and Nagler would be held accountable for any violations. At the very least, she says, an attorney reporting requirement would make it easier to establish whether Berger and Nagler violated criminal laws and ethical rules. But she reserves her outrage for the ABA’s opposition to incorporation transparency. "Our ability to create anonymous shell companies is a major reason that the U.S. is a major destination for money launderers," she says. "It’s protected by the banking industry and their lawyers because it allows them to take money from illicit sources."
Michael Rosen, who serves as a policy adviser in the Treasury Department’s Office of Terrorist Financing and Financial Crimes, accepts that self-regulation is the most practical approach to money laundering in a nation of over 1 million lawyers. But he believes that the duty of a Berger and Nagler to drop a client like Nguema needs to be clearer.
"These two attorneys candidly turned a blind eye to a lot of risk factors," he asserts. "It’s not often that the son of a foreign leader walks in the door—but the larger issue is that attorneys should be conducting risk-based due diligence. I’d like to see ethics rules tightened, and made more explicit as to what due diligence is required."