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UNCLAS SECTION 01 OF 05 MALABO 000027 
 
SENSITIVE 

SIPDIS 

 

KHARTOUM FOR FERNANDEZ; HARARE FOR CHISHOLM; YAOUNDE FOR DATT 

 

E.O. 12958: N/A 

TAGS: PREL ECIN ECON EFIN PGOV EPET ENRG KCOR PINR
SOCI, EK 

SUBJECT: EQUATORIAL GUINEA RAW, PAPER 4:  THE BUSINESS OF CORRUPTION 

 

REF: MALABO 26 AND PREVIOUS 

 

¶1. (U) Triggered by changes underway in Washington D.C., 

upcoming personnel rotations in Embassy Malabo and animated by 

the recent attack on the capital, this is the fourth in a series 

of cables intended to update our perspective on Equatorial 

Guinea, and to provide a ground-level view of one of the world's 

most-isolated and least-understood countries to interested 

readers. 

 

¶2.  (SBU) SUMMARY:  The low level of institutional development 

and peculiar financial management mechanisms may inflate 

perceptions of corruption in Equatorial Guinea (EG).  Suddenly 

rich, the country's over-reliance on now-defunct Riggs bank, a 

lack of conflict-of-interest rules and a legacy of moonlighting 

further complicate EG's record.  While significant concerns over 

the level of corruption remain, and as growing oil revenues fuel 

the local commercial boom, there are signs EG is moving toward 

improving public finance management -- and U.S. engagement is 

helping achieve results.  End SUMMARY 

 

¶3.  (SBU) As in many other areas, Equatorial Guinea (EG) has a 

bad reputation when it comes to transparency and corruption. 

Numerous IOs/NGOs rate the country as one of the world's worst 

performers.  However, these organizations may be working from a 

position of bias and with poor information.  To our knowledge, 

none of them have undertaken recent on-the-ground surveys here. 

On the contrary, there are signs the perspective of the problem 

in EG may not be in complete alignment with reality.  Moreover, 

assessments rarely take into full account the country's level of 

societal and institutional development. 

 

¶4.  (SBU) Legacy Issues:  Part of the problem is the peculiar 

nature of the EG social environment.  According to the former EG 

treasurer, who retired in 1993 just before the oil revenues 

started to flow, lack of resources in its early days often led 

the government to compensate officials with in-kind transfers. 

Land, operating licenses and import concessions were common 

forms of "payment" to ministers and other ranking officials 

during a period when "there was often no money to pay salaries." 

 The practice began with EG government seizure of "abandoned" 

Spanish colonial holdings -- and their subsequent redistribution 

to officials as a means of compensation.  As testament to the 

then-prevailing level of abject poverty, former U.S. Ambassador 

to EG Chester Norris (1989-1992) relates having to personally 

loan money to President Obiang himself so he could "buy gasoline 

to go to local political events."  During the period of the 

"skinny cows," officials were only expected to be in the office 

three days a week.  The remainder of the time they worked their 

farms or businesses in order to feed their families.  During 

that period -- when local markets sold onions by the quarter, 

tomato paste by the spoonful, and the handful of taxis in 

circulation in Malabo required advance booking for use -- many 

Equato-Guineans energetically sought to avoid poorly-compensated 

government jobs.  Some could not; especially those close to the 

president.  Having himself come to power in a coup (one likely 

supported by outside forces) and constantly under threat of 

overthrow, he purchased loyalty by any means available. 

 

¶5.  (SBU) Those private entrepreneurs who mocked their poor 

public officials now see the tables turned.  Once oil money 

started to flow in the mid '90s, many officials found themselves 

in improved positions.  Money and power accumulated within the 

government.  In addition, the once-meager returns from the 

earlier in-kind compensation for officials mushroomed as the 

economy expanded at one of the world's fastest rates.  For one 

example, the single license to import cement into country has 

become extremely lucrative (NOTE: this license belongs to 

ABAYAK, a company partially owned by the president and first 

lady).  In another, the only person authorized to provide notary 

services in Malabo is now one of the country's wealthiest men. 

These legacy privileges have been closely guarded by those 

receiving them, but demands from the younger generation and 

growing appreciation for competition is leading to gradual 

opening.  The outgoing, but-still-powerful Minister of National 

Security once had the only modern hotel in Malabo.  He built it 

on land that was part of his "skinny cow" compensation package, 

situated along the 4-lane airport highway that was until 2000 a 

single, muddy track.  His now-aging hotel faces stiff 

 

MALABO 00000027  002 OF 005 

 

 

competition from newer, more upscale arrivals: a French-owned 

"5-star" Sofitel, a Lebanese-run EG government complex, and 

(soon) a 300-bed Lebanese-owned Hilton Hotel near the Malabo 

airport.  Forced to innovate, the former minister has just 

opened Malabo's first European-style bakery and associated 

ice-cream shop on his premises.  Competition works. 

 

¶6.  (SBU) Legal Corruption:  Representatives of a foreign, 

internationally-recognized law firm working closely with U.S. 

oil companies in EG for years tell us they are aware of rumors, 

have seen fully exploited "grey areas" but have never 

encountered a "smoking gun of outright corruption."  They 

describe EG's anti-corruption statutes as "even more stringent 

than the (U.S.) Foreign Corrupt Practices Act."  In practice, 

officials caught in the act are more often quietly removed from 

office and/or banished to some hinterlands task as penance than 

they are prosecuted.  We know of not a single court case. 

 

¶7.  (SBU) Moreover, one major flaw remains:  EG has no law 

limiting or even defining conflict of interest.  Most ministers 

continue to moonlight and conduct businesses that often conflate 

their public and private interests.  The Minister of Justice has 

his own private law firm, in which he maintains an active hand 

and open interest -- and which is not illegal under current EG 

law.  In similar fashion, the Minister of Transportation and 

Communications is director of the board and owns shares in the 

parastatal airline, not to mention the national telephone 

company.  The custom of simultaneously maintaining both official 

and private activities that became entrenched in the era of 

skinny cows has not been altered for the fat ones.  There is 

public grumbling but little internal pressure to change the 

rules.  Nonetheless, occasionally lines do get crossed.  We 

understand the former Minister of Fishing and Environment lost 

his job when it was discovered he was occasionally going to 

Spain to sign over fishing licenses out of view of the rest of 

the government.  There were also rumors that corruption led to 

the former Prime Minister's ouster (i.e., Ricardo Mangue).  High 

officials appear to be insulated from prosecution, but 

apparently can't expect impunity. 

 

¶8.  (SBU) Family Matters: EG has an extremely tight, intricately 

interconnected society (REFTEL).  There are no arms-length 

transactions here.  The traditions of the predominant Fang tribe 

prevail, and the bonds of family are as strong as they are in 

any other culture.  By American standards, these bonds are 

exceedingly powerful.  Ministers themselves fall victim to these 

traditions and appear unable to avoid pressures to intercede in 

mundane matters on behalf of even lower-class family members. 

Failure to do so can result in loss of influence and 

ostracization within the family and clan.  During a meeting with 

the powerful Minister of Interior in which he was interrupted by 

a telephone call, we were surprised to hear him engage in 

translation and explanation of a routine administrative document 

for an elderly aunt.  "She doesn't read well and she speaks poor 

Spanish," he apologized. "These family matters must be attended 

to here."  The tug of family and the opportunity for abuse of 

power are clear. 

 

¶9.  (SBU) Among those close to the president, two individuals 

are singled out for criticism both here and abroad -- the first 

lady, and her son, the "primogeniture" of President Obiang. 

"Teodorin" (or "little Theodor") as the son is known, lives the 

life of an international playboy and is widely accused of 

corruption.  His purchase of a $34 million mansion in Malibu, 

California once made Forbes magazine and attracted a great deal 

of attention.  Yet when we probe him on the issue of corruption, 

he explains that during the time of the "skinny cows," the 

government "granted" him a concession to lumber a large tract of 

pristine continental jungle.  The company he formed (and which 

he still owns, even though he is currently Minister of 

Agriculture and Forestry), brought in a Malaysian contractor 

with 40 teams of well-equipped lumberjacks who clear-cut, 

transported and shipped a wealth of whole logs to Asian markets 

-- leaving Teodorin with a large windfall.  It also ruffled 

enough feathers that a new law was introduced that prohibited 

the exportation of whole logs and limiting clear-cutting.  In 

the meantime, Teodorin continued entrepreneurial activities that 

often included purchase of foreign real estate.  "I've been very 

 

MALABO 00000027  003 OF 005 

 

 

lucky in business," he told us, "and I like to live well.  My 

house in Malibu is now worth twice what I paid for it." 

 

¶10.  (SBU) The origins of his mother's initial grubstake were 

based in real estate, and by any measure she has since become a 

formidable local real estate baron.  As the oil business took 

off, anyone with residential properties that supplied the basics 

(i.e., running water, electricity) saw demand for their 

properties soar.  Earlier than most, the first lady identified 

and built into EG's sizzling real estate boom, where 100% return 

on investments in western-style construction can come within a 

single year of completion.    Of course, it doesn't hurt with 

marketing if you are the first lady, and land for construction 

may be easier to come by than for some others.  The president 

himself acknowledges his "private interests in Equatorial 

Guinea," which include support for his wife's real estate 

ventures.  Once, in a new, stately presidential palace suite, 

waving a hand, he told us, "This doesn't belong to me.  It 

belongs to the people.  But I have to take care of my family, so 

I maintain private interests on the side." 

 

¶11.  (SBU) Anecdotal Indicators:  Given the poor level of 

institutional development, the absence of appropriate law and 

the whiplash EG has experienced in going from poverty to riches 

in such a short period (a decade ago EG was among the very 

poorest countries in the world -- it now has one of the highest 

per capita incomes of any population), it is appropriate to 

focus on the issue of corruption.  Yet apart from the obvious 

conflicts of interest, the rumors and accusations, there are 

some positive signs.  Most EG government revenue is generated by 

exploitation of the country's growing oil and gas reserves.  All 

production is currently led by U.S. oil companies extremely 

sensitive to the requirements of the U.S. Foreign Corrupt 

Practices Act.  Thus we have a reasonable level of confidence 

regarding the accounting up to the point that royalty payments 

enter EG accounts. 

 

¶12.  (SBU) In this area too, there are positive signs.  EG is a 

member of the 6-nation Central African Franc monetary union.  In 

the past decade, and in competition with much larger countries 

such as Cameroon, Gabon, and Congo, EG's reserves in the 

associated Central African Bank went from a rounding error to 

over 60% of the sum total.  While leaks are likely, a system 

hemorrhaging money to corruption is unlikely to have amassed 

reserves at such a rapid rate.  A recent visitor from the 

secretariat of the Extractive Industries Transparency Initiative 

(EITI -- for which EG is voluntarily a candidate country) was 

"pleasantly surprised" to find EG's accounts to be in such good 

order. 

 

¶13.  (SBU) Riggs Rigged:  The 2005 collapse of venerable Riggs 

Bank in Washington D.C. continues to hang over EG like a cloud. 

At the time of the Senate/OCC investigations, EG was discovered 

to have the largest cumulative balance in the bank.  Yet study 

of the record shows the bank itself to have been at fault with 

regard to its reporting responsibilities, while the accounts 

associated with EG can be reasonably explained.  Based on our 

conversations here, Equatoguineans readily accepted Riggs' 

advice regarding accounts and accounting -- assuming the bank 

was "acting properly." As the increasing flow of 

dollar-denominated oil revenues built up, and attractive 

interest income streams ensued (which was not always the case 

with EG funds held in the BEAC -- the Central African central 

bank), individuals associated with the EG government began to 

open private accounts.  Both the amounts in the government 

accounts and those in individual accounts are easily in line 

with amounts generated respectively by oil revenues and private 

activities of those concerned.  Recognizing the crippling human 

capacity challenges in the country and the need for western 

(particularly U.S.) education, the EG government even worked 

with the bank to set up accounts for two separate scholarship 

funds, which the bank (poorly) administered.  EG leaders were 

"surprised" to learn U.S. government investigators took a dim 

view of this arrangement. 

 

¶14.  (SBU) As a country, EG has poor level of appreciation for 

international best practices in accounting.  From the EG 

perspective, the country relied on Riggs for good advice, which 

 

MALABO 00000027  004 OF 005 

 

 

it did not receive.  EG continues to struggle with very meager 

institutional development in the area of public finance and 

financial management.  One element scrutinized by U.S. 

investigators of the Riggs affair was the peculiar signatory 

authority utilized on EG accounts.   Long after closure of its 

Riggs accounts, President Obiang is still proud to say he is 

paymaster for the EG government.  He continues to personally 

maintain control of the checkbook, "because I've learned I can't 

trust anyone else."  Countersigned checks are his way of 

ensuring money goes where intended.  He has been attacked by 

some for exerting this level of control, but given what we know 

about the current low level of institutional development and 

lack of capacity, it may be more prudent than immediately 

apparent.  There are very large numbers of public projects 

underway and the president is famous for making surprise 

personal appearances to spot-check for progress, conformity and 

quality.  The tactic is reported to keep contractors on their 

toes.  Nevertheless, it is in these downstream, public 

expenditures that we lose visibility and in which the greatest 

opportunities for corruption persist.  Rumors abound of 

influence buying, bid rigging and kickbacks.  Without developed 

institutional oversight and internal controls, one person can't 

supervise everything, but woes betide those who are caught in 

the act. 

 

¶15.  (SBU) Progress:  There are two bright spots and a promising 

glimmer regarding improvement in EG's management of public 

finances, all of which have significant USG angles.  One is the 

unique "Social Development Fund" (SDF) whereby EG ministries are 

learning to manage project development, planning and execution 

in ways that are consistent with international best practices. 

SDF is fully funded by the EG government, and involves direct 

payment to USAID for 3 years and about $15 million worth of 

technical assistance to establish mechanisms and procedures for 

social projects that range from health to education.  An 

overarching goal is to set in motion institutional development 

leading to a government-wide system that meets international 

standards.  After fits and starts, the Fund has moved into the 

execution phase of initial round of projects, with dozens more 

in development and new ministries coming onboard. 

 

¶16.  (SBU) Another promising sign is EG's determination to 

become a member of the Extractive Industries Transparency 

Initiative (EITI), an international effort supported by former 

British PM Tony Blair and Transparency International's Peter 

Eigen.  Encouraged by the embassy, EG has mounted a serious, 

voluntary effort to obtain candidate status and move toward full 

membership.  In another demonstration of the capacity challenges 

confronting the country, the key stumbling block is not 

accounting and transparency so much as a very low level of 

development of the country's nascent civil society -- a key 

"watch-dog" component of the EITI process.  With a 200 million 

euro project underway, the EU is engaged in helping civil 

society grow to fill this gap. 

 

¶17.  (SBU) Finally, we have been told by the Minister of Finance 

that EG will pursue a request for USG assistance (specifically 

Treasury Department official technical assistance) in 

professionalizing his ministry, and which the government of EG 

will partially or fully fund.  His letter making this request 

has been drafted and is "awaiting the council of ministers 

approval," expected soon. 

 

¶18.  (SBU) Conclusion:  While we make no claim of having 

undertaken an exhaustive study of corruption in EG, we find 

local nuance and "ground truth" to be at odds with 

often-exaggerated claims made by the international press and 

even by NGO's that focus on this issue set.  Flush with oil 

money, the value of corrupt actions is probably growing. 

However, anecdotal evidence suggests the incidence of corruption 

is declining.  Businessmen describe EG as a "good place to work, 

but a hard place to do business."  I.e., while it is relatively 

safe and secure, many of the actors who populate the country are 

working the angles for their own personal and family benefit. 

The FCPA and resulting performance of U.S. oil companies has 

helped secure a reputation for Americans of being honest and 

straight, which helps keep the worst of the crooks at bay. 

Other international players may have less integrity.  The good 

 
MALABO 00000027  005 OF 005 
 
 
reputation we enjoy attracts EG leaders who want to see the 
business and legal environment improve.  Here too, additional 
U.S. assistance can help, as the results above show. 
SMITH