Financial Pressure Needed to Prevent Financial Crimes in the DRC

The United States should apply sanctions on illicit financial networks and crack down on money laundering in the Democratic Republic of the Congo (DRC) where a “violent kleptocracy” has fueled an ongoing and deadly conflict, John Prendergast, co-founder of The Sentry and founding director of the Enough Project, said at the Atlantic Council.

Increased consequences for government corruption and humanitarian atrocities are brought to bear “through the tools of financial pressure that are used when the United States is serious about a policy issue,” said Prendergast. Such measures can be seen in Washington’s dealings with Iran and North Korea. In regions such as the DRC, “by far the deadliest warzone in the world since World War II,” according to Prendergast, “conventional tools of diplomacy and crisis response are simply inadequate.”

The DRC has descended into this state of violence and corruption under the rule of Congolese President Joseph Kabila. Prendergast described how Kabila, through illicit financial flows which effectively prevent the DRC’s economic growth or social progress, has repurposed the state to maximize his own personal gain. Kabila threw the country into turmoil when he refused to step down from office at the constitutionally mandated end of his term in 2016.

Kabila’s ability to hold hostage the economic prosperity of the DRC is made possible by the complicity of the banking system, said Prendergast. He delivered opening remarks at an event to discuss The Sentry’s latest investigative report: The Terrorists’ Treasury, which details the role of banks in illicit financing which perpetuates violent kleptocracies, like Kabila’s.

The DRC’s vulnerability “is concentrated in the offshoring of billions of dollars of stolen assets by the people who are hijacking the states,” said Prendergast. “The illicit financial flows out of the country match the amount going in for humanitarian purposes on an annual basis,” he added, insisting the international community must take a different approach to peacekeeping missions in the region. “The [traditional aid] package doesn’t work,” he said.

Instead, according to Prendergast, Washington must pursue financial solutions, such as “smart sanctions” or anti-money laundering measures, to solve financial problems. As written in the report: “Applied deftly by the United States, the European Union, and international banking authorities, these measures can sever the financial lifelines by which corrupt government officials, terrorist financiers, and their business networks operate.”

However, Prendergast cautioned, in order to impose such measures, “you need evidence.”

Such evidence is detailed in The Sentry’s report, which was launched at the Atlantic Council and discussed by J.R. Mailey, director of investigations at The Sentry, part of the Enough Project; Holly Dranginis, a senior policy analyst at The Sentry; and Yaya J. Fanusie, director of analysis in the Center on Sanctions and Illicit Finance at the Foundation for Defense of Democracies. J. Peter Pham, vice president for research and director of the Atlantic Council’s Africa Center, moderated the conversation.

The investigative report details the illicit financial flows of terrorist financiers under US sanctions for their connections to Hezbollah, a Lebanese terrorist group, through a Congolese bank run by Kabila’s brother.

The bank in question, BGFIBank DRC, has processed transactions for companies linked to Lebanese businessman Kassim Tajideen, an individual under US sanctions for his financing of Hezbollah. BGFIBank moved money for Tajideen and his affiliated companies, namely a Congolese conglomerate Congo Futur, despite the US sanctions imposed on him in 2009. Dranginis described how on multiple occasions bank employees raised the alarm that transactions related to Tajideen were not in compliance with US sanctions, yet the movement of illicit funds continued.

Though Tajideen was arrested in March 2017, the channels he used to move money “remain unscrutinized,” said Dranginis. Tajideen’s finances and the bank’s ties to the Kabila government are “all part of a wider problem that allows for a system of organized theft,” she said.

Both authoritarian governments like Kabila’s and terrorist groups such as Hezbollah “leverage public corruption and bank compliance to move money around the world,” according to Fanusie. He described the three “c’s” which enable such actors to operate: corruption of high-level officials which understand that designated entities are operating in their regions, complicity of bank officials which understand the illegality of the situation but turn a blind eye, and the cover provided by the first two elements which allows illicit operations to continue unchecked.

However, said Fanusie, a fourth “c,” compliance, “could help bring this to an end.” By bringing to bear a higher level of consequence for individuals and institutions who flout the regulations imposed by US sanctions and continue to sow discord as a result, Fanusie claimed the US government could begin to instigate change.

Strong, concerted actions by the US government could force banks to act, Prendergast insisted. “By pushing anti-money laundering measures,” he said, “you force the banks to care.”

“They just need to be pushed a bit by regulators,” he added.

The example of the illicit dealings of BGFIBank “shows how banks can be exploited by kleptocrats and terrorist financiers alike,” the report stipulates. However, “the continued reliance on the global financial system by these actors means that the international community has the power to address that dual threat.”

“The fact that there’s such frequent use of the US financial system gives us the tools to tackle the problem,” said Mailey. The transactions processed for Tajideen through BGFIBank were in US dollars.

The financial tools at the United States’ disposal, and recommended by the report, include sanctions, which are increasingly used as a foreign policy tool, said Fanusie. However, Mailey insisted, the United States must take a different approach to sanctions in Africa than it has in the past. “The way the US government has deployed sanctions in Africa over the past decade or so essentially guarantees failure,” he said. Rather, according to Mailey, Washington must “apply the most appropriate measure on the target regime” and follow up to identify other affiliates and companies under a particular individual’s control. “When [a sanctions program] is a priority for the US government, there’s often robust follow-up action,” said Mailey.

Beyond sanctions, Mailey described how Washington could deploy other anti-money laundering measures, such as the designation clause of the Patriot Act, section 311, which labels a bank as a money laundering concern, effectively black-listing the institution. Further targeted actions, not only against individuals such as Tajideen, but also against the institutions which facilitate their actions, could also prove effective, said Mailey.

According to Dranginis, leveraging financial pressure to counter corruptions is not a task for the United States alone. “There’s a menu of options here and it’s time for coordination, and the involvement of European countries is critical,” she said, adding: “This has to be a broad effort coordinated between actors.”

Overall, Mailey insisted, “we think that this merits a whole heck of a lot more scrutiny by law enforcement and government.”

Rachel Ansley is an editorial assistant at the Atlantic Council.

Related Experts: J. Peter Pham

Image: The Atlantic Council’s Africa Center and The Sentry at the Enough Project jointly hosted a panel discussion on illicit flows of money in the Democratic Republic of the Congo in Washington on October 19. From left: J. Peter Pham, director of the Africa Center, moderated the discussion among J.R. Mailey, director of investigations for The Sentry; Holly Dranginis, senior policy analyst for The Sentry; and Yaya J. Fanusie, director of analysis at the Foundation for Defense of Democracies’ Center on Sanctions and Illicit Finance. (Atlantic Council/Whitney Milam)