October 24, 2018 (Washington, D.C.) – A new investigative report by The Sentry details how a set of banks has been hijacked for the personal benefit of leaders, powerful officials, and other “Politically-Exposed Persons” (PEPs, ie current or former senior foreign political figures, their immediate family, and their close associates).
The report, “Banking on War: Ending the abuse of South Sudan’s banking sector by political elites and pushing for peace,” exposes pervasive risks and political control in the banking sector of South Sudan that have further undermined the country’s economy during years of war.
Mark Ferullo, Investigative Analyst at The Sentry and report author, said: “When you pull back the curtain on who controls banks in South Sudan, what is revealed is a powerful political network that control portions of South Sudan’s banking sector. Banks should be apolitical engines of growth for the economy, not lucrative businesses for a segment of political elites. For international donors engaging with South Sudan’s transitional government and looking to support the peace deal, anti-corruption reforms of the banking sector should be front and center.”
The Sentry, an investigative initiative co-founded by George Clooney and John Prendergast, has released over the past two years a series of in-depth reports detailing a system of violent kleptocracy that plunged the young nation into civil war and one of the world’s worst humanitarian crises, and that continues to undermine peace efforts.
John Prendergast, Co-Founder of The Sentry and Founding Director of the Enough Project, said: “With access to the global financial system, violent kleptocrats in South Sudan are sending the proceeds of their mass corruption out of the country. For peace to have a chance in South Sudan, the incentives must shift away from looting and towards transparent governance. The United States, European Union, South Sudan’s neighbors, and global banks have the leverage to stop the outflow of corrupt money. By following the illicit money, international regulators and bankers can target the banks in South Sudan that have helped to facilitate money laundering. Preventing kleptocrats’ access to the global financial system will provide the international community with real leverage in support of peace, human rights, and responsible governance.”
War, pervasive corruption, institutional mismanagement, political influence, and financial mistakes have shattered South Sudan’s economy and banking system.
The Sentry’s report offers recommendations to ensure that international financial institutions exercise enhanced due diligence and terminate correspondent relationships with problematic banks in South Sudan and that day-to-day operations of South Sudan’s financial sector do not undermine the peace, security, and stability of the country.
Joshua White, Director of Policy and Analysis at The Sentry, said: "This report shows how financial institutions around the world are at the front lines of the battle against the bankrupting of South Sudan by the country's elites. Banks must work closely with regulators and civil society to stem the flow of illicit proceeds out of conflict zones and prevent the laundering of ill-gotten gains through the international financial system. It's absolutely vital for sanctions and anti-money laundering compliance experts in financial centers such as New York, Nairobi, London, and Dubai to understand how these risks affect their institutions and undertake enhanced due diligence to insulate themselves from exploitation."
Since December 2013, South Sudan has fought a civil war that has devastated the country, causing two million refugees to flee across its borders and displacing another two million inside the country. In September, the government and opposition signed an agreement to revitalize the unimplemented 2015 peace accord, yet sustained peace for many South Sudanese remains elusive. As of September 2018, seven million South Sudanese rely on humanitarian aid.
Key findings in the report:
Note: A Politically-Exposed Person (PEP) is “an individual who is or has been entrusted with a prominent public function,” and according to the Financial Action Task Force (FATF), “Due to their position and influence, it is recognised that many PEPs are in positions that potentially can be abused for the purpose of committing money laundering (ML) offences and related predicate offences, including corruption and bribery, as well as conducting activity related to terrorist financing (TF).”
- Politics and Banks Intersect. More than half the 26 banks operating in South Sudan, a total of 14 banks, are partially owned or controlled by a PEP, suggesting an undue level of political influence in the banking sector. A mix of local banks, joint banks co-owned with East African investors, and foreign banks operate in the war-torn market but offer few banking services.
- PEP Control of Banks Hurts Most South Sudanese. Because PEPs establish and control banks—either directly or through relatives and associates—these banks receive preferential access to foreign exchange. This corrupt practice has caused inflation as PEPs have moved hard currency out of the South Sudanese economy.
- PEPs Rely on the Global Financial System. South Sudanese banks operating within East Africa’s banking network have access to the global financial market through correspondent bank relationships. Many of the powerful political elites who are driving the war rely on correspondent banks in the region and in banking capitals around the world to move money, including U.S. dollars.
- Misuse Threatens All Banking in Juba. Regulatory, reputational, political, and money laundering risks in South Sudan’s PEP-influenced banking sector could lead South Sudanese banks—and potentially other East African banks—to lose connections to the global financial system and decrease economic opportunity for millions of South Sudanese.
International banks, policymakers, and others committed to peace, good governance, and development in South Sudan must find joint solutions to the deficiencies in East Africa’s correspondent banking network, address regulatory and compliance gaps, and correct the influence of PEPs in South Sudan’s banking sector to set the country on the right economic course.
- Strategic De-Risking. Given the heavy PEP influence on South Sudan’s banking sector, there is a risk that local banks will be cut off from the global financial system. To prevent large-scale de-risking and restore international confidence in the banking sector, correspondent banks and regulators should agree to remove the most politically influenced local banks from the global financial system.
- PEP-Focused Bank Regulations. To lower the chances of heavy-handed de-risking, a regulatory strategy pinpointing how South Sudanese PEPs and their relatives infiltrate East Africa’s banking sector could kick off transparency and bank reforms. A risk-based strategy could home in on specific individuals, rather than focusing simply on the size of transactions.
- Diplomacy and Banks. To support necessary reforms, a partnership between international banks and those pressing for peace and good governance could align the goals of facilitating peace and improving the banking sector in East Africa. A new economy must be assembled in South Sudan to ensure that local banks are the apolitical engines of growth instead of vehicles of corruption.
Click here to read the report. Click here for the one-page summary.
About THE SENTRY
The Sentry is composed of financial forensic investigators, policy analysts, and regional experts who follow the dirty money and build investigative cases focusing on the corrupt transnational networks most responsible for Africa’s deadliest conflicts. By creating a significant financial cost to these kleptocrats through network sanctions, anti-money laundering measures, prosecutions, and other tools, The Sentry aims to disrupt the profit incentives for mass atrocities and oppression, and creates new leverage in support of peace efforts and African frontline human rights defenders. The Sentry’s partner, the Enough Project, undertakes high-level advocacy with policy-makers around the world as well as wide-reaching education campaigns by mobilizing students, faith-based groups, celebrities, and others. Co-founded by George Clooney and John Prendergast, The Sentry is an initiative of Not On Our Watch (NOOW) and the Enough Project. The Sentry currently focuses its work in South Sudan, Sudan, the Democratic Republic of Congo, Somalia, and the Central African Republic.
In less than two years, The Sentry has created hard-hitting reports and converted extensive research into a large volume of dossiers on individuals and entities connected to grand corruption, violence, or serious human rights abuses. The investigative team has turned those dossiers over to government regulatory and law enforcement agencies in the U.S. and around the world, as well as to compliance officers at the world’s largest banks.
Learn more at www.TheSentry.org.