Crude World Page 4

  Obiang inherited a moribund nation. The economy consisted of anemic exports of cocoa and coffee. Obiang didn’t do much to improve matters. The kindest thing that could be said about his regime was that it was charmingly inept. One of his aides was caught smuggling marijuana into America when he left a trail of pot as he walked through John F. Kennedy Airport; his suitcase had a hole in its side. Obiang, who enjoyed playing tennis in a nation where ownership of a soccer ball was a sign of wealth, was mentioned in the foreign media when lists were published of the world’s worst dictators; he usually made the top ten.

  His status was deserved. An opposition leader announced one day that Obiang “has just devoured a police commissioner. I say devoured, as this commissioner was buried without his testicles and brain.” Cannibalism has been denied by the government, but what’s undeniable is that Obiang did not treat his rivals with kindness. John Bennett, a former U.S. ambassador to Equatorial Guinea, told me of an opposition politician who returned from exile, unaware that Obiang remained displeased. Police thugs went to the politician’s hotel room, threw him to the ground and dragged him away by his feet, his head bouncing off a set of marble stairs. Later, he was beaten to death with staves; his demise was officially listed as a suicide. Bennett didn’t last long, either. He was evacuated in 1994 after receiving a death threat from an Obiang aide who soon became foreign minister. The American embassy was closed the following year. When we spoke before my trip to Equatorial Guinea, Bennett described it as “the world’s finest example of a country privatized by a kleptomaniac without a scintilla of social consciousness.”

  At almost the same time Bennett had to leave, several hundred million barrels of oil were discovered in the country’s waters in the Gulf of Guinea. That’s a minor amount in the grand scheme of things—Nigeria has more than 35 billion barrels of oil, Saudi Arabia more than 260 billion—but it’s a destiny-altering amount for a nation whose population is smaller than that of Memphis. The way was led in the early 1990s by a small American company, Walter International, which then sold its valuable concession to a bigger firm that had the know-how and financing to build an extraction infrastructure of wells and pipelines. Once the first fields were opened, larger companies, such as Marathon, bought rights to them and found yet more fields. This is often the way things work in the oil industry—there is a food chain of extraction rights and discoveries.

  Although there are variations, usually a company pays a government a nonrefundable fee for the right to search for oil or gas. Depending on the likelihood and difficulty of success, the fee can range from a few million dollars to tens of millions or more. The poorer and less sophisticated a country is, the less it tends to receive, because its bargaining position and financial prowess are not terribly strong. Corruption plays a role, too. Quite famously, Standard Oil of California paid 55,000 pounds in gold for the right to search for oil in eastern Saudi Arabia in the early 1930s. At the time, the Saudi king was in desperate need of cash because his new country was deeply in debt and on the verge of falling apart. At the outset, the American companies that now extract oil from Equatorial Guinea reaped unusually large profits—the result, according to the International Monetary Fund, of Obiang and his financial advisers not understanding or not caring to understand how much they were giving away. This is one of the ways a country’s wealth is stolen. Corrupt dictators and officials, after taking bribes or negotiating lucrative side deals for themselves, award exploration and production contracts that are unduly generous to the companies on the other side of the bargaining table. The consequence is that crooked officials become rich but their country receives less for its resources than it should.

  With oil-prospecting rights in hand, a company spends what can be considerable amounts on geological surveys and exploratory wells. The risks are high—if oil or gas is not found, the exploration costs are lost, usually tens of millions if not hundreds of millions of dollars, on top of whatever was paid for the mere right to explore. The gamble is offset by potential profits, because a company that finds oil or gas often has the contractual right to a share of revenues gained from extracting the treasure; at the least, it has an inside track on the next round of bidding. Walter International got lucky—it found oil under Equatorial Guinea’s waters. The small company was soon bought out by a larger firm. Big Oil had found, as they say in the industry, a new “play.”

  The “majors,” as the largest companies are known, poured money into the country—more than $7 billion by 2008—to build offshore platforms and onshore facilities to extract nearly 400,000 barrels of oil a day and considerable volumes of natural gas. Just a few miles from Malabo, Marathon built a $1.5 billion plant to turn natural gas into a frozen liquid that could be shipped to America and Europe. Malabo’s landscape was altered. At night, if you stood on the patio of the Hotel Bahia, where in the 1970s Frederick Forsyth wrote The Dogs of War, and where the political elite continued to gather for drinks when I was there, you could see the flares of Marathon’s plant, which was about ten miles away. In fact, you could not miss the flares—their light was strong enough to cast shadows at the Bahia.

  In a geological blink of an eye, Equatorial Guinea became the third-largest energy exporter in sub-Saharan Africa, after Nigeria and Angola. Malabo boasted nonstop flights to Texas; they were known as the “Houston Express” and were filled with oilmen. By the time of my visit, gross domestic product had soared an almost unimaginable forty-fold from the pre-oil days. The country was exporting more oil and gas per capita than Saudi Arabia. If the revenues were spread evenly around the country, the people in Equatorial Guinea would be among the richest in the world.

  The reality is fantastic only in the worst of ways.

  Even if Mother Teresa were president of Equatorial Guinea, the odds would be stacked against her subjects getting rich from the country’s mineral wealth. That’s because it is not just the thieving activities of government officials that make it hard for average citizens to benefit from oil booms. The globalization of labor, combined with the small number of workers needed for capital-intensive oil projects, ensured that most Equatorial Guineans would watch others profit from the boom.

  Let’s begin at Marathon’s natural gas facility, the one whose immense flares brightened (and polluted) the night sky. Little of the $1.5 billion Marathon and its minority partners spent on the facility entered the local economy because the plant was built by thousands of foreign workers who lived on the construction site and sent their paychecks home to Manila and Houston. Even for manual labor—digging ditches and the like—workers were flown in from India and Sri Lanka. I wouldn’t have understood the economic logic had I not been driven around the plant by its genial manager, Rich Paces, a Texan, in his SUV.

  As we moved around the site I noticed that almost all the workers were South Asian, while managers were American or European. I knew that Equatorial Guinea’s labor force included few college-educated managers, but there was no shortage of young men who could pound nails. Why weren’t they working here? Paces explained that the Indians and Filipinos had previous experience on large projects of this sort, so they required little instruction. They knew how to use welding torches, they knew how to avoid injury from the heavy machines on the site, and they could be counted on to work twelve-hour shifts without complaint. Also, they were not hobbled by malaria or yellow fever, which were rife among the native population. The few locals working at the plant were hired under a quota written into the company’s contract with the government.

  “We’re under contract to hire them, and it’s the right thing to do,” Paces said. “But if we didn’t have those limitations, we’d entirely staff it up with low-cost Filipinos and Indians.”

  The plant—like many oil installations in the developing world—could have been on the moon for all the benefit it offered local businesses. Thanks to just-in-time supply networks that span the globe, Marathon saved money by importing what it needed rather than working with unfamiliar local suppliers
. Instead of buying cement from a Malabo company that might not deliver on time, Marathon built a small cement factory on the construction site. Raw materials were imported, and the factory would be dismantled when construction ended. The trailers in which the Asians lived were prefab units—no local materials or local labor had been used to build them. The plant had its own satellite phone network, which was connected to the company’s Texas network—if you picked up a phone you would be in the Houston area code, and dialing a number in Malabo would be an international call. The facility also had its own power plant and water-purification and sewage system. It existed off the local grid.

  “Almost everything has to be imported,” Paces explained.

  How about paint? I asked.

  “Imported, sure,” he replied.

  Portable toilets?

  “Yes.”

  Equatorial Guinea had a lumber industry, so I asked whether the wood, at least, was local.

  “No, imported.”

  Food?

  “Most of it gets imported.”

  Construction cranes?

  “You have to be self-sufficient out here.”

  I pointed to the small rocks that had been lined up to denote the shoulders of a dirt road on the site.

  “Those are local rocks, but importing them would be cheaper,” he said.

  That night, I strolled through the center of Malabo and found a few hubs of local job creation. Their names were La Bamba and Shangri-La, and they were open-air bars that played country music to attract the roughnecks from Texas and Oklahoma. The teenage girls who swarmed these establishments were dressed in skirts made for whistling at. The oilmen called them “night fighters” because they battled each other for the chance to spend an evening with one of the rich foreigners. As I walked past La Bamba, several girls trotted out of the bar to chat me up. The men in Malabo might not find jobs in the oil industry, but it was clearly possible for their desperate sisters to earn a few dollars.

  The oil companies provided few jobs to local people, but they were paying royalties—at least in the hundreds of millions of dollars a year—for the privilege of extracting and selling Equatorial Guinea’s hydrocarbons. Where was that money going?

  It was no secret that Obiang lived far beyond the means of his official salary. He belonged to the class of dictators who do not feel the need to obscure the comfort they grant themselves. Conspicuous consumption is a manifestation of greed as well as a way to project power. In a country like Equatorial Guinea, anybody could kill you with a gun, but how many people could afford to live in a mansion with two tennis courts? Obiang had built, along the well-traveled road from the airport into Malabo, several mansions for himself and his wives. Although the dictator was not always in evidence—the airport road was closed to other vehicles when his motorcade traveled on it—his wealth was well advertised. He bought, for $55 million, a Boeing 737 in which the bathroom fixtures were gold plated. When the plane was flown into Malabo’s airport, Obiang was on hand to inspect it and boasted to reporters, “This plane elevates the image of our country in the developing world.” His indulgences were almost modest compared with those of his eldest son, Teodorin, who bought luxury homes in at least two countries, including a $35 million estate in Malibu. To round out the portrait of playboy extraordinaire, young Teodorin dated the rapper Eve and invested in a hip-hop label, TNO Records. For a week-long Christmas cruise, Teodorin rented, for a reported $700,000, a monster yacht that belonged to Microsoft cofounder Paul Allen. It should be noted that Teodorin’s official salary at the time, as the minister of forestry, was $48,000 a year.

  The first family could not spend all the money coming in from the oil companies, hundreds of millions of dollars a year. Yet little of this bonanza was used for improving the lot of ordinary people. When I visited the minister of education, I noticed that he worked out of an office that had a bare light bulb for illumination and a couch the Salvation Army would have rejected. The most valuable item in his office was his Rolex, which suggested that his needs received more attention than his ministry’s. If he required more light, it seemed he would need to buy a bulb himself or swipe one from a subordinate. It was like that in every government building I visited, including the few schools that existed at the time; there was dilapidation at every stop. More than a decade after oil’s discovery, nearly half of the children under the age of five remained malnourished, few households had running water or electricity, and soldiers at checkpoints continued to demand bribes—“cerveza” they would say to their victims (including me). There was little choice but to hand over beer money and hope for better times. “The staggering increases on paper stand for little,” a British report noted. “Equatorial Guinea’s wealth is concentrated in the hands of a tiny elite, so oil revenues do not benefit the majority and do not stimulate the economy as a whole.”

  The money trail is no mystery. Old ladies and petty criminals can hide their savings in mattresses, but oil dictators cannot do the same with hundreds of millions of dollars. Stealing oil revenues is not like holding up a grocery store. You need to get the oil and gas out of the ground, you need to ship and sell it to foreign markets, you need to put the revenues into bank accounts, and you need to find ways to share some of this money with the family and friends who are the political elite that help run your country and keep you in power. You need, in other words, a lot of help. Usually this can be done without indictment; offshore banking is made for such tasks. But Obiang made a mistake that allowed the rest of the world to understand the dynamics of making a nation’s oil wealth disappear. Instead of stashing the millions in a numbered Swiss account, he selected a niche bank in Washington, D.C., that was willing to abet his plan but was incompetent at doing so.

  A ritual indulged in by men of great wealth is the luncheon with their bankers. The wealthy client is ushered through the bank’s private entrance and is conveyed in a special elevator to a wood-paneled dining room, where he is flattered and fed like a king. If the client makes a joke, the laughter is fulsome. If he suggests a certain investment priority, his opinion is received as brilliant. This, more or less, was the white-glove treatment granted to Obiang by Riggs Bank, which for more than a century had offered its discreet services to the powerful and well connected in Washington, D.C. When Obiang visited the United States in 2001, a lunch was held by the bank, where Obiang had become, thanks to enormous deposits into his accounts from Exxon and other oil firms, the largest client. His fawning hosts—the bank’s president and other executives—sent him a grateful follow-up letter, which congressional investigators later obtained.

  “We hope this letter finds you well and rested after your last busy trip to Washington,” their missive began. “We would like to thank you for the opportunity you granted to us in hosting a luncheon in your honor here at Riggs Bank.” The letter expressed their “gratitude” for the chance to serve Obiang and promised to “reinforce your reputation for prudent leadership and administration as you lead Equatorial Guinea into a successful future.”

  Obiang started his relationship with Riggs in 1995, when he decided that it would be easiest to use an American bank as a parking spot for the money he was beginning to receive from American oil companies. After all, why go to the trouble of using a shady Swiss outfit when a respectable American establishment was willing to do the job? Obiang assumed that his solicitous bankers at Riggs could handle his affairs in a way that would defer inconvenient questions from the U.S. Treasury Department. Obiang and his family and his associates opened sixty accounts at Riggs, some for official purposes, others for personal affairs. Deposits in those accounts reached $700 million. In tandem, Obiang and companies he owned opened accounts in countries with bank secrecy laws—the kinds of places where money goes to disappear for good—and filled those accounts with funds that came from Riggs, which acted like a traffic dispatcher in forwarding its clients’ money.

  Riggs Bank in Washington, D.C.

  The primary Riggs account, known as th
e “oil account,” was where energy companies deposited royalty payments, and this account often held tens of millions of dollars at a time. It was used as a holding place for the money before it was transferred into other accounts at Riggs and elsewhere. There is no suggestion that payments into this account were bribes—the funds were owed to Equatorial Guinea by the oil companies—but the companies showed no interest in knowing what happened to this money. They did not seem to care that their payments were being handled in a fashion that screamed theft: the oil account at Riggs was controlled not by Equatorial Guinea’s government but by its president. (Imagine a company making its tax payment not to an account controlled by the IRS but to an account controlled by Barack Obama.) Obiang’s regime wired—without objection or scrutiny from Riggs—$35 million from the oil account to mysterious companies in banking havens with strict secrecy laws.

  Then there were the “investment accounts” of Obiang’s regime. In 2003, the value of these accounts fluctuated between $300 million and $500 million. In effect, these were Equatorial Guinea’s financial reserves—the money that was gained from oil sales. It is unusual for the bulk of a country’s financial reserves to be held in a private foreign bank, especially a relatively minor one like Riggs. And it is even more unusual for transfers or withdrawals from these accounts to require just the president’s signature. Obiang actually did relatively little with them, aside from occasional transfers to the accounts in banking havens. Instead of being invested in schools or hospitals or light bulbs for the minister of education’s office, and while his compatriots died of malaria and hunger-related diseases, most of the money stayed at Riggs.