Angola’s Connection to Financial Crimes: The Paradox of Money Laundering Jurisdictions

Angola, with a ranking of 165 out of 180 in Transparency International’s Corruption Perceptions Index and considered one of the top 25 riskiest countries for money laundering by the Basel Institute on Governance, has long been suspected of harboring corruption networks and hidden wealth. Despite this, a network linked to former Angolan President Jose Eduardo dos Santos managed to operate undetected for years, mostly in jurisdictions with supposedly strong anti-money-laundering (AML) institutions.

Dos Santos Network: Shell Companies and Their Jurisdictions

The recent leak of documents by the International Consortium of Investigative Journalists (ICIJ) revealed over 700 companies linked to dos Santos and his wife, Sindika Dokolo. An investigation into the location of these shell companies brings up an interesting relationship between the effectiveness of AML policies and the likelihood of jurisdictions hosting dos Santos-linked firms.

Evaluation of AML Systems and Dos Santos-linked Companies

According to recent evaluations by the Financial Action Task Force’s (FATF) regional bodies, or mutual evaluation reviews, countries with effective AML systems tend to host more firms linked to dos Santos. This contradicts the fundamental principle of “knowing your customer,” the basic tenet of AML policy. The findings suggest that either banks in the dos Santos network failed to know who they were dealing with or failed to ask the right questions about the origin of the funds.

The Paradox of Money Laundering Institutions

The findings raise questions about the effectiveness of AML institutions in advanced economies, despite their strong reputation and robust systems.

Advanced Economies: Preferred Destinations for Ill-gotten Gains

While these jurisdictions offer money launderers greater opportunities to hide their assets under the guise of legitimacy and respectability, the motivations make it difficult to detect and root out illicit wealth.

Scandals in Developed Economies

Recent scandals, such as the Panama Papers, Danske Bank scandal, and the dos Santos scheme, challenge the assumption that advanced economies have effectively addressed money laundering within their financial systems. Regulators are addressing these concerns by upgrading their AML regimes through the 5th and 6th EU Money Laundering Directives, but their effectiveness in detecting and preventing illicit wealth from entering these economies remains to be seen.

Developing Countries: Consequences of Noncompliance

Developing countries, often the source of illicit wealth, face significant consequences for noncompliance with AML regulations. Most countries on the FATF watchlist are developing countries, and being labeled noncompliant carries significant costs. However, a disproportionate share of cross-border illicit financial flows originates from poorer countries, making it essential for international cooperation to combat this global issue more effectively and equitably.

Data and Stata code from this analysis are available for download here.