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Disappearing diamonds
Khadija Sharife, 100 Reporters
February 20, 2013

http://100r.org/2013/02/disappearing-diamonds/

Once a month, sometimes more, a VIP-configured Airbus jetted into Lanseria International Airport, a small and privately-owned base facility near Johannesburg, South Africa. The plane, an Airbus 319CJ, also stopped at Zimbabwe's Harare airport. It carried important people and was widely believed to ferry some precious-and illicit-cargo: Zimbabwe's conflict diamonds.

The diamonds came from one of the largest diamond troves in history: Marange. Spanning 173,000 acres and priced at $800 billion in rough diamonds, Marange's concentration of treasure is eight times higher than average, at more than 1,000 carats per hundred tons.

The plane, first identified in report by the British nonprofit organization Global Witness, has played an integral role in moving the diamonds out of Zimbabwe. Money from their export has gone to cement the hold of President Robert Mugabe, and arm Zimbabwe's notorious secret police-responsible for killing, raping and maiming thousands of artisanal miners in an operation to clear out Marange in 2008.

An examination of purchasing documents, corporate records and interviews with relevant officials by 100Reporters has, for the first time, parted the curtain on the plane's ownership to reveal links between the mysterious jet, Zimbabwe government officials, law firms and investors with holdings across the globe, from the UK to China, Angola to Bermuda to Wall Street.

Flight logs for the plane, registered as VP-BEX, disclose frequent trips to Singapore, Hong Kong, Tanzania and Angola, among others. The Airbus appears to enjoy a remarkable lack of scrutiny, seemingly flying in a perpetual no-oversight zone. In the South African airport that was the plane's home base, unless cargo and goods were self-declared, the plane and its passengers were not normally subject to inspection by customs, police or civil aviation authorities.

Farai Maguwu, an award-winning human rights activist and Zimbabwe's leading researcher of the diamond trade, said, "We don't know where the plane goes, what the routes are, or even who is involved. But we know that VP-BEX A319 was identified as playing an important role in facilitating this secretive system that is causing Zimbabweans to lose diamond revenue."

The Wrong Horse

Until 2006, De Beers, one of the world's leading diamond producers, held the rights to Marange. But common to diamond majors, De Beers appeared to lock down the concession rather than exploit it, possibly as a means of controlling supply. A British-registered company called African Consolidated Resources had acquired concessions from De Beers.

When the De Beers' concessions expired in 2006, Mugabe's ruling party, ZANU-PF, swooped in. Zimbabwean government officials had tired of De Beers's failure to exploit the mines, said one source, speaking on condition of anonymity. Another source cited De Beers's failure to "marry" the Zimbabwean government into the company's existing business models, as it had in Botswana and Namibia. There, the government formed public-private partnerships with the company. Meanwhile, Supa Mandiwanzira, a representative of Zimbabwe's Diamond Consortium, threatened that Zimbabwe had "the potential to destroy the whole industry" by flooding the markets.

Africa Consolidated had acquired a smaller claim to mine diamonds in Marange. But its shareholders included a rival within ZANU vying to oust Mugabe - the now dead General Solomon Mujuru. "The company bet their money on the wrong political horse," a high-level source told 100Reporters. General Mujuru died under suspect conditions, and Africa Consolidated's rights were quickly terminated by the regime. Before long, Africa Consolidated found itself sidelined for ZANU-approved partners, primarily South African and Chinese companies, such as New Reclamation and the China International Fund (CIF).

Operation Hakudzokwi-or "You Will Not Return"-opened the way for Mugabe's exploitation of the mine with a small group of select and largely secretive partners. One watchdog group, estimating that $2 billion in undeclared precious stones have left Zimbabwe, has called the takeover "perhaps the biggest single plunder of diamonds since Cecil Rhodes."

Hakudzowki set new standards for brutality in forcing out thousands of itinerant miners who had flocked to Marange. When the BBC's Panorama interviewed paramilitary forces and police involved in the assault three years later, soldiers were apparently wracked with guilt. They reported that people were killed, "like flies."

"There was no way out," said one soldier. Panorama's interviews with soldiers revealed that the military laid a string on mines, stationed armored vehicles, mounted soldiers "and an infantry battalion in a circular pattern around the 2.5 kilometer area."

The government justified Hakudzokwi as a necessary move to ensure the country's minerals are used for national purposes. But according to Zimbabwean Finance Minister Tendai Biti, millions of dollars in diamond revenues that should have been deposited in Zimbabwe's national treasury are being secreted elsewhere.

"A Flying Hotel Room"

The most frequent passenger on the Airbus, identified by its tail code VP-BEX, has been Xu Jinghua, a Chinese businessman also known as Sam Pa, who visited Zimbabwe once a month and was believed to carry out diamonds, according to watchdog groups. Pa has been accused of providing arms and a fleet of Nissan pickup trucks to Zimbabwe's feared secret police, according to Global Witness and other nonprofit organizations that monitor extractive industries.

The Airbus, a corporate ultra-long jetliner, is smaller and lighter than its commercial counterpart. The private version of the 319CJ hosts an average of 18 or more seats, with luxury compartments. Writing on an aviation forum, one enthusiast who claimed to have entered a Planair 319CJ described the interior as "a flying hotel room." The plane has all the perks of a commercial jet in terms of speed, range, and reliability. The corporate version, hosting a small passenger base, is capable of flying 6,000 nautical miles non-stop.

But the plane has one added perk: while the VP-BEX - a VIP-configured jet - can carry cargo, there are no real systemic checks on the material it may be transporting through South Africa, as the plane did not generally declare any cargo and diamonds are small enough to escape scrutiny.

One pilot formerly operating from Lanseria alleged that security was often "slack" at the airport. "Passengers don't need to carry their illicit goods with them," he told 100Reporters. "If a company has, for example, leased a hangar, the plane can taxi down to the hangar, and the goods are left inside. An hour or two later, the goods can be picked up." While customs officials randomly check the bags of international passengers arriving on commercial airliners, those flying in on private jets are seldom checked, the pilot said. "One plane in 30, and 99 percent of the time, it would be due to a tip-off," said the pilot.

Gavin Sayce, Lanseria's airport manager, did not respond to interview requests.

Until September 2012, the plane was registered in Bermuda to Planair, a company identified as one aviation arm of the China International Fund, a Hong Kong-based private company. In September, Planair re-registered the plane under a different corporate subsidiary: Hong Kong Jet (Bermuda), belonging to a Chinese Fortune 500 company, the HNA Group.

China International is often described as Zimbabwe's largest investor at US$8 billion—though there is little evidence that the company has yet made good on its pledges of vast infrastructure development.

Godwills Masimirembwa, chairman of Zimbabwe's Mining Development Corporation, has maintained that the army had every right to mine diamonds. "There should not be boundaries. If the army uses its stake to finance its activities, then that's good and we will remain with the peace that we are enjoying in this country," he said during a meeting at the Mutare Press Club this month.

Masimirembwa denied misuse of funds from looted diamonds or diamond revenue, and cited U.S. Army involvement in "economic and industrial activities" as best practice. He challenged Biti to prove that diamond companies were not remitting revenue to the government.

Zimbabwe's Blood Diamond Jet

The plane was purchased new in mid-June 2006 by Angola's Sonangol State Corporation, a secretive entity with a long history of off-books sales of petroleum, according to the International Monetary Fund and other sources. A December 2011 IMF report, for example, cited $32 billion discrepancy in revenue from Angola's public accounts between 2007 and 2010, largely connected to the quasi-fiscal activities of Sonangol.

IMF Report on Angola (p. 10)
IMF report showing $32 billion in unexplained transfers to overseas escrow accounts, tied to "quasi-fiscal" activities of Sonangol.

Sonangol is interlocked with the China International Fund through multiple known and unknown subsidiaries. In Zimbabwe, China International's diamond-related legal forms include the Hong Kong-incorporated Sino-Zim Diamonds Ltd., headed by nominee lawyer Jimmy Zerenie and Eliezer Nefussy, reportedly the longtime right-hand man to diamond magnate Lev Leviev in Namibia. Leviev significantly broke the global De Beers stronghold, beginning with Russia, before entering Angola's diamond industry.

Leviev ties to Dos Santos (p. 33)
Leviev's brother, Moshe, was named by Global Witness as a director of LLD Asia, a tentacle of Sino-Zim's complex multi-corporate structure, primarily registered in the British Virgin Islands (BVI). LLD Asia, advertises itself as one of the largest dealers of Angolan, Namibian, Russian and other diamonds, selling to buyers in the United States, Italy, Belgium and Hong Kong. Masimba Kamba, an individual connected to Zimbabwe's Central Intelligence Organization, the secret police, is also connected to Sino-Zim, as a director, and to a related company in the British Virgin Islands (Strong Achieve Holdings).

Also involved in China International Fund are Lo Fung Hung, Sam Pa and Alain Fanaie, who doubles as the Chief Executive Officer of China Sonangol. Following a U.S.-China Economic & Security Review Commission (USCC) report, the Hong Kong-based China International Fund, based at 27/F Two Pacific Place, 88 Queensway, Hong Kong, would become known as the 88 Queensway Group, due to its physical address.

The USCC report identified Leviev, a real estate billionaire and major diamond supplier in New York, Dubai, London, Singapore and Cannes, as a key figure in China International Fund.

Much like Hong Kong, Singapore and the British Virgin Islands are also secrecy jurisdictions, peddling sovereign-protected spaces of legal and financial opacity to international companies seeking to hide assets or conceal the identities of their beneficial owners.

"It all sounds depressingly familiar," said Ronen Palan, a professor at the University of Birmingham and author of Tax Havens: How Globalization Really Works. "Why are complex overlapping corporate structures used? I cannot see any reasons for such complexity besides concealing financial activities, lowering taxation, and creating distance from ownership in case the airplane is used for illegal business. There are clearly no societal advantages to such structures," he said.

The controlling face of the 88 Queensway empire is Lo Fung, while Pa has been identified as more of a behind-the-scenes operator.

Structure of 88 Queensway (p. 55)

Key players in 88 Queensway, China International Fund and related holdings.

In 2007, Pa, formerly a military comrade of Angola's lifetime dictator, José Eduardo dos Santos, valued his Angolan business deals at $30 billion. In Zimbabwe and elsewhere, Pa is believed to be ZANU's private arms dealer. Global Witness has described him as a monthly visitor on board VP-BEX to Harare. According to a Zimbabwean source, who spoke on condition of anonymity, Pa is perceived as one the Central Intelligence Organization's most important arms suppliers.

The 88 Queensway group has used some of its wealth to make its mark in New York real estate. It bought the JP Morgan Chase building at 23 Wall Street for $150 million, paid $150 million for a 49.9 percent stake in the Madison Avenue Clock Tower, and another $50 million (along with the assumption of half the building's $720 million in debt) for a 49 percent stake in the former New York Times building at 229 West 43rd Street, according to the USCC report.

Leviev-China Sonangol (p. 35)
China Sonangol purchases of New York real estate.

Neither the China International Fund nor China Sonangol responded to repeated requests for comment. LLD Asia could not be reached for comment.

It's a Bird, It's a Plane, It's Planair

In 2007, a year after mining started at Marange, the plane was allegedly delivered to another Bermuda-registered company: Planair Enterprises, a shell company incorporated on 17 July 2001.

Planair, 100Reporters has discovered, is the Lanseria-based commercial arm of China Sonangol, while another China Sonagol entity, Aero Management Services (AMS), handled the plane's maintenance at Lanseria. According to a high level corporate source at the airport, little was known about Planair, save that it had a fleet of planes that was not South African-owned - abnormal for Lanseria-based owners and operators. The plane's pilot is a celebrated former South African Airways (SAA) pilot, Flippie Vermeulen, from Springbok Safari. Vermeulen did not respond to interview requests.

Pilots, speaking candidly on aviation forums, call Planair "the ghost company." Though Planair has ostensibly operated at Lanseria since 2006, the airport's security division's register did not identify Planair as an operating company on its register. It did acknowledged that Aero Management Services (AMS) was registered and active at the airport, and provided a contact number.

AMS's receptionist said that Planair and Aero Management indeed functioned as a single company. An official at the company's technical department told 100Reporters that AMS operated more than one Airbus aircraft, and that VP-BEX was operated on behalf of a big Chinese company. He stated that only VIPs traveled aboard, and to his knowledge, there was no cargo. One security official at Lanseria, who spoke on condition of anonymity, told 100Reporters that such planes are rarely checked, unless there are specific alleged security concerns related to criminal activity.

Gap in Oversight

Despite the jet's suspected role in moving vast quantities of undocumented diamonds from Zimbabwe, Lanseria airport security were officially not aware that the plane identified by Global Witness was headquartered, or even using, the airport. 100Reporters was informed that aside from the usual inspections of airport security and non-cargo VIP-configured jets, there would have been no specific oversight throughout the duration of Planair's, or the VP-Bex's, use of the AMS-leased hangar.

A senior security official referred 100Reporters to the South African Revenue Services, ordinarily responsible for collecting customs duties. Adrian Lackay, spokesman for the Revenue Services, did not disclose whether or not the company and plane were known to the Revenue Services. He said the agency had no role in monitoring planes, and wrote in an email that "the Civil Aviation Authority (CAA) is responsible for registering aircraft and monitoring flights into and from this country," as is the South African Police Service.

A spokeswoman at the Civil Aviation Authority, however, said monitoring the plane was not her agency's role. "Our mandate relates to aviation safety and security only, and for this reason we cannot comment on alleged criminal activity at airports," said Marie Bray, the spokeswoman. "The CAA's mandate on aviation security is limited to certain functions and powers." She referred 100Reporters to the South African Police and back to the customs service. Bray would not say whether or not the Civil Aviation Authority had knowledge of the plane or the company.

British Gown, Bermuda Veil

Much like British Virgin Islands, Cayman Islands and others, Bermuda is a secrecy jurisdiction connected to the UK's City of London, a leading tax haven, via its status as dependencies. These UK territories have been described by the UK-based Tax Justice Network as "satellite" havens that form part of the City of London's business model, "giving it unrivalled market power in the field of financial services" for companies, specifically those seeking secrecy. (Full disclosure: This reporter has authored a report for the Tax Justice Network, Tax Us if You Can: Africa.)

The use of a jurisdiction like Bermuda, which specializes in aviation services, to register the company and the plane prevents home and host countries from penetrating beneficial directors and shareholders. This renders law enforcement investigations almost impossible, unless insiders bring forward specific evidence.

In Bermuda, Planair was served by Apex Law Group, a Bermuda-based law firm with expertise in "international business," according to its website. The firm's head is Lynda Milligan-Whyte, a former senator of Bermuda. Milligan-Whyte also serves as director of the Bermuda Monetary Authority, regulating financial services in Bermuda. Her private firm notes that aviation services, provided by the Bermuda Department of Civil Aviation, "is considered to be a business sensitive regulatory body that is prepared to be responsive to customers and flexible in its approach."

Law firms that serve as nominee directors have little interest, and often, little active role, in the companies they front.Their specific purpose is to provide the illusion of a corporation with genuine economic activity in a jurisdiction.

Milligan-Whyte did not respond to repeated interview requests from 100 Reporters.

Bermuda does not only supply clients with sovereign-backed financial and legal secrecy, it also provides a tax-free environment to finance and manage corporate aircraft. Just under half of all Bermudan-registered planes are corporate and private jets.

According to the law firm Conyers, Dill and Pearman, which specializes in multi-jurisdictional legal services, financial perks of Bermudan companies includes an absence of taxes on capital transfers, income and profits.

This tax-free holiday extends to "a government guarantee available in relation to the tax regime" applicable to companies via the Minister of Finance of Bermuda under the Exempted Undertakings Tax Protection Act 1966. Put simply, no exempted company can be taxed even in the event of changes to the tax regime by the Bermudan government.

Unlike most countries, Bermuda does not require that aircraft registered in the Bermuda be based in, or operate from, there.

Yet this global reach, armed with secrecy, effectively prevents other authorities from having access to the nature, financial activities, and even beneficial owners of planes operating in their own jurisdictions.

Ebony Dictators, Ivory Banksters

John Christensen, founder of the Tax Justice Network and a former senior advisor to Jersey, a British tax haven, said the details on the mysterious plane's ownership make for "depressing reading." "Once again we find an offshore company registered in the British secrecy jurisdiction of Bermuda being used to disguise the identity of the people behind the crimes," Christensen said. "Presumably the offshore nominee directors involved in this racket will deny knowledge of any illicit activities," he told 100Reporters.

Planair's nominee director, Milligan-Whyte, is also a SonAir nominee director. SonAir, a subsidiary of China Sonangol, includes directors such as Manuel Vicente, President Dos Santos's right hand man in Angola, and a crucial part of the China Sonangol system. The company Flight Pro Consulting identifies both Planair and Sonair as the same company in its list of clients.

MeesPierson, a Netherlands-based company, also holds several spots on Planair's board of directors (including Andre Wilwert and Eric Mangrini). According to a Global Witness report, the company acted as financier for one of Africa's most notorious scandals, known as Angolagate, an oil-for-arms deal facilitated by dos Santos and Pierre Falcone, an alleged arms dealer and head of Pierson Capital, a firm specializing in commodity-backed loans, among other areas.

Meanwhile, Falcone is a key figure in the 88 Queensway Group that hosts China Sonangol, and has strong ties to the Dos Santos regime.

"Secrecy services, such as nominee directors and other methods of creating anonymous companies, are one of the ways in which countries who permit their use facilitate criminal activity around the world," said Heather Lowe, Legal Counsel for the Washington-based Global Financial Integrity.

"The negative impact is greater when the 'world powers' offer these secrecy services, because the average person would never think that a U.S., Canadian, or French company, for example, would be anonymous and therefore difficult to hold accountable for their actions or use. Companies created in OECD-type countries enjoy a patina of legitimacy that they do not necessarily deserve," she stated.

In fact, the non-profit Tax Justice Networks rankings of top secrecy jurisdictions around the world includes Switzerland, the United States, the United Kingdom and a raft of British-administered havens from Jersey to the Cayman Islands. Secret Central Intelligence Organization documents obtained by Global Witness suggest that VP-BEX's role is to jet diamonds from one base to the next, often failing to record its complete itinerary.

An official from another company, formerly operating from Lanseria, who spoke on condition of anonymity, told 100Reporters that by underestimating a plane's cruising speed, scheduled flight plans can be maintained. The most frequent stops declared for the VP-BEX include Angola, Singapore, South Africa, Zimbabwe, China, Russia and Tanzania. On Oct. 10, 2012, for instance, VP-BEX filed a flight plan scheduling the plane to depart from Harare International Airport(FVHA/HRE) at 10 am Central Africa Time, heading for Singapore Changi (WSSS/SIN), with an estimated arrival 18.5 hours later, at 10.24 AM local time. But on the same day, according to a South African private security specialist, the plane made a stop in Luanda, Angola, though no mention of such was detailed in the flight logs.

"The best way to crack down on blood diamond trafficking from Zimbabwe may well be to tackle the offshore secrecy behind which the traffickers can hide with relative impunity," said Christensen.

The view from the balcony of Lanseria's Wiesenhof restaurant looks straight out onto the AMS hangar. Like Zimbabwe's diamonds, the evidence of illicit looting is alluvial, on the surface, waiting to be picked up. But wait too long and exposed parties regroup, slipping back into the shadows of complex corporate webs and secrecy jurisdictions.

This coincidentally occurred as 100 Reporters began its investigation into VP-BEX. During the last months of 2012,VP-BEX's registration was transferred to Hong Kong Jet (HKJ) - an airline management company specializing in private jets. On November 13, a company press release announced the acquisition of a 4th luxury Airbus, without providing any identifying details, such as the plane's registration number. The plane was documented as scheduled for delivery to HKJ in December 2012.

A 'Certificate of Aircraft Registration' names HKJ's Bermuda subsidiary as the registered charter carrier of VP-BEX. HKJ's registered Bermuda address is a nominee law firm called Appleby. The same company acquired another key VIP plane from China International Fund - VP-BED, owned by China Sonangol but operated by Planair.

Both China Sonangol and HKJ (a subsidiary of the vast Chinese airline and property corporation, HNA) are major clients of Airbus private jets, according to a press release from Airbus's parent company, the European Aeronautic Defense and Space Co. in Toulouse, France. According to the Financial Times, "despite HNA's increasingly high profile, the company remains something of a mystery, with a convoluted corporate structure."

The HNA Group, a Fortune 500 company, is valued at $13 billion.

No mortgage or other financing instruments, or outstanding charges surfaced in public records associated with the transfer. A high-level source in the Bermudan government Aviation Department said that the planes were merely re registered to HKJ Bermuda.

Amy Wang, a spokeswoman for HKJ, declined to answer questions, saying only that HKJ would protect the privacy of its clients.

Moving Money

In the last year, China Sonangol is alleged to have purchased two Airbus A319s directly from the manufacturer on behalf of Air Zimbabwe, delivering the planes to hangars in Harare airport - where they remain relatively unused. As with many other China International Fund-related planes, such aircraft are either sold, relatively dormant, or leased out.

China International Fund is estimated to have invested between $500 million to $1 billion in a variety of customized luxury planes, according to sources in the aviation industry and price lists from plane manufacturers such as Airbus.

Why the interest in luxury aircraft?

Elsewhere, aircraft purchases have been used to turn billions of dollars in illicit money into licit assets - a simple case of laundering profits. Mexican drug cartels, for example, have effectively transferred over $420 billion in drug proceeds through banks like Wachovia, via shell companies based in secrecy jurisdictions such as Luxembourg and the Seychelles. Along the way, they purchased planes too.

The use of countries like Bermuda can not only conceal such deals, but also eliminate the former history and purpose of these companies. Bermuda's no-tax location ensures that the planes will generate maximum profit, too."This could be the sound of how justice dies," said Maguwu to 100 Reporters. "No whimper, no bang. Just the sound of a business filing cabinet being closed."

Khadija Sharife is a member of 100Reporters, based in South Africa.

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