A Jersey money laundering conviction after corruption red flags were missed.[2021 case revisted]

A corrupt African country, a convicted financier, a Jersey business opportunity, and red flags all over the place…read why the Jersey trust firm, LGL, was hit with a criminal conviction and fine of £550,000.00.

LGL, which has operated under new management since the time of the offences, [and now rebranded] was given the penalty for failing to recognise and respond to the apparent risk that a structure it set up and administered in Jersey might be used to embezzle hundreds of millions from the public purse of an African country for the benefit of its [alleged] crooked rulers.

The case involved two breaches of the 2008 Money Laundering Order, which LGL was required to comply with, in respect of a business the trust company took on and maintained from 2010 to 2016, which involved using a limited partnership structure to invest public money from Angola into real estate around the world.

THE FOLLOWING SETS OUT WHAT GAVE RISE TO THE CHARGES BROUGHT AGAINST THE FIRM…

1. Angola was described as “an impoverished African country, well known for chronic political corruption”. In 2010, when LGL first took on the business relationship, Transparency International had rated Angola 168th out of 172 countries regarding corruption perception.
2. Its former president, Jose Eduardo dos Santos, left office in 2017 after nearly 40 years and was then condemned by his successor for enriching himself, his family and his associates by plundering state resources.
3. His relatives have since been removed from positions of power and influence, but at the time of the events covered by the case, they were widely rumoured to be profiting handsomely from their positions of power.

2010 – 2012 - A LAWYER BRINGS A BUSINESS OPPORTUNITY – IS IT TO BIG TO TURN DOWN?

1. In April 2010, Carey Olsen’s Jersey office contacted LGL to establish a Jersey limited partnership for the Angolan state.
1. A Jersey limited partnership is a type of partnership used for investment purposes.
1. With at least one General Partner - the Manager, who holds and controls the LP’s assets
2. And at least one Limited Partner – a passive investor -.
2. Three entities were set up on the island in late 2010 and early 2011 and administered from then on by LGL:
1. A Jersey limited partnership called QUANTUM PLAZA LIMITED PARTNERSHIP (QPLP),
1. Which was at the heart of the Angolan investment structure
2. A Jersey company which was the Limited Partner in QPLP, called Quantum Plaza Limited Partner Limited (QPLPL) 
1. This was owned 100% by the Angolan National Bank (BNA) and held 98% of the equity in QPLP
2. QPLPL OWNS 98% of the equity in QPLP
3. A Jersey company to act as General Partner of QPLP, called Quantum Global Real Estate (Jersey) Limited (QGREJL) –
1. This belonged to Quantum Global Real Estate AG, which belonged to JEAN-CLAUDE BASTOS DE MORAIS and his colleagues, and
2. QGREJL owned 2% of the equity in QPLP.

MEET JEAN-CLAUDE BASTOS DE MORAIS & QUANTUM 

1. The Limited Partnership was managed by an intermediary, a Swiss-Angolan national called Jean-Claude Bastos de Morais. 
2. Bastos ran and largely owned a Swiss-based investment business called QUANTUM GLOBAL, which included companies called  
1. Quantum Global Real Estate and
2. Quantum Global Wealth Management,
3. As well as various other companies with Quantum Global in the title. 
3. Bastos had strong Angolan political connections:
1. In 2008, he set up Angola's first private investment bank, Banco Kwanza Invest, with the Angolan president’s son, Jose Filomeno ‘Zenu’ de Sousa dos Santos. 
4. According to documents held by LGL, in 2009, the Angolan Council of Ministers had commissioned Quantum Global Investment [JEAN-CLAUDE BASTOS DE MORAIS]  to negotiate the purchase of real estate investments outside Angola, into which the state could invest.
1. The funds - $1.6bn from the Angolan Federal Reserve - had been transferred to an HSBC account and were to be invested by the BNA.
2. The scheme was a precursor for establishing a Sovereign Wealth Fund for Angola.

2012 START SPENDING

1. In January 2012, QPLP received
1. $425m for real estate investment purposes plus $65m to be separately managed by Quantum Global as cash.
2. QGRE received $10m as its 2% success fee.
2. From July 2012, funds were invested via the underlying Plaza structure in substantial properties on
1. Savile Row in London ($308m),
2. Fifth Avenue in New York ($59m),
3. The Atrium Hotel in Munich ($63m) and
4. Tour Blanche in Paris ($161m). 

QUESTIONABLE FEES 

1. Under agreements with the BNA, Quantum Global was to receive “very substantial fees” for securing the investments, the majority of which would have gone to JEAN-CLAUDE BASTOS DE MORAIS - assuming $1.6bn had been invested, they would have amounted to tens of millions of dollars annually. 
2. The most significant fee of all was a management fee.
1. As a General Partner, QGREJL was entitled to a percentage of the value of assets under management, regardless of performance.
2. The fee started at 2.5% annually, dropping to 2% after two years.  
3. However, the real estate investments were not an actively managed fund, and Bastos would therefore be receiving these millions for doing “virtually nothing”,  
4. From 2012 onwards, management fees were paid from QPLP to QGREJL and corresponding dividends were paid out from QGREJL to Bastos’s vehicle, Blue Mountain, or later to the replacement vehicle, QGRE Holdings. 
5. In total, LGL’s records show $29.9m paid out in dividends from QGREJL to Blue Mountain
1. Between November 2012 and September 2016 –
2. Meaning that, on average, some $7.5m per year left the Jersey structure.  

TIMELINE

2010 

1. In September 2010, LGL requested a meeting with its regulator, the Jersey Financial Services Commission, given the “obvious risk” associated with Angola before establishing the Jersey structure.  
2. The JFSC noted the “interesting” relationship between Bastos and the Angolan president’s son. Still, LGL said the legitimacy of the source of funds had been demonstrated and that no Angolans would be managing the assets. 
3. Owen Lynch, Managing Director at the time, told the commission that LGL was comfortable with the business and it was for Jersey to decide if they wanted it or not. The JFSC gave its consent on 16 September 2010.
4. LGL didn’t inform the commission of Bastos’ conviction either and continued to do business with him and Quantum Global. It didn’t even obtain a copy of the judgment to establish the fundamental nature of the offence.

2011

5. Bastos was convicted by a Swiss court of “repeated qualified criminal mismanagement” in July 2011. Bastos’s offences had been committed ten years earlier [2001] in an unrelated matter.
1. As a Director, he had approved payments from an insolvent company to companies, including one in which he had an interest.  
2. There is no record of LGL questioning why Bastos had not previously disclosed the criminal proceedings.
6. In May 2011, HSBC’s UK compliance department raised concerns about Bastos’s involvement after coming across an article in German and Swiss news alleging that
1. Leading management figures from the Quantum structures had “a history of corruption and
2. Could now be involved in ‘skimming’ money out of Angola”, mainly due to Bastos being a close friend and business associate of the President’s son. 
7. LGL said it was “well aware” of the business relationships of all connected parties when it did its due diligence and that there was no proof to the allegations.  
8. HSBC also raised the issue that Bastos could withdraw money from the corporate structure and divert it back to senior figures in Angola.  

1. LGL replied they had “no control” over this element of the structure but that they were satisfied that the asset management fee was at “a commercial rate” and that “any ‘leakage’ at a higher level would not disadvantage the limited partnership structure”. 

9. Owen Lynch met Bastos and said he had a “satisfactory account” of Bastos’s relationship with people in the Angolan government and denied the allegations.
1. Quantum Global had told him the press articles were in the hands of their lawyers, and some had been removed from the internet. 
10. In August 2011, the LGL Compliance officer noted that LGL still needed to find a Jersey bank to open an account and recommended terminating the relationship. Still, Owen Lynch disagreed with her, and the relationship continued. 

2011 

11. In December 2011, LGL requested to establish a new LP, Plaza Global Real Estate Partners LP, owned by QPLP. QGRE, the Swiss parent of QGREJL, was to act as an investment adviser.

2012

12. In January 2012, QPLP received $425m for real estate investment purposes plus $65m to be separately managed by Quantum Global as cash. QGRE received $10m as its 2% success fee.

 2013 

13. In August 2013, when LGL sought to set up two new Jersey LPs for the two new Angolan investment funds, the JFSC expressed reservations over Angola’s corrupt government and the involvement of ‘Politically Exposed Persons’ – public officials deemed as presenting a higher risk for potential involvement in corruption or bribery.  
14. Two months later, LGL applied for consent from the JFSC to set up further Jersey entities linked to the FSDEA. 
15. A few days later, the JFSC became aware of Bastos’s conviction. Its Director General, John Harris, told LGL he would have expected LGL to notify the JFSC or Registry when they found out about the sentence ten months earlier. 
16. LGL said they had made an “inadvertent error” when completing an application form and ticking a box that said none of the beneficial owners had been concerned in the management of a company which had been subject to an insolvent liquidation or the subject of a judicial enquiry. 

2014 

17. In January 2014, the JFSC told LGL that they wouldn’t consent to the new entities because of the risks associated with Bastos in such a key role and Angola’s high levels of corruption and low regulatory standards.  
18. In March 2014, the JFSC raised further concerns about controlling the account which held funds used for the Quantum Plaza investments. It should have been in QGREJL’s name, but another company, Quantum Global Investment Management, which managed the cash assets in the account, could remove funds without QGREJL’s approval.

 2015

19. In 2015, the BNA converted its interest in the QPLP into shares to transfer those shares to the newly established sovereign wealth fund. 

2016

20. In January 2016, the JFSC undertook a supervision visit to LGL and studied the Quantum Global relationship in detail. Various concerns came to light, one of which was the lack of due diligence for the members of the BNA board, which LGL admitted was an error.
21. Shortly afterwards, LGL began plans to remove the structure from Jersey.

 2018

22. In 2018, Bastos and Zenu were arrested on suspicion of being involved in a fraudulent skimming operation about the FSDEA, of which dos Santos was Chairman. Quantum Global received similarly colossal fees.

2019

23. In early 2019, Bastos reached a settlement with Angolan prosecutors under which Quantum Global entities transferred control of Limited Partnership bank accounts holding $2 billion to the FSDEA and other assets, while no criminal charges were brought against him.

2020

24. In August 2020, Zenu was convicted of fraud about $500m transferred from the BNA to an account in the UK and sentenced to five years in prison for a scheme LGL had no connection with.

 RED FLAGS?

1. Jersey’s Solicitor General highlighted several red flags to the Royal Court:-

• No one at LGL seems to have asked: could Angola not have found a means of investing in real estate overseas that did not involve the guaranteed payment of up to $10m a year, regardless of performance, to a Swiss financier with personal connections to the President?
• There was an obvious risk the scheme was structured to provide “for corrupt payments to be made, and for them to be moved around secretly using offshore companies to hide their origin”.
• That, while this didn’t prove that the Quantum Plaza structure was “a vehicle for corrupt payments”, it supports the validity of the concerns raised by HSBC and others as early as 2011, which LGL was “completely wrong” to dismiss at the time
• The casual or euphemistic reference to the potential for corrupt kickbacks as ‘leakage’ speaks volumes as to the quality of [anti-money laundering] risk awareness at LGL,”
• LGL neither informed the JFSC of the skimming allegations or HSBC’s concerns nor did they make a ‘Suspicious Activity Report’. “It simply carried on with the business, apparently satisfied by Bastos’s denials,”
• One of LGL’s Compliance Officers, who has since left the company, said that “nothing would dissuade the directors from accepting and maintaining this business, despite the negative publicity”.

SOURCES

https://www.moneylaundering.com/wp-content/uploads/2021/03/Jersey.Enforcement.LGL_.022621.pdf / https://www.i-law.com/ilaw/doc/view.htm?id=422388

https://www.comsuregroup.com/news/lgl-trustees-ltd-fined-550k-plus50k-what-is-known-and-what-the-jersey-court-said-about-what-happened/

https://www.gov.je/News/2021/pages/trustcompanyfined.aspx

https://www.bailiwickexpress.com/jsy/news/focus-corruption-conviction-and-red-flags/

Jersey c LGL Trustees Ltd re Angola pdf