Somalia moves to discredit UN report over funding fears

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By Katrina Manson in Nairobi

Somalia has hired British and US consultants to discredit a UN report that claims rampant corruption in Mogadishu because it threatens to imperil donor funding and the return of foreign-held assets, including gold, totalling billions of dollars.

The report, commissioned by Somalia’s president and seen by the Financial Times ahead of its release, accuses UN investigators of being “factually inaccurate and inexplicably biased” and refutes claims that the central bank doubles as a corrupt slush fund and that $12m transferred to the bank by accountancy firm PwC “could not be traced”.

“We are not claiming that this is a perfect government after 22 years of statelessness, mistakes can happen [but] we want to show the world we are not hiding anything – we have zero tolerance of corruption and the top priority of this government is reform of financial institutions,” President Hassan Sheikh Mohamud told the FT ahead of the report’s release.

Years of corruption and financial mismanagement in Mogadishu, which has yet to recover from decades of instability and still faces terrorist attacks, have left donors worried that aid is regularly diverted, but many hoped they could work with a promising new government formed in Mogadishu last year.

But Mogadishu officials are concerned the UN report will undermine Somalia’s appeal to donors ahead of an aid conference later this month. “Despite the change in leadership in Mogadishu, the misappropriation of public resources continues in line with past practices,” said the report from the UN panel of experts, published earlier this year.

Mr Mohamud, who survived an assassination attempt this week, said he wants to assure donors that Somalia has a “very transparent and accountable government” and said he is expecting pledges of “more than $1bn, more than $2bn even” at an EU-sponsored development conference in Brussels at the end of September.

Jarat Chopra, co-ordinator of the UN report, said he and his team of seven experts stand by their findings. He has not seen the government’s rebuttal but said the two firms that prepared it may have “ulterior motives and vested financial interests” because they are also involved in other commercial projects in Somalia whose contracts have not been published.

“It would be a basic conflict of interest for a firm to be secretly under contract pursuing Somalia’s overseas assets while pronouncing conclusions on the transparency, accountability and effectiveness of public financial management,” said Mr Chopra.

Premjit Dass of FTI Consulting worked as the forensic accountant on the rebuttal. FTI, whose Africa department is headed by Lord Mark Malloch-Brown, a former UK cabinet minister, also promoted an unpublished oil exploration deal between Mogadishu and Soma, a new UK company headed by former Tory leader Michael Howard, which was criticised for its lack of transparency.

FTI said it believes the Soma oil deal is transparent.

US law firm Shulman Rogers, the other firm that prepared the rebuttal, is also mandated by Mogadishu to recover Somali assets held overseas that have been rendered inaccessible since civil war began 22 years ago. Diplomats say millions of dollars in cash is thought to be held in private bank accounts in Dubai, Italy, Kenya, Switzerland and the US.

“Every other month we’re getting new information on bank accounts in all corners [of the world] — we want to recover that money,” said Mr Mohamud.

In 2009 Shulman Rogers signed an asset recovery deal with the previous transitional government for fees of $50,000 a month and 3.5 per cent of any assets recovered, but the company said the government did not pay in full. Jeremy Schulman, of Shulman Rogers, this year negotiated a new contract with the Mogadishu government that has not been published but is, he said, “significantly discounted from [the 2009] arrangement”.

“We are trying to help them recover Somalia’s state assets and their gold so they can use that as the foundation for printing new currency,” said Mr Schulman, who denied any conflict of interest, saying Mr Chopra had made “unfounded allegations”.

Although the World Bank has a programme that tracks and recovers assets for free, it is not providing this service to Somalia.

Many financial institutions have been reluctant in the past to return the money to a makeshift government in charge of a failed state regularly accused of embezzlement, but US and IMF recognition of Somali’s new Mogadishu government this year – the first such recognition in more than 20 years – is likely to trigger the return of the money.

A US government official told the FT that gold belonging to Somalia worth an estimated $25m is stored at the US Federal Reserve, along with cash and property worth millions of dollars, and it is expected to be signed back over to Mogadishu in the coming weeks.

Diplomats say international financial institutions would be less likely to co-operate if allegations of corruption persist.

 


Katrina Manson
East Africa correspondent
Financial Times