Executive Summary and Recommendations
On the two-year anniversary of the start of South Sudan’s brutal civil war, a peace agreement has been signed and implementation is underway. Yet personal political and economic interests continue to threaten the prospects for peace in South Sudan, as well as the economic future of the country for its citizens. If those spoilers benefiting financially and politically from the continuation of the conflict are not countered, the peace agreement will remain imperiled.
As U.N. experts have documented, the government of South Sudan has acquired new and more deadly weapons, including amphibious tanks, helicopter gunships, and Chinese- and Israeli-manufactured assault rifles which are slowly replacing the battle-worn Kalashnikovs previously favored by the government’s Sudan People’s Liberation Army (SPLA). The SPLA-In Opposition (SPLA-IO, or IO) has been accused of benefiting from ill-gotten gains stashed overseas, diaspora remittances, and opaque business transactions with “war profiteers” to fund its military campaign on the ground. While the fighting forces on the ground have sustained themselves on next to nothing, using many of same survival tactics relied on during the long civil war with Sudan (1983-2005), including predatory behavior towards civilians and the outright looting and destruction of entire villages, elites on both sides have also benefited financially from the civil war.
This report lays out the main modalities of financing used by the government of South Sudan and the SPLA-IO in order to provide an overview of the war economy and political incentives in order to identify specific policy interventions to support the transition towards peace. Nevertheless, disrupting the war economy and managing potential spoilers remains a challenging endeavor. The violent kleptocracy that has emerged in South Sudan is the product of long-standing exploitative economic practices with their origins in the Sudan-SPLA civil war. Thus dismantling the kleptocracy and managing potential spoilers will require a total reorientation of the current system away from the economics of exploitation and predation that have existed in what is today South Sudan for the better part of the last 60 years. A starting point for this process, which will take years if not decades to achieve, is to begin to create accountability for economic crimes, support transparency in government institutions and spending, address potential spoilers, and return at least a portion of the proceeds of corruption back to the people of South Sudan.
While South Sudan’s oil income has declined dramatically due to falling global oil prices and reduced production as a direct result of the conflict, all of the country’s oil revenues are currently controlled by an elite clique surrounding the president and his most trusted advisors. Some sources have estimated that the government currently receives around $60 million a month in oil revenues, although the actual total oil income is unknown. A recent report by Global Witness notes, “We don’t know what price was paid for the oil, on what terms the cargoes are to be delivered, or what the Government has done with the cash.” Opaque financial arrangements between the oil companies and traders and the government of South Sudan further obscure the use and transfer of oil funds. There are allegations that some officials have transferred oil revenues into personal accounts. Without a transparent system in place and a single oil account, it is difficult to track the money that comes in as oil revenue. In addition, those officials with access to the hard currency brought in as oil revenue are in some cases able to leverage the difference between the official and black market exchange rates to turn huge profits on the dollar. At the time of publication, the official exchange rate was 2.9 SSP to the U.S. dollar and the black market rate was 17 to 18 SSP to the dollar, giving a 586 to 620 percent return on the dollar.
The government of South Sudan also continues to rely on its close military relationship with the government of Uganda and has used this relationship in the past to purchase military equipment. There are also a host of allegations surrounding the recent acquisition of four Mi-24 helicopter gunships that currently fly under the South Sudanese flag. Military experts have underscored the complexity of operating and maintaining these gunships and have speculated that the SPLA may be receiving technical support from outside contractors or its neighbors, although these allegations could not be independently verified by Enough. While the reported withdrawal of Ugandan forces from South Sudan is an important step forward, long-standing military ties are unlikely to be severed completely, especially if Sudan continues to airdrop weapons and ammunition to the SPLA-IO and affiliated militias and provides safe haven to Joseph Kony, the leader of the anti-Kampala Lord’s Resistance Army (LRA).
The SPLA-IO seems to sustain itself by relying on the wealth of key individuals, diaspora remittances, and funds provided by “war profiteers”—that is private sector investors gambling that risky investments will yield big gains after the conflict has ended. Unlike government forces, the opposition fighters—and even high-level opposition officials—do not receive regular salaries. The IO has been described as “cash strapped and Thuraya poor.” As a result, according to interviews with IO and SPLA sources and backed up by findings by Small Arms Survey, a significant source of weapons and ammunition for the IO remains captured government stocks and what their forces defected with from the SPLA, including tanks and other heavy weapons. Another significant source of weapons and ammunition for the SPLA-IO is support from Sudan, which has been substantiated by two independent research organizations, Conflict Armament Research and Small Arms Survey.
At the same time, hardline elements within the government and the opposition, as well as splinter groups and other potential spoilers, have expressed their opposition to the peace agreement and the power-sharing arrangement it contains. These actors and individuals pose a direct threat to the implementation of the peace agreement. One hardline group with a great deal of influence is the Jieng Council of Elders (JCE), an ethnically Dinka lobby group composed of a number of former government officials that has publicly expressed its opposition to the terms laid out in the peace agreement. The power-sharing arrangement laid out in the agreement will inevitably result in some government loyalists having to step down from office. As a result, there is significant overlap between those hardline elements opposed to the peace agreement and those individuals who have benefited politically and financially from the conflict.
Potential spoilers, including politically and financially exposed individuals at the highest level, should be the primary target of asset investigations and financial audits to curtail the damage they are able to inflict on the implementation of the peace agreement.
The Crisis Management Committee (CMC), a national body that was set up after the conflict broke out to manage emergency resources, operated with little independent oversight. The CMC, opaque business transactions, and the use of the country’s oil revenues should be subject to external review and scrutiny by the African Union’s Joint Monitoring and Evaluation Commission (JMEC) chaired by the former president of Botswana, H.E. Festus Gontebanye Mogae, as well as the U.N. Panel of Experts and those involved in any subsequent U.S.-led investigation into grand corruption in South Sudan.
For its part, the opposition continues to drag its feet on implementation for a host of reasons ranging from legitimate security concerns to internal divisions, disorganization, and competition over political positions and appointments. There is also deep resentment over the killings of ethnic Nuer in Juba, which the African Union Commission of Inquiry on South Sudan (AU CoI) report found were “committed pursuant to or in furtherance of a State policy.” The incident continues to be a key issue for many Nuer people allied to IO. Significant losses on the battlefield, difficulties in accessing military hardware and equipment, and limited means to support the vast patronage network on which the IO relies have contributed to divisions within the military leadership of the IO. The defection of three top generals from the ranks of the IO’s military leadership has revealed the extent of these internal divisions. As a result, it is necessary to hold the IO leadership accountable for managing its own internal divisions. The United States and the Intergovernmental Authority on Development (IGAD) should take steps to target potential spoilers and ensure they do not find backers in the region. More broadly, opaque financial flows and business transactions that have helped to sustain the IO should also be scrutinized by JMEC in order to prevent a return to the “thieving and looting” that went on after independence.
While ceasefire violations have been rampant and are likely to continue given the complexity of local conflict dynamics, cattle raiding, and revenge attacks, there are nevertheless signs of progress in support of the implementation of the peace agreement that should not be overlooked. The withdrawal of Ugandan forces from South Sudan, progress made on finalizing transitional security arrangements, and the appointment of former president of Botswana Festus Mogae as the Chairperson of JMEC are all important steps for peace in South Sudan. Nevertheless, this positive momentum must be sustained by strong international support and the continued threat and selective use of coercive measures against those who might seek to undermine the implementation of the peace agreement for their own personal political and economic gain. Despite being the subject of much rhetorical concern in New York, Washington, London, and Addis Ababa, the available tools and international legal and financial frameworks available to counter the spoilers of peace and their political and financial interests are not being fully deployed by concerned governments.
In order to bring the conflict to an end and transition the war economy toward peace, these efforts should focus in on five key areas of concern: a) holding perpetrators of financial crimes to account; b) dealing with potential spoilers; c) prioritizing specific provisions of the peace agreement; d) enhancing civil society efforts to hold their own leaders to account; and e) providing incentives for the implementation of the peace agreement alongside targeted coercive measures.
The Enough Project recommends:
1. Holding Perpetrators of Financial Crimes to Account
- The United States, United Kingdom, and other partners should increase their global efforts to trace, freeze, seize, and return the proceeds of corruption back to the people of South Sudan leveraging global criminal and anti-money laundering networks such as the U.K. National Crime Agency’s International Corruption Unit (ICU) and by collecting intelligence provided by regional financial intelligence units (FIUs) through the Asset Recovery Inter-Agency Network for Eastern Africa (ARIN-EA). Recovered assets should be used to fund community reparations.
- The U.S. Department of Treasury’s Financial Crimes Enforcement Network (FinCEN) should issue an advisory to all U.S. financial institutions regarding the risk of possible money laundering activity and illicit transactions in South Sudan. FinCEN should use information provided to them by financial institutions in response to the advisory to determine if specific institutions or accounts in South Sudan should be designated as primary money laundering concerns under section 311 of the Patriot Act. Should this occur, FinCEN’s special measures under section 311 could prohibit U.S. financial institutions from maintaining correspondent accounts connected to the primary money laundering concern.
- The United States and other donors should address impunity for economic crimes by providing the Hybrid Court for South Sudan with the necessary technical and legal expertise to investigate and prosecute economic crimes, including pillage and grand corruption.
- At the same time, the U.S. interagency-supported Department of Justice-led Kleptocracy Asset Recovery Initiative should open its own investigation into grand corruption in South Sudan, given the likelihood of a strong U.S. nexus, including U.S. companies, accounts, and citizens engaged in these activities in South Sudan and the East Africa region.
2. Dealing with Potential Spoilers
- For any real impact, targeted sanctions must be more widely imposed at a higher level and more robustly enforced. The U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) should focus its investigations on politically and financially exposed individuals and their enablers and facilitators. If necessary, OFAC should issue intelligence community collection requirements to gather information on possible targets and their networks. OFAC should use information gathered to make additional designations pursuant to U.S. Executive Order 13664. The U.S. government should work to ensure that all individuals and entities designated domestically are also designated for sanctions by the U.N. Security Council pursuant to resolution 2206.
- The U.S. should sustain its diplomatic pressure on regional states to prevent potential spoilers from seeking state sponsors in the region and to ensure that U.N. sanctions designations are enforced. OFAC and FinCEN should support efforts by regional governments and banks to provide training on sanctions enforcement and prevent money laundering. Kenya, Uganda, and Ethiopia should also make sure they meet their reporting requirements under U.N. Security Council resolution 2206 on steps they have taken in compliance with their obligations as U.N. member states.
- The U.N. Security Council should impose a global arms embargo to more closely monitor weapons flows into South Sudan and potentially pursue targeted sanctions designations against individuals and entities that facilitate arms transfers to groups in South Sudan.
3. Prioritizing Specific Provisions of the Peace Agreement
- Donors should ensure that JMEC, the commission overseeing implementation of the peace agreement, has the necessary resources and technical expertise to fulfill its broad sweeping mandate, including financial forensic accountants and oil industry transparency experts to implement the ambitious reform agenda laid out in the agreement.
- The region and the international community should take steps to ensure South Sudan’s compliance with auditing and external oversight provisions laid out in the section of the agreement on resource, economic, and financial management, including the closure of all non-official oil accounts.
- The U.N. Mission in South Sudan (UNMISS) and European donors should provide immediate assistance in support of the transitional security arrangements, including food, water, and shelter at troop cantonment sites. There should also be a robust screening process in place to confirm troop numbers and prevent gross payroll fraud, commonly used by military commanders for their own personal enrichment.
4. Enhancing Civil Society Efforts to Hold Their Own Leaders to Account
- Donors should focus their efforts on supporting existing civil society efforts to demand the full implementation of South Sudan’s own beneficial ownership and public disclosure rules laid out in the 2012 Petroleum Revenue Management Act and the 2011 Public Financial Management and Accountability Act.
- Donors should amplify civil society voices by investing in public opinion polling and media training, and by demanding investigations into attacks on local journalists and civil society activists as a condition for the normalization of donor assistance to the government of South Sudan.
- Donors should partner with civil society networks in South Sudan to develop and disseminate information on the peace agreement—specifically on provisions for financial transparency and accountability—to allow civil society groups to claim the public space allocated to them for their full participation during the transition.
5. Providing Incentives for Implementation Alongside Coercive Measures
- Once significant progress on peace implementation has been made, donors should work with the government of South Sudan to assess the viability of physical infrastructure and rehabilitation projects alongside robust auditing and accounting practices to prevent the misuse of donor funds and spur reconstruction and development efforts.
- Donors should work with the government of South Sudan to overhaul security sector reform efforts in keeping with human rights due diligence standards focusing specifically on human rights training, screening and organizational reforms, and the safe storage for weapons and ammunition that currently present a direct threat to civilians.
- The United States and other donors should partner with the government of South Sudan to assess what kinds of technical and legal support could potentially help facilitate private sector investment in the future. These efforts should focus on reforming the legal, financial, and regulatory frameworks that currently make it difficult to invest in South Sudan.