Sudan’s Deep State: How Insiders Violently Privatized Sudan’s Wealth, and How to Respond

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    الملخص التنفیذي

    Click here to download the full report.

    Sudan’s government is a violent kleptocracy, a system of misrule characterized by state capture and co-opted institutions, where a small ruling group maintains power indefinitely through various forms of corruption and violence. Throughout his reign, President Omar al-Bashir has overseen the entrenchment of systemic looting, widespread impunity, political repression, and state violence so that he and his inner circle can maintain absolute authority and continue looting the state. The result of this process, on the one hand, has been the amassment of fortunes for the president and a number of elites, enablers, and facilitators, and on the other hand crushing poverty and underdevelopment for most Sudanese people.

    A Failed State?

    For nearly three decades, President al-Bashir has maintained his position at the pinnacle of Sudan’s political order after seizing power through a military coup in 1989. During his rule, the government of Sudan has perhaps been best known for providing safe haven to Osama bin Laden and other Islamic militants in the 1990s, for committing genocide and mass atrocities against its citizens in Darfur, for the secession of South Sudan in 2011, and for ongoing armed conflict—marked by the regime’s aerial bombardment of civilian targets and humanitarian aid blockade—in South Kordofan and Blue Nile. Often portrayed as a country wracked by intractable violence and hampered by racial, religious, ethnic and social cleavages, Sudan ranks consistently among the most fragile or failed states.

    At the same time, Sudan has considerable natural resource wealth and significant economic potential. The country is also home to a celebrated culture that stresses the importance of family and education. In 1999, Sudan became a major oil-producing country, bringing billions of dollars in international investments. Agriculture and livestock remain staples of economic production, while a recent finding of substantial gold deposits has brought new hopes of prosperity. Despite these economic resources, Sudan remains an impoverished country marked by stark socioeconomic inequality. Nearly half of the population lives under the global poverty line, while a select few enjoy immense wealth and great power.

    Political standing and proximity to the country’s ruling elites most often determines on which side of the poverty line a Sudanese citizen lives. The idea that Sudan is a classic failed state is not fully accurate. Sudan is a failed state for the millions of displaced people living in IDP camps in Darfur, for those living in conflict areas and cut off from humanitarian assistance in South Kordofan and Blue Nile, and for those struggling in marginalized communities in eastern Sudan or in the sprawling informal settlements outside Khartoum. However, Sudan is an incredibly successful state for a small group of ruling elites that have amassed great fortunes by looting the country’s resources for personal gain. In that sense, Sudan is more of a hijacked state, working well for a small minority clique but failing by all other measures for the vast majority of the population.

    Conflict and Corruption

    Armed conflict and corruption have featured prominently in the last two centuries of Sudanese political life. Atrocities and preventable famines occurred during Ottoman rule (the Turkiya era) and during a brief period of Sudanese rule (the Mahdist era) in the 19th century. Violence, subjugation, and exploitation likewise defined colonial rule during the Anglo-Egyptian Condominium in the 20th century. The Condominium also saw the implementation of divide-and-rule political tactics that established the exploitative economic patterns between Khartoum and the rural areas that persist today. Indeed, these patterns of marginalization and exploitation led to the First Sudanese Civil War, a brutal conflict that lasted from 1955 until 1972 and claimed half a million lives.

    Since winning independence in 1956, postcolonial Sudan has enjoyed a few fleeting years of democratic rule and peace, sandwiched between decades of authoritarianism and civil war. Corruption is hardly a new phenomenon. Writing in 1985, El-Wathig Kameir and Ibrahim Kursany observed: “Corruption in a Sudanese context can hardly be avoided. It touches upon the life of every citizen.”

    The difference between past iterations of misrule in Sudan and that of the current regime is significant. While armed conflict and corruption certainly were prevalent before, al-Bashir’s regime has used a degree of violence and state capture far exceeding that of its predecessors. Of course, not all members of the Sudanese government are corrupt, nor is all or even the majority of Sudan a conflict zone. Instead, a relatively small group of regime insiders, supported by domestic and foreign commercial partners, have captured and distorted key sectors of the Sudanese economy much more successfully than previous governments. The current regime has institutionalized corruption throughout government functions to an unprecedented degree. Also different is underlying ideology and the extent and purpose of violence that the current regime is willing to deploy against political challengers and citizens alike. Thus, in addition to committing mass atrocities in Sudan’s rural areas, historian W.J. Berridge notes that perhaps the most significant reason for the longevity of the current Sudanese regime is “the ruthlessness with which it pursued its initial assault on the ‘modern forces’ [Sudanese civil society, professionals, and labor unions],” as these forces had been the principal drivers for ousting authoritarian regimes in 1964 and 1985. This is a key point, as the regime’s initial tenacity in attacking, torturing, and killing members of the professional and working classes and purging the professional, technically competent civil service that could potentially ensure government function and check the regime’s power established the precedent of impunity that continues today.

    Violent Kleptocracy

    The system of rule by al-Bashir’s regime in Sudan is best characterized as a violent kleptocracy, as its primary aims are self-enrichment and maintaining power indefinitely. To pursue these aims, the regime relies on a variety of tactics, including patronage and nepotism, the threat and use of political violence, and severe repression to co-opt or neutralize opponents and stifle dissent. Unlike many other corrupt or repressive governments, however, al-Bashir’s regime is willing to engage in much more brutal tactics, such as ethnic cleansing, the use of starvation as a method of war, and the indiscriminate bombardment of civilian populations. It is this combination of extreme violence, authoritarian rule, and massive self-enrichment that qualifies the current system as a violent kleptocracy where state capture and hijacked institutions are the purpose and the rule, rather than the exception.

    This report demonstrates that the Sudanese regime has perpetuated a system of violent kleptocracy with economic activities that have devastated the Sudanese economy and resulted in underdevelopment that will be very difficult to reverse. To substantiate this claim, this report analyzes Sudan’s oil, gold, land, and weapons manufacturing sectors, showing how the regime has distorted each sector for personal gain and enrichment. Methodologically, this report relies on field research completed in Khartoum, Addis Ababa, and Kampala; participant interviews with Sudanese civil society, academics, and diaspora members; as well as economic research and political analysis.

    This report also examines why past approaches for achieving peace in Sudan have failed and how a new approach, one in which a revitalized peace process receives missing leverage through the expanded use of modernized financial pressure policy tools, could succeed. The focus would be to promote lasting peace and also to disrupt and ultimately dismantle the most enduring root cause of continuing conflict and dictatorship: the violent kleptocratic system constructed by President al-Bashir and his inner circle.

    Regime kleptocrats have thus far outwitted and outlasted all efforts to achieve peace in Sudan because they feel no pressure to act differently given the impunity that they have enjoyed for decades. Modernized financial pressures could alter this incentive structure and thus potentially influence the behavior of regime officials by more effectively freezing those individuals and entities that are most responsible for mass atrocities and grand corruption out of the global financial system. Likewise, actions to fight money laundering, grand corruption, and illicit financial flows would make it much more difficult for these kleptocrats to access the global financial system, therefore curtailing their ability to fund conflict and engage in severe repression. If coupled with a robust foreign policy strategy that includes a revitalized international peace process for all Sudanese stakeholders, the use of financial pressure tools will equip negotiators with the leverage that they need to secure meaningful concessions from the regime toward establishing a lasting peace and supporting more representative, inclusive, and transparent governance in Sudan.

    Policy Recommendations

    To more effectively support peace, human rights, and good governance in Sudan, policymakers should construct a new policy approach that attempts to counter and ultimately dismantle Sudan’s violent kleptocracy. Summarized here but described in full in Part IV, this package of recommendations offers a new strategy to neutralize Sudan’s kleptocrats and provide leverage to support a more inclusive international peace process when one is constructed.

    A More Comprehensive and Inclusive Peace Process and Constitutional Convention

    A credible constitutional convention and internationally-supported peace process can lead to lasting peace in Sudan. Current mediation efforts to end Sudan’s armed conflicts and bring peace to the country have not succeeded. These efforts include negotiations led by the African Union High-Level Implementation Panel for Sudan (AUHIP). Despite 12 rounds of meetings between 2011 and 2016 and the signing of the Roadmap Agreement in August 2016, the AUHIP negotiations have failed to secure a cessation of hostilities or improve humanitarian assistance for civilians. Despite the failure of these efforts to achieve peace, a stubborn persistence to keep trying these same approaches hinders real progress toward a lasting peace. The Sudanese government’s National Dialogue has not resolved the country’s numerous political issues. Significant opposition parties have boycotted this process, deeming it to lack credibility. They characterized the process as the government negotiating with itself, by including sympathetic parties. Instead of supporting processes that have failed, leaders should support a truly inclusive constitutional convention and peace process that progress in a sequence that is negotiated by Sudanese people. Whether a more comprehensive and inclusive peace process spurs a more comprehensive and inclusive constitutional convention or vice versa, both components are essential to restore peace, security, and good governance, and both require broader support and participation by more Sudanese people to become viable.

    International Peace Process

    Current and past peace processes have been piecemeal, stove-piped in scope, and have often have amounted to negotiations between belligerents. This approach only invites delay, further division, and obstruction. Sudan’s violent kleptocracy continues in large part because a small group of elites wields a disproportionate amount of political and economic power, which allows for the subversion of peace initiatives through bureaucratic and diplomatic maneuvering. A comprehensive and inclusive peace process with strong U.S., regional, and international support can check these maneuverings and allow internally-driven reforms to take hold. All Sudanese stakeholders should have a voice in resolving the country’s numerous political, economic, and social issues and in outlining a plan for a transition to a peaceful and democratic country where groups share power in a governance structure that the public broadly accepts. This comprehensive peace process must also include diverse voices from civil society, professional organizations, student groups, community organizations, women, youth, and marginalized communities.

    Constitutional Convention

    Sudan’s National Dialogue has failed because the process is controlled by President al-Bashir and the National Congress Party, providing no real room for debate within the ruling party, let alone among the country’s different political movements and groups. Although the United States, United Nations, and African Union have pressed opposition political parties to join the National Dialogue, these Sudanese opposition parties have declined because they do not view the dialogue process as credible, and they consider that participating lends the process an undeserved degree of legitimacy. A constitutional convention could provide a new path for Sudanese people to discuss the governance and power-sharing questions that they most seek to resolve among themselves. Instead of supporting the National Dialogue process that lacks credibility and inclusivity, the United States and other interested partners should use their political influence to promote a constitutional convention in Sudan that is led by Sudanese stakeholders.

    Enhanced U.S. Diplomatic Engagement

    Strong U.S. diplomatic engagement with Sudan is necessary to advance an international peace process. To support this process, as well as to achieve important national security objectives, the Trump administration should appoint a new special envoy for Sudan and South Sudan. The appointment of a special envoy must be done in conjunction with a comprehensive plan for peace. Without a comprehensive diplomatic strategy that includes a willingness to use financial leverage to support the process, the appointment by itself of an envoy will not lead to progress in Sudan. Further, given the demands that both Sudan and South Sudan present for even the most experienced diplomat, the Trump administration should consider appointing a separate special envoy for each country as well as the requisite support staff. Likewise, the U.S. Department of State should increase its embassy staff in Khartoum, adding experienced political and economic officers with critical language skills. The department should also add additional staff to the Office of the Special Envoy.

    Financial Pressure

    To provide the necessary leverage for a revitalized peace process and constitutional convention, Sudan’s violent kleptocracy must be confronted directly. Accordingly, U.S. policymakers should use the enhanced diplomatic engagement measures outlined above to support a strategy of financial pressure and increased accountability that addresses the root causes of Sudan’s violent kleptocracy. Five foreign policy objectives that support this broader strategy are discussed below. Further, this strategy can advance important U.S. national security goals, such as safeguarding the integrity of the global financial system, combating corruption, deterring future support for terrorism, and strengthening human rights.

    1.      Stopping Illicit Financial Flows

    U.S. policymakers, regulators, and law enforcement officials should work together, and in concert with foreign government officials, to stop illicit financial flows from Sudan. Kleptocratic elites rely on illicit financial flows and international economic partners for personal enrichment and to ensure safe haven for their ill-gotten gains. More scrutiny is needed on the role Sudan’s international economic partners play in diverting or enabling diversion of the country’s wealth, with the complicity of Sudanese regime leaders. Disrupting the networks that allow illicit financial flows to enter the global financial system is crucial for bringing pressure to bear on Sudanese kleptocrats and for safeguarding the integrity of the U.S. and global financial systems. In Sudan, stopping these flows is paramount to reducing corruption and improving economic development outcomes. It is also essential for achieving peace, as war profiteers, enablers, and facilitators require access to the global economy to fund armed conflict. By enforcing anti-money laundering measures, developing stronger but more targeted sanctions, and eliminating regulatory loopholes, U.S. officials can better exclude these bad actors from the global financial system, thereby building leverage and creating incentives for peace. Congress should ensure that the U.S. Treasury Department has sufficient resources and direction to undertake investigations and enforcement in sub-Saharan Africa, especially in high-risk countries such as Sudan. As these investigations develop, U.S. officials should engage with appropriate foreign governments to ensure they are also taking necessary action.

    Enhancing and Enforcing Anti-Money Laundering Measures. Strong anti-money laundering (AML) measures can help stop illicit financial flows. Given the consistent use of the U.S. dollar by violent kleptocrats in Sudan, U.S. agencies and financial institutions have the power to act. For example, the U.S. Treasury Department’s Financial Crimes Enforcement Unit (FinCEN) should more aggressively counter money laundering involving regime elites and their entities, including companies that are owned and controlled by the National Intelligence and Security Service (NISS), by issuing a request under Section 314(a) of the Patriot Act. This request will trigger more rigorous reporting from banks and financial institutions, especially financial entities connected to Sudan via correspondent banking. FinCEN should also consider issuing an advisory to highlight the need for additional information and reporting of financial transactions involving Sudan’s correspondent banking network where there is suspicious activity indicative of money laundering, such as through laundering the proceeds of corruption or illicit gold trade. Based on information gathered through the 314(a) and advisory processes, FinCEN can evaluate whether to designate any institutions, class of transactions, or accounts as “primary money laundering concerns” under Section 311 of the Patriot Act. Finally, Congress should provide FinCEN with greater support so that FinCEN can allocate more resources to addressing money-laundering activities in high-risk countries like Sudan. More robust enforcement of existing AML measures is also necessary. Over time, U.S. authorities should share information with foreign governments and enlist their assistance.

    Sharing Information and Supporting Multilateral Efforts. U.S. officials can address illicit financial flows more effectively by sharing information with the Egmont Group and with foreign financial intelligence units (FIUs), particularly in the Middle East and Europe where Sudanese banking transactions tend to flow. U.S. officials should also continue to support the Financial Action Task Force (FATF), the leading intergovernmental body addressing money laundering and terrorist financing, and regional anti-money laundering organizations in their efforts to address concerns such as corruption and gold smuggling. Finally, Congress should continue to support the U.S. Africa Partnership on Illicit Finance (PIF). Launched at the U.S.-Africa Leaders Summit in 2014, PIF brings U.S. and African partners together to counter the generation and movement of proceeds from corruption and serious financial crime through the development, publication, and implementation of national action plans. These action plans provide strategies to stem illicit finance, combat corruption, and increase transparency and accountability. Participating in these efforts not only makes U.S. anti-money laundering actions more effective but also better distributes the bureaucratic burden and contributes to a growing cooperative effort to fight corruption across jurisdictions.

    Asset Recovery. By looting Sudan’s resource wealth and state assets, regime elites have amassed personal fortunes at the expense of the Sudanese people, often offshoring their assets in foreign jurisdictions. U.S. and foreign government officials should investigate these acts. After identifying tangible assets that are the proceeds of corruption, they should move to recover these assets, and, when possible, return them to the Sudanese people. The U.N. Convention against Corruption, World Bank Stolen Asset and Recovery Initiative, and U.S. Department of Justice Kleptocracy Asset Recovery Initiative all provide legal mechanisms to recover and return stolen assets to the people of countries affected by corruption. Whenever possible, U.S. and foreign officials should utilize these mechanisms to recover and return stolen assets to the people of Sudan.

    2.      Implementing Modernized Sanctions to Create Leverage to Support Accountability and Advance Human Rights

    Policymakers from the United Statesthe European Union, and other concerned stakeholders should construct and implement a modernized sanctions framework to target the assets of the individuals and entities most responsible for mass atrocities, serious human rights violations, and grand corruption within Sudan. A modernized sanctions program narrowly targets individuals and entities, but with a broader array of tools that create real leverage, while also minimizing de-risking and encouraging financial inclusion. This approach balances the need to apply coercive economic pressure on the spoilers of peace, while avoiding unnecessary harm to the Sudanese people.

    Sectoral sanctions and sanctions on key regime institutions and entities, with a 25 percent threshold for ownership or control. In addition to applying targeted sanctions on the networks of key individuals and entities, particularly the NISS, policymakers from the U.S. and other interested countries should impose sectoral sanctions on Sudan’s gold and weapons sectors. Sectoral sanctions—as used against similarly corrupt and repressive regimes in North Korea and Libya—allow for specific targeting of economic activities that directly contribute to violence and conflict, as these two economic sectors do in Sudan. In order to ensure that the sanctions affect the full networks of these entities, and to enhance enforcement, the U.S. Treasury Department should use a threshold of 25 percent ownership or control, consistent with general principles of beneficial ownership, for which entities are targeted. Sanctions authorities in other countries should also consider this 25 percent threshold principle as they consider crafting their own sanctions programs.

    Anti-Corruption Sanctions Designations. Using the new authorities under the Global Magnitsky Human Rights and Accountability Act (a provision of the 2017 National Defense Authorization Act), U.S. congressional leaders should press the Trump administration to introduce anti-corruption sanctions designations for individuals and entities engaged in grand corruption within Sudan. This legislation grants the U.S. president the authority to freeze assets or to deny or revoke U.S. entry visas to foreign individuals who are deemed guilty of targeting human rights defenders and whistleblowers. This law could be used effectively toward Sudan. Similar legislation has been introduced in the U.K. Parliament.

    Mitigating the Unintended Negative Effects of Sanctions. Policymakers should help to mitigate the unintended negative effects that financial pressures can have on the Sudanese people by promoting financial inclusion. To do so, U.S. officials should engage with other governments to agree on how best to expand the participation of banks and other financial service providers with Sudan while also ensuring that these financial institutions engage more responsibly in Sudan. Although ultimately a business decision, strong public messaging from regulators can alleviate industry concern and nudge banks and others financial services to avoid overcompliance. The United States and other governments should also consider publication of a “watch list” of companies that may be connected to sanctioned entities, in order to enhance the screening efforts by financial institutions and mitigate concerns about unintentional violations.

    Transparency for Business Conducted in Sudan. As a balance to promoting financial inclusion and to ensure that U.S. businesses are not financing the violent kleptocracy in Sudan, the U.S. government should require increased transparency of U.S. companies wishing to conduct business in Sudan. U.S. policymakers could model such a requirement on the measure implemented when sanctions were being eased in Myanmar (Burma). Any requirement related to Sudan should be triggered at a relatively low amount of business, such as $100,000 in gross sales. Public reporting should focus on any business conducted with the Sudanese ministries of defense, energy, and mining and with the NISS and Sudan Armed Forces (SAF) as well as the due diligence measures taken by the company to prevent contribution to conflict, human rights violations, corruption, or other concerns.

    3.      Addressing Conflict-Affected Gold

    A sizeable part of Sudanese gold is conflict-affected, entailing a high risk for money laundering. To help address this concern, the U.S. Treasury Department should issue an advisory for Sudanese gold, given the industry’s extreme vulnerability to money laundering and smuggling. Issued in coordination with sectoral sanctions, such an advisory will exert substantial pressure on the Sudanese government to address this issue. This advisory should be rooted in the 2015 guidance provided by the Financial Action Taskforce (FATF), the international anti-money laundering body, on the ways the gold trade is connected to money laundering. By rooting the advisory in the FATF guidance, the U.S. government can then engage with other governments to issue and amplify other warnings.

    Private Sector Engagement. The private sector, including trade groups such as the London Bullion Market Association, can also contribute to this effort by continuing to refuse to list Sudanese gold until the government addresses the conflict, smuggling, and money laundering concerns now present in Sudan. Provided that the Sudanese government begins to address these issues, industry leaders and development organizations should engage with artisanal miners and support the ethical development of this sector through sustainable practices that limit environmental harm and address health risks.

    4.      Fighting Corruption Through Other Means

    U.S. officials and leaders from the United Kingdom, European Union, and EU member states, along with other concerned countries and organizations, should prioritize combating corruption in Sudan. Systemic corruption undermines peace and security and can even constitute a threat to national security. In Sudan, corruption is closely linked to armed conflict, massive human rights violations, underdevelopment, and poverty. U.S. and foreign officials should fight corruption through anti-corruption sanctions measures, as indicated above, and criminal prosecutions and by supporting Sudanese civil society and media, especially individuals and organizations that expose corruption and human rights abuses.

    Criminal Investigations and Prosecutions. The Department of Justice should investigate and prosecute embezzlement, extortion, and other crimes related to corruption in Sudan. Although less relevant prior to the recent decision to ease U.S. sanctions toward Sudan, the FCPA is again an important tool for fighting corruption as U.S. commercial interests explore business opportunities in what remains one of the most corrupt countries in the world. The U.K. Bribery Act can also be a critical tool in the fight against corruption, including in cases that do not involve government officials.

    Supporting Sudanese Civil Society and Media. Policymakers in the United States, United Kingdom, European Union, and other concerned governments, and multilateral donors, should provide a significant increase in funding to Sudanese civil society and media. Civil society leaders and local journalists are critical to a just, transparent society, and they deserve support and protection. They are often the target of state violence and repression. A significant increase in funding to these groups and individuals, coupled with strong statements of support by the U.S. government and others, will make clear to the Sudanese government that better relations and the path to normalization must include a free press and civil society.

    5.      Engaging Sudan’s Political and Financial Supporters

    Policymakers should engage Sudan’s political allies and financial supporters to pressure the Sudanese government to work toward a lasting peace. The Sudanese government has reoriented its foreign policy to gain political and financial support from Arab Gulf states, the European Union, and others. U.S. policymakers should work with these entities to ensure that this financial support does not contribute to illicit activities, additional violence, or human rights violations. Without strong oversight and political pressure, historical examples suggest that al-Bashir’s inner circle and regime elites will simply accumulate these resources and use them to ward off economic and political reform and to maintain political power indefinitely.

    U.K. and EU Support for Refugee and Migration Containment. A recent decision by the United Kingdom and the European Union to provide the Sudanese government with substantial financial support to stem refugee and migration flows has emboldened the Sudanese government and a group called the Rapid Support Forces (RSF), a reconstituted Janjaweed force with a history of atrocities. This EU money risks equipping and empowering the latter. The German Corporation for International Cooperation (GIZ) administers this support through the Khartoum Process. Europe’s strengthening of Sudan’s violent kleptocracy will only continue to devastate Sudan, the Sudanese people, and those passing through Sudan. The EU policy will push more people to migrate or engage in crimes like human trafficking and smuggling, or in some cases, terrorism or armed resistance against the government.

    الملخص التنفیذي

    Click here to download the full report.

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