Oil-related corruption in South Sudan poses high laundering risk, US Treasury official says

* Any views expressed in this article are those of the author and not of Thomson Reuters Foundation.

The nascent East African nation of South Sudan sold its first oil earlier this week, heralding its appearance on the market and prompting US Treasury Department concerns that the proceeds could find their way into the hands of corrupt leaders and/or sanctioned parties. A Treasury official who spoke on condition of anonymity said U.S. financial institutions' anti-money laundering regimes must be capable of identifying and avoiding transactions involving corruption proceeds and/or sanctioned parties. "Such programs should ensure appropriate controls to manage risk, which is undoubtedly high in the case of transactions and accounts associated with export of oil from the Republic of South Sudan," the official said. "High money-laundering risks, especially in countries and regions with a history of conflict and corruption, and with the oil industry are not unusual, and U.S. financial institutions involved in that business should be familiar with controls that can mitigate these sorts of risks." South Sudan, which is led by former guerrilla commanders who along with their families and associates live privileged lives, is not subject to the US sanctions that have targeted Sudan since 1997. Still, oil sector activity in the south "will continue to implicate sanctions with respect to Sudan," the Treasury official said. For example, unless authorized by Treasury's Office of Foreign Assets Control, a U.S. company cannot provide services to the petroleum industry in South Sudan if related products are transported through Sudan, the official said, citing OFAC guidance issued in April. "Further, should a revenue-sharing arrangement between Sudan and the new state result in a situation where the government of the new state makes payments to the Government of Sudan from the sale of Southern Sudanese petroleum, U.S. persons generally could not engage in transactions involving the oil industry in the new state unless authorized by OFAC," the guidance stated. South Sudan, which is oil-rich but practically devoid of infrastructure, seceded from the north on July 9, the culmination of a 2005 peace deal that ended decades of civil war. North Sudan lost 75 percent of its 500,000 barrel-a-day oil production after the south became independent, but oil is still flowing through its territory to reach buyers. South Sudan has not yet reached a deal with the north on the split of oil revenues. Some 2 million people died in Sudan in a decades-long conflict over religion, ethnicity, ideology and oil, and although the secession was peaceful, concerns remain over whether the north and south can agree on the vital sharing of oil revenues. South Sudan's first independent oil sale, which involved 1 million barrels of crude, was to Chinese buyer Chinaoil, a subsidiary of Petrochina. The sale was worth around $110 million under current prices, according to Reuters calculations. Prior to its division, Sudan was considered one of the most corrupt countries in the world. It was ranked 172 out of 178 countries listed in Transparency International's latest Corruption Perceptions Index. Transparency International spokeswoman Nancy Zucker Boswell declined to comment on corruption issues in newly formed South Sudan, citing a lack of information.