Mar. 24 2016
Matthew Cole Jeremy Scahill
https://theintercept.com/2016/03/24/blackwater-founder-erik-prince-under-federal-investigation/ERIK
ERIK PRINCE, founder of the now-defunct mercenary firm Blackwater and current
chairman of Frontier Services Group, is under investigation by the U.S.
Department of Justice and other federal agencies for attempting to
broker military services to foreign governments and possible money
laundering, according to multiple sources with knowledge of the case.
What began as an
investigation into Prince’s attempts to sell defense services in Libya and
other countries in Africa has widened to a probe of allegations that Prince
received assistance from Chinese intelligence to set up an account for his
Libya operations through the Bank of China. The Justice Department, which
declined to comment for this article, is also seeking to uncover the precise
nature of Prince’s relationship with Chinese intelligence.
Prince, through his lawyer,
Victoria Toensing, said he has not been informed of a federal investigation and
had not offered any defense services in Libya. Toensing called the
money-laundering allegations “total bullshit.”
The
Intercept interviewed more than a half
dozen of Prince’s associates, including current and former business partners;
four former U.S. intelligence officers; and other sources familiar with
the Justice Department investigation. All of them requested anonymity to
discuss these matters because there is an ongoing investigation. The Intercept also reviewed several
secret proposals drafted by Prince and his closest advisers and partners
offering paramilitary services to foreign entities.
For more than a year, U.S.
intelligence has been monitoring Prince’s communications and movements,
according to a former senior U.S. intelligence officer and a second former
intelligence official briefed on the investigation. Multiple sources, including
two people with business ties to Prince, told The Intercept that current government and intelligence personnel
informed them of this surveillance. Those with business ties were cautioned to
sever their dealings with Prince.
Erik Prince Sought to
Recreate a Blackwater-Style Operation
In 2010, amid public scandals and government investigations,
Prince began to sell off his Blackwater empire. Using new vehicles, he
continued to engage in controversial private security ventures, including
operations in Somalia and the United Arab Emirates. Eventually, the former Navy
SEAL and self-proclaimed American patriot began building close business ties
with powerful individuals connected to the Chinese Communist Party. In January
2014, Prince officially went into business with the Chinese government’s
largest state-owned investment firm, the Citic Group, and founded Frontier
Services Group, which is based in Hong Kong. Citic Group is the company’s
single largest investor, and two of FSG’s board members are Chinese nationals.
Despite the provenance of FSG’s funding and
Prince’s history of bad publicity, Prince was able to recruit an impressive
line-up of former U.S. military and intelligence officers to run the company.
Key to Prince’s ability to retain such personnel, given FSG’s ties to China,
has been the firm’s strictly circumscribed mission, which does not include
military-related services. FSG is a publicly traded aviation and logistics firm
specializing in shipping in Africa and elsewhere. The company also conducts
high-risk evacuations from conflict zones. Prince has described his work with FSG
as being “on the side of peace and economic development” and helping Chinese
businesses to work safely in Africa.
Behind the back of
corporate leadership at FSG, Prince was living a double life.
Working with a small cadre of loyalists — including
a former South African commando, a former Australian air force pilot, and a
lawyer with dual citizenship in the U.S. and Israel — Prince sought to secretly
rebuild his private CIA and special operations enterprise by setting up foreign
shell companies and offering paramilitary services, according to documents
reviewed by The Intercept and
interviews with several people familiar with Prince’s business proposals.
Several of the proposals for private security
services in African nations examined by The
Intercept contained metadata in the digital files showing Prince and his
inner circle editing and revising various drafts.
Since 2014, Prince has traveled to at least half a
dozen countries to offer various versions of a private military force, secretly
meeting with a string of African officials. Among the countries where Prince
pitched a plan to deploy paramilitary assets is Libya, which is currently
subject to an array of U.S. and United Nations financial and defense
restrictions.
Prince engaged in these activities over the
objections of his own firm’s corporate leadership. Several FSG colleagues
accused him of using his role as chairman to offer Blackwater-like
services to foreign governments that could not have been provided by the
company, which lacks the capacity, expertise, or even the legal authority to do
so.
FSG’s CEO, Gregg Smith, a decorated former U.S.
Marine who deployed twice to Beirut in the 1980s, vehemently denies the firm’s
complicity in any such efforts by Prince. “FSG has no involvement whatsoever
with the provision of — or even offering to provide — defense services in
Libya,” Smith told The Intercept.
“To the extent that anyone has proposed such services and purported that they
were representing FSG, that activity is unauthorized and is not accepted or
agreed to by the company.”
Smith said that any proposals advanced by Prince in
Libya were not made on behalf of FSG, explaining that the company “has strict
protocols in place and has a board-level committee to review any high-risk
project, which would certainly include any proposal” involving Libya.
“He’s a rogue chairman,”
said Prince’s close associate. “Erik wants to be a real, no-shit mercenary.”
“He’s a rogue chairman,” said one of Prince’s close
associates, who has monitored his attempts to sell mercenary forces in Africa.
That source, who has extensive knowledge of
Prince’s activities and travel schedule, said that Prince was operating a
“secret skunkworks program” while parading around war and crisis zones as FSG’s
founder and chairman. “Erik wants to be a real, no-shit mercenary,” said the
source. “He’s off the rails exposing many U.S. citizens to criminal
liabilities. Erik hides in the shadows … and uses [FSG] for legitimacy.”
Last October, FSG’s corporate leadership grew so
concerned about Prince’s efforts to sell paramilitary programs and services
that the board passed a series of resolutions stripping Prince of most of his
responsibilities as chairman.
FSG also terminated the contracts of two of
Prince’s closest associates within the company after management became
suspicious that they were assisting Prince in his unapproved dealings,
according to two people with knowledge of FSG’s inner workings. Smith declined
to comment on internal FSG personnel matters.
In recent months, FSG employees became alarmed when
they began to hear reports from sources within the U.S. government that their
chairman’s communications and foreign travel were being monitored by U.S.
intelligence. According to three people who have worked with Prince, his colleagues
were warned not to get involved with his business deals or discuss sensitive
issues with him. “I would assume that just about every intelligence agency in
the world has him lit up on their screen,” said one of the people advised to
avoid Prince.
Operation Lima: Prince
Exploited Refugee Crisis to Peddle Paramilitary Services in Libya
Prince developed the paramilitary services proposal
for Libyan officials in 2013, before FSG was created, according to documents
and two people familiar with the pitch. He made several trips to Libya to
meet with government officials there.
The Libyan proposal, reviewed by The Intercept, was code-named
Operation Lima. It offered the Libyans an array of military equipment and
services — including weaponized vehicles, helicopters, boats, and
surveillance airplanes — to help stabilize eastern Libya. The ground force,
according to a person involved with the plan, would consist of a troop of
former Australian special operations commandos. Given the instability of the
government and Prince’s inability to navigate complex Libyan factions to vet
potential partners, he had trouble finding the right power brokers to help sell
the proposal.
By May 2015, Prince had rebranded himself and
claimed a legitimate public reputation as FSG’s chairman. Without the approval
of FSG’s management, he returned to Libya offering a freshly repackaged
proposal, according to a person involved with the plan. Rather than a
counterinsurgency force, Prince proposed a similar set of equipment and
services, but with a new justification: The mercenaries would be there to
engage in border security.
Prince’s Libya proposal called for
supplying “armed” vehicles, helicopters, boats, and surveillance planes to
help stem the tide of migrants trying to reach Europe.
According to an internal slide presentation,
Prince’s private force would operate in Libya for the stated purpose of
stopping the flow of refugees to Europe. Libya is one of the main routes for
migrants trying to enter Europe from eastern Africa and parts of the central
Sahel region.
Prince told colleagues that he received preliminary
approval for the border force from a senior Libyan official, but would need to
secure European support to loosen up restrictions on Libyan money and weapons,
which would otherwise impede the plan, according to a person who discussed the
proposal with Prince.
By exploiting European fears of a mass exodus from
the Middle East and North Africa, Prince believed he could obtain political
buy-in from Europe to bring a foreign force into Libya.
Prince arranged a meeting in Germany to pitch the
plan and also shared the proposal with the Italian government, according to two
people familiar with his drive to drum up support for Operation Lima. In Italy,
Prince found only lukewarm interest, according to a person with knowledge of
the effort. The Intercept was
unable to confirm the German response.
Prince’s May 2015 proposal for the Libya operations
suggested, “Funding can be jointly shared by the EU and Libyan government from
Libyan Investment Authority money frozen in European Banks.”
However, according to two people involved in
the proposal, Prince grew frustrated with the failure to get European help
in releasing the frozen Libyan funds, and began looking for other ways to get
his border force funded.
By then, the U.S. government was already
investigating Prince for possible weapons deals in Africa, according to the
former senior U.S. intelligence official and the former intelligence official
briefed on the matter. In the course of the surveillance operation for that
investigation, U.S. intercepts revealed Prince appearing to discuss efforts to
open bank accounts in China to help his Libyan associates.
“Money laundering for Libyan officials using a
Chinese bank — that is the issue that pushed it over the edge” for the Justice
Department, said the second former intelligence official.
The U.S. spies monitoring Prince soon discovered
that he had traveled to the Chinese-controlled peninsula of Macau in an effort
to open a bank account, according to two people familiar with the
investigation. A well-connected source within the Macau banking community told The Intercept that Prince first
attempted to open an account at the Macau branch of a European-connected bank,
but was denied after a review by the bank’s European headquarters.
Later, Prince traveled to Beijing, where he met
with Chinese agents from the Ministry of State Security, according to the
second former intelligence official and a source familiar with the meeting.
In January, Prince returned to Macau and opened an
account at the Bank of China, according to several sources, including the
second former intelligence official and the source with close connections to
Macau’s banking community.
“It was not a personal account,” said the former
U.S. intelligence official briefed on the investigation. “He was doing it for
the purpose of what is considered now — in the investigation — money laundering
on behalf of the Libyans.”
“When he has legitimate
business, he does legitimate business,” said Prince’s lawyer.
The CEO of FSG China is a former Chinese security
official who was once described by a defense trade publication as “Prince’s
right-hand man in China, oiling the wheels of his relationship with the
government.”
“If Erik is fucking around with the Chinese, I
don’t even want to imagine what the U.S. government is thinking about,” said
Prince’s close associate with in-depth knowledge of his activities.
Toensing, Prince’s lawyer, confirmed that Prince
successfully opened an account with the Bank of China. “He opened an account on
behalf of a business,” she said. Toensing declined to say for which business he
opened the account, but said that it complied with U.S. banking regulations.
“This is not an FSG bank account,” a spokesperson for FSG told The Intercept.
As for Prince’s alleged meetings with Chinese
intelligence, Toensing confirmed that Prince had met with internal security
officials in Beijing, but claimed it was in connection to medical evacuation
operations. Toensing was unable to answer allegations that Chinese intelligence
assisted Prince in setting up a bank account in Macau because she could not
reach Prince, whom she said was not in the United States. “What he told me
about visiting China was that he was there selling his book and he’s given
various speeches there,” she said.
While Prince’s re-invented Libya “border security”
proposal was framed as a means of stopping migration, sources with knowledge of
Prince’s business strategy allege that he had greater ambitions in that
country. One person involved in Prince’s plan said the anti-migration force was
seen as a vehicle for Prince to build a “backdoor” for so-called kinetic, or
lethal, operations in Libya — a form of mercenary mission-creep. “During the
day, you do interdiction of migrants — not kinetic,” said the person involved
in the plan. “But those routes are used by weapons smugglers and drug
traffickers at night. Insurgents too. Erik’s guys can then be offered to the
Libyans to help with their other problems. That’s how you get kinetic.”
The plan called for a series of “border security”
bases housing intelligence centers, helicopters, surveillance airplanes, and
weaponized vehicles. Prince proposed a fully equipped, contemporary
military force to be staffed in part by foreign mercenaries.
“This is Erik Prince using the refugee crisis in
Europe in an effort to put mercenaries on the ground in Libya,” said Malcolm
Nance, a former U.S. Naval officer who trained special operations forces and
has extensive experience in Libya since the fall of Qaddafi. “They think
they’re going to solve the migration problem with technology and a bunch of
Western mercenaries?” Nance, who reviewed a copy of Prince’s plan provided by The Intercept, called the proposal
“fantasy baseball.”
Government Investigation
Focuses on Violations of U.S. Defense Export Regulations
Among the concerns of government investigators is
that Prince’s attempts to provide defense-related services to Libya and other
countries violate U.S. defense export regulations. Under federal law, U.S.
citizens seeking to offer military services or technologies to Libya must have
a license certifying that the services or articles are approved under the
International Traffic in Arms Regulations, or ITAR. “Many of these services and
articles are designed to kill people or defend against killing people,” said
John Barker, a former deputy assistant secretary of state for export controls.
“To protect U.S. national security and foreign policy as well as that of its
allies, the U.S. requires prior authorization.”
FSG officials told The Intercept that the company has no such licenses, nor
has it sought them. “Since our inception, FSG has had bright-line policies
against the provision of defense services and the purchase of U.S.-origin items
that might be ITAR-controlled,” said Smith, the CEO of FSG.
The State Department’s Directorate of Defense Trade
Controls, which issues the licenses, told The Intercept that it would not comment on what licenses
companies possess or lack, calling them “proprietary corporate data,” and
asserted that information on the licenses is not subject to the Freedom of
Information Act. The Intercept has
a long-standing FOIA request with the State Department seeking information on
licenses granted to Prince and his former network of companies. To date, no
information has been provided.
According to documents reviewed by The Intercept, as recently as 2014,
Prince was registered as a defense services broker with the State Department
through a limited liability corporation in Delaware, Westcomi LLC. That
registration would permit Prince to engage in brokering without further
authorization for some transactions in some countries, but not in Libya. Even
with a valid brokering registration, according to legal experts, Prince would
still need to get State Department approval for specific deals and report them
to the U.S. government. “He could not solicit or promote the brokering of
defense articles such as armored equipment delivered from abroad, or engage in
or make a proposal to engage in brokering activities, absent prior U.S.
government approval,” said Barker, the former state department official.
An FSG official said the company did not know if
Prince obtained a license for his activities in Libya, but noted that he
did not have one in his capacity as FSG’s chairman. One of Prince’s Libya
proposals reviewed by The
Intercept lists FSG as the commercial vendor for the project.
Last October, concerned about Prince’s unsanctioned
international activities, FSG’s board approved a resolution clarifying that the
company does not “engage in activities that require ITAR licenses.” A State
Department spokesperson declined to comment, saying, “We are restricted under
Federal Regulations from commenting on specific defense trade export licensing
activities.”
Prince’s lawyer, Victoria Toensing, told The Intercept: “I’m not going to get
into what licenses [Prince] has.”
“You push the buttons on
the company, but the main bad guy gets away and does it again,” said an
official who tried to prosecute Prince.
Prince has run up against ITAR in the past.
In 2010, Prince sold most of his equity in the companies that fell under
the Blackwater umbrella. Claiming that left-wing activists, Democratic
politicians, and lawsuits had destroyed his companies, he left the United
States and became a resident of Abu Dhabi. The remnant of his network was
renamed Academi LLC. Federal prosecutors eventually attempted to prosecute
Prince’s former companies, culminating in a 2012 deferred prosecution agreement
to settle a lengthy list of U.S. legal and regulatory violations committed from
2005 through 2008 when Prince was in charge, including ITAR violations.
A senior official involved with the
Blackwater-related litigation, who has since left the government, told The Intercept that the Obama
administration’s continued willingness to award contracts to former Blackwater
entities while the case was active was a fatal impediment to a successful
prosecution. The official, comparing the former Blackwater empire to a drug
syndicate, added that prosecutors could not get anyone under Prince to testify
against him personally. “This is very much the concern,” the former official
told The Intercept. “You
push the buttons on the company, but the main bad guy gets away and does it
again.”
No criminal charges were filed against Prince.
In federal court filings, Prince’s former companies
admitted to providing — on numerous occasions during Prince’s tenure —
defense goods and services to foreign governments without the required State
Department licensing. In some cases, they admitted to providing services even
after failing to obtain a license from the State Department.
As part of their settlement with the government,
Prince’s companies ultimately agreed to pay nearly $50 million in fines and
other penalties and to implement compliance procedures to ensure such illegal
activities did not continue. In September 2015, the deferred charges were
dismissed after the U.S. government certified that the companies had “fully
complied” with all of its conditions.
At that point, Prince was already deep into
creating new companies registered outside of the United States and appeared
poised to return to the conduct that had marked his time at the helm of
Blackwater.
An internal document from Prince’s inner circle,
reviewed by The Intercept, shows
his team openly discussing the need to avoid U.S. and international defense
export regulations and to mask the involvement of Prince and his cohort in
efforts to provide mercenary services and military equipment to foreign
governments. “Erik is always pressing the limits as to what is possible,” said
the close associate of Prince’s.
Project November: Prince
Offered Services to Nigeria to Fight Boko Haram
Several of the proposals for paramilitary
services Prince has shopped around the world called for the use of a foreign
force to conduct operations, according to the proposals and a person familiar
with Prince’s plans. These documents, including one for Nigeria, were not
authorized or approved by FSG and do not exist on any of its internal
computer systems, according to company officials.
Prince has long been interested in raising a
private military force to battle Islamic militant groups in a variety of
countries. In 2014, he traveled to Nigeria and met personally with
then-President Goodluck Jonathan to offer a $1.5 billion proposal to wipe out
the radical Islamic group Boko Haram, according to a person familiar with
Prince’s meeting. “It was a proposal to fix roads,” Toensing, Prince’s lawyer,
said in a phone interview. “It was for fixing roads and not military related.”
Part of Project November — Prince’s proposal
for Nigeria — envisioned air attacks in northeast Nigeria against the Islamic
militant group Boko Haram.
But the internal proposals Prince and his team
drafted, reviewed by The Intercept,
offered a markedly different set of services than street repairs. They
explicitly promised to confront the sabotage and theft of Nigerian oil, provide
VIP protection for Nigerian officials, and engage in counterinsurgency
activities. Code-named Project November, the Nigeria plans were originally
created with the FSG logo, though the company’s emblem was omitted from the
plan presented to the Nigerians.
Nigeria later hired Eeben Barlow, the legendary South
African special forces mercenary — and Prince’s longtime business rival — to
conduct a three-month operation inside the country to fight Boko Haram. Two
sources close to Prince said that, as Prince saw it, Barlow had taken his plan
and effectively stole the contract. “Erik was smokin’ hot” over that, said one
of the sources.
In recent months, Gregg Smith and some members of
FSG’s board, which includes retired Adm. William Fallon, the former commander
of U.S. Central Command, began examining the possibility that Prince’s
unauthorized activities could lead to a criminal indictment or other sanctions
against the FSG chairman by the U.S. government. Toensing dismissed the notion
Prince had broken any laws. “When he has legitimate business, he does legitimate
business,” she said.
According to multiple sources familiar with
Prince’s activities, as well as documents reviewed by The Intercept, Prince is considering an invitation to speak at a
conference later this month in China sponsored by the country’s main domestic
security organization, the Ministry of Public Security.
Internally, FSG executives determined that any
presentations by the company’s U.S. citizen personnel at the conference could
potentially violate U.S. laws against providing defense advice to China. Smith
issued a directive that no U.S. personnel from FSG were authorized to attend.
Erik Prince, Smith told his staff, would need to make his own decision.
