Blackwater Founder Under Investigation

PRINCE IN THE HOT SEAT

Blackwater’s Founder Is Under Investigation for Money Laundering, Ties to Chinese Intel, and Brokering Mercenary Services

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.