Photo: Melissa Golden/Redux
Mar. 24 2016, 10:00 a.m.
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, left, chairman of Frontier Services
Group, looks at a map of Africa with Deputy Chairman Johnson Ko. FSG, which is
backed by Chinese capital, is based in Hong Kong.
Photo: HKEJ
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.
But 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.
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A slide from a 2015 proposal
for a private military force to help “support Libyan sovereign
control.” Prince’s lawyer denies he has ever engaged in “anything
regarding defense” in Libya.
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.
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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.
One slide from Prince’s Libya proposal stated
that military trainers and surveillance planes would be provided by Frontier
Services Group. Prince is FSG’s chairman, but the company’s CEO denies the
company approved — or was even aware — of this proposal.
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
Interceptthat 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.
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