FROM DIAMONDS TO DECEIT - Mail & Guardian...4 From Diamonds to Deceit October 2016 From Diamonds to...

From Diamonds to Deceit October 2016 11 From Diamonds to Deceit October 2016

‘We did nothing wrong’

FROM DIAMONDS TO DECEIT

Rebecca Haynes


Since April 2016, the Panama Papers exposé — around an enormous 11 million plus financial documents showing hidden financial dealings and illicit use of tax havens — has caused a substantial shake-up in the global community. These offshore holdings encompass government institutions, political leaders, billionaires,

kings, celebrities and criminals linked to drugs, commodity and human trafficking and fraudsters.

Many of these hidden financial dealings have been facilitated by some of the world’s leading law and financial services firms on behalf of some of the most prominent world figures. The Panama Papers is likely the biggest leak of sensitive inside information in history and it continues making news around the world.

It took a year, but the International Consortium of Investigative Journalists (ICIJ), together with the German newspaper Suddeutsche Zeitung and more than 100 other media partners, including reporters from the BBC, Le Monde, the Guardian, Sonntags Zeitung and German and Austrian broadcasters and many more validated the authenticity of 2.6 terabytes of leaked data.

More than 50 Africa stories from over 20 countries were developed by African media houses across the continent in partnership with ANCIR’s ‘ilab’ team, comprised of financial, prosecutorial and data experts, producing Africa’s largest transnational investigation to date.

ICIJ’s data and research unit indexed, organised and analysed the data, using collaborative platforms to communicate and share documents with journalists

“The report by the OECD puts IFF outflow at $150-billion, which means Africa is losing

huge amounts of money that could potentially fund education, healthcare or

investments.

”

A mule is holding the MS Maasdam, a Holland America Line cruise ship, during a transit of the Miraflores locks in the Panama Canal.The Miraflores Visitors Center is visible in the background. Photo: Jean-Philippe Boulet. Source: Wikipedia.

working in 25 languages in almost 80 countries.

The consortium’s analysis of the leaked records revealed information on more than 214 000 offshore companies connected to people in more than 200 countries and territories.

While Panama is not sharing information with South Africa over those the tax authorities have uncovered are linked to offshore accounts, state agencies have confirmed in Parliament that 81 South Africans are linked to at least 79 offshore accounts and has also identified around 1 700 local citizens whose names appear in the offshore records contained in the Panama Papers.

South African Revenue Services (SARS) has confirmed to the joint committees on finance, trade and industry, and mineral resources that it is looking into the Panama Papers, but SARS and other agencies have said it will be very difficult to calculate the money contained in the offshore accounts.

It also cannot prevent this from continuing, as it is easy to open an offshore account. The process is similar to opening any bank account — an ID or passport and verification of physical address details are all that is required.

The Panama data includes emails, financial spreadsheets, passports and corporate records revealing the secret owners of bank accounts and companies in 21 offshore jurisdictions, including Nevada, Hong Kong, Bermuda, the Cayman Islands and the British Virgin Islands. Hundreds of offshore-registered companies are linked to investments in extractive industry concession trading in Africa.

FINGERSIt includes nearly 40 years of data from a little-known but powerful law firm based in Panama, Mossack Fonseca, which has offices in more than 35 locations around the globe, and is one of the world’s top creators of shell companies and corporate structures that can be used to hide ownership of assets.

Mossack Fonseca’s fingers are in many pies: Africa’s diamond trade, the international art market and other businesses that thrive on secrecy. According to the ICIJ, Mossack Fonseca has helped establish numerous secret shell companies and offshore accounts for the rich and the powerful.

Data from these documents show that the firm worked with more than 14 000 banks, law firms, company incorporators and other middlemen to set up companies, foundations and trusts for customers. The leaked documents

SECRET DEALINGS OF THE RICH AND POWERFUL


indicate that about $2-trillion has passed through the firm’s hands.

The release of these papers when issues around curbing illicit financial flows through tax havens and tax evasion is one of Africa’s top priorities, brings to light crucial questions about domestic resource mobilisation in Africa, and in southern Africa, particularly around the extraction of minerals.

Former South African president Thabo Mbeki estimates that Africa loses $50-billion a year through externalisation. The figure quoted by Mbeki is conservative compared to a report by the Organisation for Economic Co-operation and Development (OECD), which puts the amount at $150-billion.

This poses major developmental questions for Africa, which has some of the richest and largest mineral assets in the world. All this is money could potentially fund education, healthcare or investments on the continent.

Mbeki issued a timely warning: “We should not misconstrue the release of the Panama Papers as a time for celebration or an end in itself. To the contrary, it is rather a time for deep reflection and regret that we have allowed the practice to persist, which is made possible among others by the existence of tax havens and financial secrecy jurisdictions.

“Now is the time for the global community to act in a firm and comprehensive manner to end the illicit financial flows and close down the tax havens and financial secrecy jurisdictions.”

Ultimately there are questions that the Panama Papers reveal about SADC countries and the management of the extractive industries, including where and what gaps are encouraging illicit financial flows and how they can be plugged. There are major implications for SADC and its developmental agenda, given the vast outflows of resources.

FINANCIAL FLAWSFrom a regional perspective, the impact of the Panama Papers was discussed at the launch of the report: The Botswana Diamond Deception in Johannesburg in June 2016.

Representatives for the roundtable discussion included agents from Angola, Botswana, Democratic Republic of Congo (DRC), Zambia and Zimbabwe. The

education programme officer for the Open Society Initiative for South Africa (Osisa), Sizaltina Cutaia, opened the launch, describing Africa’s financial flows and the implications of the Panama Papers on the SADC.

“The Panama Papers mean the time has come for deep reflection on how we have allowed this extraction to happen, especially given that Africa is one of the biggest minerals producers worldwide,” stressed Cutaia.

“The Botswana Report has given us investigative analytics around profit-shifting and domestic resource mobilisation.”

TAX-SAVING VERSUS TAX EVASION“[The] revelation in the Panama Papers is not new to us, however they have amplified and elevated to macro level, leaving three critical positions,” said Dr Claude Kabemba, director, Southern Africa Resource Watch (SARW).

“Firstly, what is the nature and extent this tax avoidance and evasion taking place in South Africa, with focus on destructive industries? Then, our capacity to detect these tax avoidances and lack of transparency in business ownership and thirdly, do we have the regulations to ensure this tax evasion is regulated, meaning, do we have the legislation? If we can detect, then how do we sanction? These are all critical questions when we confront this challenge.

“We must look at how we continue to raise this issue and keep it alive and visible, pushing government, corporate and the private sector.

“I find it surprising in South Africa that there is a lot of talk about corruption but not a lot about what illicit financial flows go out of the country. The big story now is the whole Gupta family saga and one leading politician some months ago taking R6-billion into Dubai for them, an allegation made by EFF’s Julius Malema and denied by the presidency. Then two ministers visit the DRC on day-trips, but would not say why.

SECRECY“The next big story is around the Gupta’s money-laundering where they have chosen as a destination a small but most secret tax haven. This is a big story,

Dr Claude Kabemba. Photo OSISA

Construction of locks on the Panama Canal, 1913. Source: Wikipedia.


likely to be the first of many. Another of the biggest is the papers from the HSBC Bank in Switzerland — a bank account that holds large amounts of money siphoned from the arms deal.”

THE GREAT ROBBERY OF AFRICA In the ensuing discussion, it was questioned what

systematic global rules need to be put in place. One participant said that the Gupta-Zuma relationship is not exclusive: “There is one such Indian family for every African country.”

Continued Kabemba: “Transparency International e.V, an international nongovernmental organisation based in Berlin, is trying to unmask the corruption campaign, but there are a variety of reasons why people put their money in tax havens, including lower taxes and optimising investments.

“We need to examine the line between tax saving versus tax evasion. Because it is secret, it could be the product of drugs, bribery and human trafficking — our primary interest. I would have thought that interest in Ian Kirby would be greater, for example. Legal or illegal, how does a civil servant, albeit a judge, get all that money?”

Kabemba also mentioned the Beny Steinmetz Group, one of the most successful diamond companies. Steinmetz, a big supplier of diamonds from Sierra Leone to famous jeweller Tiffanys. Now being investigated by the US Federal Bureau of Investigations in six countries, Kabemba said that the paper trail to Steinmetz’s involvement in the Koidu mine in Sierra Leone, through a company called Octea registered in the British Virgin Islands (BVI), is a “clear indicator of money laundering.”

The Panama Papers revealed a trail that highlights that while Africa’s west coast is one of the most diamond-rich regions on earth, it remains poverty-stricken because companies like Steinmetz are milking it of its extractives. Sierra Leone is among Africa’s top diamond producers and theoretically this mine should be profitable as it is yielding gem-quality rough diamonds of $350 per carat, but the mine is somehow $150-million in the red.

ENDEMIC CORRUPTIONAdvisor to the Office of the Cabinet Secretary, Ministry of Mining, Kenya, Job Ogonda described how easy it is for anyone to access an offshore account, one reason why Africa remains an easy target for illicit financial gain.

“Registration in a tax haven is as easy as an ID or passport, and one can hire an ultimate or natural beneficial owner for $15 000 a year,” he said. “Tax havens mainly involve proceeds of crime, base erosion and profit shifting, false invoicing, tax avoidance and evasion and transfer pricing.

Mitre-type lock gates at Gatun Lock, Panama. Photo by MAdaXe at en.wikipedia. Source: Wikimedia Commons.

The Mafuta is a diamond-mining ship owned and operated by De Beers Marine Namibia and operating along the western coast of southern Africa. It was built in 1983 as Dock Express 20 as a multi-role heavy lift vessel. In 1993, it was converted to the world’s largest cable layer. Purchased by De Beers in 2005 she was converted to a sub-sea diamond mining ship and renamed Peace in Africa, to imply that she is providing an alternative to blood diamonds (seen in this photo while undergoing conversion in Tyne, UK). In 2013, the vessel was renamed to MV Mafuta. Photo by Gary Williams: www.cos-solutions.co.uk. Source: Wikipedia Commons.

“The Africans that stand out include Alaa Mubarak, eldest son of [former Egyptian president] Hosni Mubarak; Mounir Majidi, personal secretary to King Mohammed VI of Morocco; John Addo Kufuor, son of [former Ghanain president] Agyekum Kufuor; Jean-Claude N’Da Ametchi, an associate of [former president of Ivory Coast] Laurent Gbagbo; and Clive Khulubuse Zuma, nephew of South African president, Jacob Zuma.

“Beny Steinmetz, an Israeli businessman with a portfolio in diamond mining, engineering and real estate, through BSG Resources (BSGR) secured rights to a 50% stake in Guinea’s Simandou mine on the promise of a $165-million investment in the exploration. Two years later it sold half of the stake to the Brazilian mining giant Vale for $2.5-billion — roughly twice Guinea’s annual budget.

The Africa High Level Panel Report is replete with similar examples and it estimates losses of $50-billion a year.”

Ogonda said that corruption in African countries’ public sector remains endemic. Media and civil society have for at least a decade exposed corruption

en.wikipedia

www.cos-solutions.co.uk


scandals, but the exposure has not ended corruption and its attendant impunity. Of the 54 African countries, 37 countries are signatories to AUCPAC (Convention on Preventing and Combating Corruption), UNCAC (United Nations Convention Against Corruption) and are members of various such regional and international associations.

“The laws and institutions to combat corruption are in place and yet the situation does not seem to improve,” said Ogonda. “The commodities super cycle has weakened the bargaining position of most African countries and budget deficits are a major concern in Nigeria – more than 30%, [and in] Mozambique and Ghana, among others.

“Delivery of essential services is in doubt and there is an increased risk of political mobilisation towards civil strife. South Africa is buckling under the weight of service delivery. We have already seen violent teargas Mondays in Kenya, where opposition party, Cord, has organised Monday protests demanding the removal of the Independent Electoral and Boundaries Commission officials.”

The commission is responsible for conducting or supervising referenda and elections to any elective body or office established by the Kenyan Constitution, and any other elections as prescribed by an Act of Parliament.

IGNORANCE“We should have national policies for extractive sector governance: national policy, national strategy, geophysical data, legislation and regulations, enabling institutions, mineral audit, revenue and financial audit, ICT infrastructure, to enable transparency in the code of governance,” continued Ogonda.

“It is cheap and it is expensive and certain countries can afford to do it, but choose not to. Ignorance of licences is also an opportunity for siphoning money into an account in the Caymans. The solution is a framework to broker licences so that we can prevent mining companies coming into our offices and overwhelming us into entering into negotiations that are skewed.

“Inclusiveness, transparency and accountability mechanisms include local content, platform for internet content, revenue-sharing mechanisms, compulsory acquisition and compensation and inclusion in oversight mechanisms. Contracting and enforcement need power, information and skill asymmetry. We have the Hawks, SARS and the public protector, but no working systems that solve the problem. This is not a technical problem, but [involves] the giving and receiving of bribes.”

According to Ogonda, business and human rights are compromised by illicit financial outflows, which he called “the great robbery of Africa”.

Mossack Fonesca headquarters in Panama City, Panama. Author: Valenciano. Source: Wikipedia Commons

“We need compulsory acquisition and compensation, adequate health and safety, decent work for decent wages, prevention of sexual and physical abuse and [prevention of] environmental degradation and damage. There need to be appropriate utilisation of public services, such as water, energy and security, and a clear direction against complicity and exacerbation of corruption, and the abuse of human rights by governments.

THEORY OF CHANGE“If we have robust legislation and regulation and if oversight institutions are given the resources and power to fight abuse, corruption and impunity, then we will succeed in fighting corruption and human rights abuse. It is the ‘technitist myth’ that perpetuates the problem. Technical solutions have never solved an inherently political problem.

“Financial integrity 101 involves public finance management systems, plus public finance oversight institutions such as resident advisors, registrar of companies, financial intelligence units, customs, registrar of persons and public procurement integrity through integrated financial management systems.

“There needs to be public service integrity and accountability for every resource allocation, asset declaration, lifestyle audits with enforcement through prosecution, asset forfeiture, punishment and positive reinforcement through recognition of integrity to get to an integrity nirvana.

“If we research Kenya, it is captive of oversight institutions managed by the very political powers we trust, but this is entrusted power, which actually belongs to the people. Democratic trends are

sabotaging political relationships and in one form or another, we are captive to factions, such as the Mount Kenya Mafia, which holds presidents captive through history, political parties and monies, the result of which being public officers, institutions and systems are under siege and sometimes violent repression.

“We must go back to the entrusted of power — the citizens — and facilitating fair and transparent elections. Devolution brings power and accountability to the people and with regional solidarity, there is opportunity.”

DEMOCRACY PARADOXOgonda cited an example of the ANC saying that members must be patriotic but show the values of integrity and “avoid behaving in the manner the president is behaving”.

Oversight institutions in Africa, said Ogonda, are relics of neocolonial patronage. There was also a token response to a perceived condescending attitude and a one-size-fits-all, outdated Singapore education model. He stressed the need to transfer knowledge to people about the Panama Papers and let them know about such matters as the Rwandan government establishing an offshore company to lease aeroplanes for its leaders, and the deputy chief justice of Kenya being linked to at least 11 companies listed in the British Virgin Islands.

Ogonda described the “democracy paradox”, with increased democratic participation against a backdrop of shrinking or stagnant democratic space. He also raised the increasing divergence of identity and growing importance of ethnic and religious identity in mobilising and polarising an electorate.

“The ability of citizens to hold the politically entrusted to account depends upon their ability to understand the motivations and influences of political and bureaucratic entities beyond the obvious,” he said. “The question is, are we Africans capable of a political identity that transcends ethno-religious identities?

“Democratic elections in Africa are very expensive, as they are across the world. Funding them is expected to be rewarded, usually with public contracting and appointments. Judicial officers are subject to coercion and bribery, with the brave and astute a minority and increasingly so. Judiciary management is padded and manipulated, yet prosecution is deliberately starved of resources and often instructed to fail.

WAR OF ATTRITION“Other institutions, such as the police and human rights commissions are


also deliberately starved of resources and often instructed to fail. Parliament and public administration are co-opted beneficiaries of corruption and primary saboteurs of accountability.

“Identity is very difficult to alter or add on to, yet the challenges entail that we nurture citizens beyond their current identities. Responding to state capture is complex, expensive, dangerous and long-term. It is a war of attrition. Continuous political economy is expensive and time-consuming, yet essential in effective response.”

Despite so many issues, Ogonda said opportunities abounded in the comparatively progressive constitutions, democratic participation, and a youthful, informed, tech-savvy, impatient and energetic constituency. He outlined further opportunity in devolution and decentralisation, nascent solidarity and regionalisation such as the SADC protocol on mining.

“Democratic power comes from a hitherto jaded, bigoted, cynical and apathetic source. Despots know this and thrive on it. We must reclaim citizenships at national and international levels and achieve citizen solidarity. We need to rethink democracy in terms of, is democracy an ideal or is it a means to a higher ideal?

“Above all, we need to apply knowledge and information to foment citizen self-interest into political pressure, to end theft of public resources and abuse of power,” he concluded.

DESPICABLE TRADESThe African Union’s high level panel shows that Africa loses about $50-billion to illicit financial flows annually and that the continent has lost over $1-trillion over the past 50 years, which is estimated to be the amount of overseas development assistance that the continent has received over the same period.

“The huge amount involved in illicit financial flow is the opportunity lost to meet the infrastructural and development needs of the teeming population of the continent, the majority of whom live on less than $2 per day,” said Samuel

Oloruntoba, PhD, senior lecturer, Thabo Mbeki African Leadership Institute, University of South Africa, Pretoria.

“Illicit financial flows (IFF) include some of the most despicable trades,” he continued. “Sometimes we think international investment is a Holy Grail, but we have seen the outgo, especially in the extractive industry.

Another “despicable trade” that made news in July this year is New Zealand’s largest-ever cocaine haul worth €9.02-million discovered inside a giant diamanté-encrusted horse head. Officers discovered 35 1kg bricks of cocaine stored inside the 400kg sculpture, destined for an address in Auckland and air freighted from Mexico.

HAWALA TRANSACTIONSOloruntoba continued: “IFF is money repatriated out of a country through one or a combination of commercial tax evasion, trade mis-invoicing and abusive transfer pricing, drug trade, human trafficking, illegal arms dealing, smuggling of contraband, bribery and theft by corrupt government officials.

“IFF happens through double taxation, false invoicing, mis-invoicing, Hawala

“HOW HAWALA WORKS

In the most basic variant of the hawa-la system, money is transferred via a

network of hawala brokers, or hawala-dars. It is the transfer of money without actually moving it. In fact, a successful definition of the hawala system that is used is money transfer without money

movement.

”

IN THE ABOVE HAWALA EXAMPLE TRANSACTION, THE FIGURE SHOWS HOW HAWALA WORKS.A customer (1) (A, left-hand side) approaches a hawala broker (X) in one city and gives a sum of money (red arrow) that is to be transferred to a recipient (B, right-hand side) in another, usually foreign, city. Along with the money, he usually specifies something like a password that will lead to the money being paid out (blue arrows).

(2b) The hawala broker X calls another hawala broker M in the recipient’s city, and informs M about the agreed password, or gives other disposition instructions of the funds. Then, the intended recipient (B), who also has been informed by A, then M releases the transferred sum to B (3b), usually minus a small commission. X now basically owes M the money that M had paid out to B; thus M has to trust X’s promise to settle the debt at a later date.

The unique feature of the system is that no promissory instruments are exchanged between the hawala brokers. The transaction takes place entirely on the honour system. As the system does not depend on the legal enforceability of claims, it can operate even about the password (2a), now approaches M and tells him the agreed password (3a). If the password is correct in the absence of a legal and juridical environment. Trust and extensive use of connections, such as family relations and regional affiliations, are the components that distinguish it from other remittance systems.

Source: Wikipedia


transactions, shell banks, secrecy jurisdictions and tax havens — feeding on weak institutions and the low capacity of the state. Africa also loses money through under-pricing and inappropriate or inadequate royalty payments.

“Most times the state officials collude with national and international corporations — or there is complicity. Multinationals scorecards prove contrary. We give tax holidays and the ultimate effect is promises.”

Oloruntoba said almost all countries in Africa depend on income from extractive industries as dominant sources of revenue, and that it is a paradox that over 50 years after Nigeria’s independence, export of primary products in the form of minerals and metals still constitute more than 80% of economic activities.

“Over-dependence on the extractive sector makes African economies very vulnerable and susceptible to IFF, which is compounded by weak state capacity and complicit government and private sector officials, who aid multinational corporations.

“The Panama papers reveal a tiny fraction of the IFF in Africa. They show how companies in the extractive sector manipulate their accounts to avoid or evade taxes. The papers show how [Africa’s] assets are hidden in these islands [Panama, Caymans, British Virgin Islands etc].

“The leakages shed light on the weakness of financial regulation both at the domestic and international levels, and the preference for capital account liberalisation by the International Monetary Fund and the imposition of this on developing countries.”

AFRICA IS NOT POOROloruntoba cited the example of government funds that were stolen and hidden in Swiss bank accounts by former military dictator Sani Abacha. Abacha has been accused of embezzling as much as $5-billion in public funds during his five-year reign of oil-rich Nigeria, from 1993 until his death in 1998. Nigerian President Muhammadu Buhari has asked the World Bank to help recover the funds.

Oluruntoba said that the person who steals and the person who receives the money are both equally guilty.

“SADC countries are among those listed in the Panama papers and that South Africa alone has some 1 700 people on the list shows lax regulation and represents revenue loss to the [SADC] countries.

“The huge amount of money kept in tax havens is money that can be used to fund social services such as education, health and social grants. The losses affect capacity for capital mobilisation. Africa is not poor — we are actually net creditors to the world, despite other countries in the sub-region being affected in one way or the other.

“The policy response to the Panama Papers should be that those who are found on Panama Papers should be investigated and if found guilty [they] should be punished,” stressed Oloruntoba. “Despite initial denials, the IMF has recently supported the need for capital control on movement of capital.

“There is the need for an international financial organisation which can deal with issues of IFF as the IMF is not fit for this task. Civil Society Organisations (CSOs) must make actions against IFF [as] part of their agenda, through making demands for the prosecution of people mentioned in the Panama Papers.

POLITICAL CONNECTIONS“CSOs should also advocate repeal of laws that allow full-scale repatriation of funds through capital controls. As former president Mbeki noted at the aftermath of the Panama paper leaks, IFF is not limited to developing countries, but developed countries are also affected. Although the rich derive benefits,

“The Bank of Mozambique (BM) recently said that omissions and under-invoicing in foreign trade transactions have prevented

it monitoring resources that should return to the country, negatively affecting

international reserves available to pay for imports. It also cites official statistics on exports compared to data reported by

major trading partners, which demonstrate that averaged over the past five years, the

country officially under-reported to the tune of $130.5-million annually.

”

the society is worse for it through high inequality and poverty. This calls for international action against this threat to the global economy.

“There is need for stiffer laws to regulate movement of capital and to punish errant companies and their executives, but punishment will not be easy due to political connections. Most states in Africa are captured by an elite and civil society needs to take action.

“In advanced countries, punishment and fines happen, but not in Africa. Parliaments of the various countries should be lobbied to repeal or pass relevant laws to address IFFs in southern Africa and each country should have an extractive sector transparency initiative.

“There should also be a regional framework for verifying quantities of products, setting standards of royalty payments and regulation on repatriation of funds, such as an SADC mining protocol.

“We need to see the re-introduction of public-spirited citizenship anger, to change the current apathy towards the civic and public space. It worked against external colonialism; we need it against the internal colonialism of the transnational capitalist class,” concluded Oloruntoba.

One example of under-invoicing raised by the bank were the claims by Global Timber 11 that in 2012, Mozambique exported close to 42 000m3 of raw logs and 219 000m3 of sawn timber to the rest of the world. However, in the same year, its Chinese counterpart said it had imported from Mozambique eight times the declared volumes.

Recognition that the contribution of foreign aid to the exchange fund and the international reserves of countries have declined, proves the need to define and adopt economic and sectoral policies to mitigate this behaviour.

The bank also stressed the need to re-assess the special regimes granted to foreign direct investment companies concerning exchange rates and taxes, particularly in the case of projects that have completed the payment of the contracted funding to carry out the initial investment and its implementation.

NAMED BUT NOT SHAMEDAside from the 1 700 South Africans implicated in the Panama Papers, 280 tycoons in Zimbabwe, including players in the extractive sector, a judge of the highest court in Botswana, evidence of looting of the sovereign wealth fund in Angola, sale of concessions at way below their market value and a receptionist in Namibia being the unknowing owner of nine offshore companies are at the tip of the iceberg of those who have been exposed.

According to Briggs Bomba of TrustAfrica, Panama is but one of dozens of financial secrecy jurisdictions around the world and Mossack Fonseca & Co is just one of hundreds of law firms offering similar services around the globe.

“Panama ranks 26th at 72% out of 102 countries on the financial secrecy index of 2015,” he said, “and Liberia ranks fourth at 83%, Mauritius 27th, Botswana 29th at 71% and the Seychelles, 31st.

“Freedom security and justice (FSJ) represent some of the several enablers of IFF as the existing global financial system becomes increasingly characterised


by liberalisation and deregulation of financial markets, and is permissive of and legitimises IFFs.

“There are discussions that legitimise offshore accounts, but conversations have been difficult because of the attitude of ‘we did nothing wrong’. We need to dig deeper into IFF shenanigans,” he stressed.

MISINVOICINGBomba described the mechanisms through which IFFs take place, which encompass import over-invoicing and export under-invoicing in terms of quantities, price and quality. The Uganda government alone lost a staggering 12.7% due to trade mis-invoicing over the 2002-2011 period according to a study by the Global Financial Integrity (GFI) group. The study also found that Mozambique lost 10.4%, Ghana 11%, Kenya 8.3% and Tanzania 7.4%. The GFI also estimated that over this period, $60.8-billion moved illegally into or out of Ghana, Kenya, Mozambique, Tanzania, and Uganda due to trade mis-invoicing.

“Other mechanisms include consultancy and management fees, transfer pricing, inter-group loans and unequal contracts. The trade mis-invoicing of intangibles and figures represent monies we don’t even know [of].

“An example of such schemes is a company bringing in a piece of machinery for $50-million and then exporting it for $140-million. The Zimbabwe Revenue Authority (Zimra) has already lost millions in car import scams involving officials. We can no longer be impressed by the rhetoric of leaders.”

Bomba also mentioned former Kenya Power boss James Gichuru and MP Chris Okemo, who has been named as a beneficiary of bribes paid to Gichuru. Both are wanted in Jersey to face money-laundering and fraud charges.

Underlining what Bomba described as a big problem with consulting fees, Gichuru’s company Windward was created in the 1980s by Gichuru to receive kickbacks for the award of tenders to foreign firms during his tenure at Kenya Power. The funds were usually disguised as consultancy fees or commissions charged to and involving companies

The diagrams and account details provided by the presenters demonstrate how intricate (or even how simply) a network of fronting companies can effectively cover up, or screen from immediate view, illicit financial dealings and deposits into tax havens abroad.

Debswana’s Jwaneng diamond mine. Source Debswana photo gallery.


from different countries seeking favours for contracts.

Details of the kickbacks were exposed when Gichuru’s wife filed for divorce and claimed that an estimated Sh1-billion was in offshore accounts in Jersey and Scotland.

“Some UK companies are now facing trial, but both men are opposing extradition for agent fees running into millions of pounds, which were paid to companies Gichuru had registered, and they face 53 counts linked to commissions.

“Now there are massive projects in Zimbabwe, such as Kariba, which are being inflated by millions of dollars, explained away as agent fees. Illicit transfer prices can exceed 60% mark-ups.”

SMUGGLINGThe main sources of IFFs in the extractive sector, according to Bomba, are corruption in terms of the payment of bribes by companies and money embezzled from tax collection and allocation. Then there are undeclared corporate revenues from illegal resource exploitation and tax evasion, with inflated costs deducted from taxable revenues and the smuggling of resources.

“Annually about $1-trillion flows illegally out of developing and emerging economies due to crime, corruption, and tax evasion — more than these countries receive in foreign direct investment and

foreign aid combined, according to Global Financial Integrity (GFI), a non-profit, Washington, DC-based research and

advisory organisation.

”

Ndaki Kahiurika, The Namibiam | Alvin Ntibanyane, INK Botswana. Photo OSISA

High-security administration building and transportation machinery below. Jwaneng Diamond Mine, Botswana. Author: Cretep. Source: Wikimedia Commons.

The primary beneficiaries of corruption are corrupt government officials and companies gaining undue advantage. Domestic companies and local subsidiaries of foreign companies are impacted by illegal exploitation and parent, holding and export companies carrying out tax evasion tactics.

The IFF risk levels in the oil sector are very high in terms of corruption and illegal exploitation, with confidentiality and concentration of secrecy in decision-making and monitoring, coupled to biased metering, siphoning and bunkering. Tax evasion is a medium risk, due to homogeneity of international prices according to oil quality.

Gas IFF risk is high for tax evasion as gas prices vary widely because of fragmented markets. Corruption is medium, due to limited market options and illegal exploitation is low as gas theft is very difficult unless it takes place at transit hubs between markets.

SECRECYCorruption in industrial mining is a high IFF risk due to confidentiality, and tax evasion is also high risk due to transfer mis-pricing. Illegal exploitation is low, however, except in measurement and ore grading. Artisanal mining is high for petty corruption, illegal exploitation and tax evasion; tax evasion occurs due to smuggling. The risk is medium for grand corruption.

“Each sector is affected differently. This goes beyond financial secrecy and must apply to the entire financial chain with information communicated to all those with vested interests, with reports communicated to communities in languages they understand. Zimbabwe diamonds a case in point where communities received nothing out of the promises that were made. Transparency and accountability must apply at that level,” said Bomba.

Zimbabwean businessman, Muller Conrad “Billy” Rautenbach, was used as an example of committing fraud and hiding millions in offshore accounts. He fled South Africa back to Zimbabwe after being linked to customs fraud when investigators discovered that vehicles were allegedly under-valued by 20% to


30%, defrauding SARS of customs duties worth R60-million.

Bomba said: “Billy Rautenbach has claimed to have invested a billion dollars in mining enterprises, but the reality is that he invested maybe only R300-million and the huge mining projects he was involved in organising benefitted a small number of corrupt senior officials. Why should there be all this secrecy around government contracts? We need to be more imaginative in terms of an agenda for action.

“The implications of IFF for Africa’s development are significant. As much as an estimated $150-billion is siphoned annually from Africa, which severely undermines the domestic resources base and causes dependency on external sources of development finance. Africa is vulnerable to external conditionalities and corruption is corroding governance and regulatory systems.

“We need more and different types of experts. It is extremely important to conduct ongoing assessments of environmental impacts such as granite quarries to avoid the deaths that occur with rising water tables and pits, where companies would rather pay fines than prevent the significant loss of lives of people and livestock.”

Approximately 20 to 30 people die annually in accidents that occur in abandoned mines across the US alone. These are preventable deaths if there is knowledge of the danger of these properties, landowners making better efforts to limit access and governments having improved, working programmes for regulating or reclaiming them.

COHESIONAccording to Bomba, national sub-regional, continental and global policy demands beneficial ownership, country-by-country reporting, international information exchange, transfer pricing monitoring units and life, energy and intelligence.

“There is a lot of good global data out there, but it means nothing to many entities. We need to have action, catalysing international, sector-level and context-relevant research. Our task is to shift the balance of power — not just technical, but political will, connecting initiatives into a cohesive movement. We need to go beyond concentrated advocacy and naming and shaming, with narrower reporting and more commitment to the long haul,” concluded Bomba.

GFI says that for years development economists were puzzled by the lack of growth in developing economies despite large aid inflows. Many developing countries have failed to grow past the point where foreign aid is no longer necessary.

The US Treasury and Internal Revenue Service (IRS) have now published a rule requiring the US parent company of large, public and privately held multinational

Dr Nqobizitha Dube, Coordinator, Ali-Douglas Research Network. Click on photograph to view video

companies to provide certain financial data to the IRS on a country-by-country basis. According to GFI, the information is meant to provide tax authorities with better tools to identify where a company might be artificially shifting profits into tax havens and provide a red flag for tax evasion and tax avoidance that may warrant further investigation.

These companies are only required to submit this information to tax authorities and the information will not be made public. The US government will also make the information available to the tax authorities in other countries where the multinational company has subsidiaries, through a series of bilateral agreements.

The new rule implements commitment to reporting, as agreed on by the US and other Organisation for Economic Co-operation and Development (OECD) countries in 2015. Although the IRS failed to heed calls by GFI and over 100 other members of the Financial Accountability and Corporate Transparency (Fact) Coalition to make such information public, the implementation of the new international standards from June 30 2016 will give tax authorities powerful new tools in the prevention of economically harmful tax avoidance by multinationals.

The GFI defines IFFs as “all unrecorded private financial outflows involving capital that is illegally earned, transferred, or utilised, generally used by residents to accumulate foreign assets in contravention of applicable capital controls and regulatory frameworks. Thus, even if the funds earned are legitimate, such as the profits if a legitimate business, their transfer abroad in violation of exchange control regulations or corporate tax laws would render the capital illicit.”

PANAMA BLACKOUT IN DRCThe release of the Panama Papers has had little impact on the Democratic

Republic of Congo (DRC) and its policies as the government did not allow media to publish data about the papers.

“The government of DRC threatened people and the media if they published names and data on the Panama Papers and up until now, no media will talk about Panama because they will be jailed under the pretext of national security,” said Ernest Mpararo from the Ligue Congolaise de Lutte Contre la Corruption.

“The government feels threatened because President Joseph Kabila’s family is involved through Janet Kabila who owns a company in Pacific territories, KERATSU Inc, which has shares in telecommunication companies like Vodacom DRC. Also involved is the Kabila’s family lawyer, Alex Kabinda Ngoy, with such matters as the Eurasian Natural Resources Corporation, in which Kabila has interest and Kalume Nyembwe Kazadi, Kabila’s friend.”

Between 2010 and 2012, international mining companies acquired major mining concessions in the DRC for billions of dollars, but most of the money

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never reached state coffers. Assets were sold in secret at knockdown prices to offshore companies which, in turn, made the sales to multinationals and an estimated almost $1.4-billion is said to have disappeared — equivalent to the DRC’s health and education budgets combined.

The owner of the offshore companies, Dan Gertler, is a personal friend of Joseph Kabila. He has made immense profits from these transactions and is considered the gatekeeper to Congo’s mining sector. The companies involved are mostly registered in the British Virgin Islands, where secrecy is allowed.

“MP Eva Bazaiba of the opposition MLC party has written questions for oral debate, [but] this has not yet happened as the speaker of parliament has not authorised the parliament to do this,” continued Mpararo. “The other institutions dealing with the matter such as the DGI, CENARED and LUZOLO offices do not like to speak about the issues.

“Five NGOs from Katanga, where a Canadian company has a mining site, released a communiqué asking Janet Kabila to give an explanation of the matter, but still no answers from her,” concluded Mpararo.

SUPPORTING SOCIETAL IDEALSThe threats are real. In 2016, Botswana was ranked the third most unequal country in the world, according to the World Bank. Only through diversity and stopping illicit financial outflows can Botswana become sustainable without its heavy dependence on extraction.

It was stressed at the roundtable that it is vital to shift from mineral exploitation and into agriculture, tourism and other economic sectors. Particularly in the case of Botswana, if diversity is not realised, when the diamonds are all gone

Ernest Mpararo, Licoco. Photo OSISA Tiseke Kasambala - OSISA Deputy Executive Director. Photo OSISA

Anne Mayher, Coordinator IANRA - International Alliance on Natural Resources in Africa. Click on photograph to view video

it will revert back to a poverty-stricken country. Depletion of diamonds is estimated to start happening as early as 2027.

“Secret offshore accounts point at financial flaws and Africa’s priorities,” said Tiseke Kasambala, deputy director of the Open Society Initiative for Southern Africa (Osisa).

“Monies leaving Africa into offshore havens could be used for healthcare, education and so much more in terms of poverty alleviation. The Botswana Diamond Deception report provides a comprehensive analysis on profit shifting and domestic resource mobilisation.”

“Our other specific objectives include consolidating research and advocacy on natural resources extraction issues in Southern Africa, and putting a spotlight on the specific dynamics of natural resources in Southern Africa, building a distinctive understanding of the regional geopolitical dynamics of resource economics,” continued Kasambala.

“This will help provide for researchers, policymakers and social justice activists — especially in academic and civic spaces — a platform of action, co-ordination and organisation in the watching and strengthening of corporate and state accountability in natural resources extraction.

“We must also highlight the relationship between resource extraction activities and human rights as they happen on the ground, and develop advocacy efforts that engage [with] this reality.”

Kasambala described the African Network of Centers for Investigative Reporting (Ancir) as “a network of Africa’s best muckraking newsrooms, collaborating on in-house and cross-border investigations and who pool their resources to build the technologies and investigative expertise to expose corporate, political and criminal networks and activities”.

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THE BOTSWANA STORY: NAMED BUT NOT SHAMED “Initially we underestimated the Panama Papers project, which was a different project altogether from some of the other projects we have been involved with, such as the successful Fatal Extraction project with the International Consortium of Investigative Journalists (ICIJ),” said Alvin Ntibanyane, INK Centre for Investigative Journalism, Botswana.

“INK was formed in February 2015 to promote investigative journalism in Botswana and the ICIJ invited us to join the Panama Papers project in July following the Fatal Extraction project. Ancir acted more as technical advisors, and edited all of our articles,” he explained.

“When we became part of the global network of 400 journalists to sieve through the Panama documents, we uncovered interesting data about Botswana and key figures involved.

“We found over 100 Botswana nationals and over 50 Botswana companies used the services offered by Mossack Fonseca, and unearthed interesting documents about diamond cartels such as De Beers, retail stores such as Choppies and tourism companies. It was mainly businesspersons and, more interestingly, there were fewer politicians.

“The Ian Kirby connection was the biggest story in Botswana, as Kirby is a powerful figure and a lawyer with connection to the ruling elites, having been the personal lawyer to Sir Seretse Khama, Botswana’s founding president and [he is] very close to President Ian Khama.”

Kirby served as attorney general from 2003 to 2005 and Khama later appointed Kirby the first president of Botswana’s Court of Appeal in 2009. He has been referred as Khama’s “godfather”. The Kirby family run the Mokolodi Nature Reserve.

Nqobizitha Dube (dreads) | Ali Douglas. Photo OSISA

“Very little was known about Kirby as he had kept his personal and business interests away from scrutiny,” continued Ntibanyane. “The lack of declaration of assets and liabilities laws means that not much is known about business interests of judges and other public figures, but the Panama Papers project exposed his business interests outside the country.

“We found that Kirby had used discredited law firm, Mossack Fonseca, to buy shares in seven companies, all registered in British Virgin Islands, and invested two million Pula in 2007. His companies were formed to buy and sell property in London, and because he was doing business in the UK, the companies were registered in the British Virgin Islands.

“While there are tax avoidance questions, there are also issues of judicial integrity.

“The Kirby story was well received in Botswana, precisely because it was about Ian Kirby and it raised questions about the need to enact declaration of assets and liabilities laws for politicians and judicial officers.

“Opposition politicians called for Kirby to be reprimanded and the debate continues, but Kirby defended his investments as [being] above board. Then the government issued a statement to the effect that Kirby has done nothing wrong, saying ‘Just as drinking at taverns at all hours is a lawful activity, so is having an interest in a company registered in a tax haven’.

“Then there was the Choppies connection, about billionaire Farouk Ismail, who founded a Botswana Stock Exchange and Johannesburg Stock Exchange-listed major retail chain store company in Botswana, and invested millions in tax havens after selling part of his stake.”

One of the wealthiest men in Botswana, Ismail and his family were assisted by a complex network of proxies to secretly set up a property company in the

Ian Kirby. Photo supplied

“In November last year, the second-largest gem diamond in the world was

discovered at the Karowe diamond mine in Botswana’s central Boteti region. The

discovery of the monster 1 111-carat stone was a triumph for Karowe’s Canadian

owner, Lucara Diamond Corporation; some reports suggest it could fetch more than $100-million. Not entirely unexpectedly, the discovery was kept very quiet while the stone was spirited away. At a press conference in Botswana, only pictures

of the diamond were shown and by then, apparently, the diamond was already in

Canada.

”


Bahamas, according to documents contained in the Panama Papers.

In 2013, Ismail sold part of his stake in Choppies in an off-market transaction to Standard Chartered Bank Mauritius, earning him over $60-million. While the Panama Papers do not provide evidence that Ismail used the network of companies set up by Mossack Fonseca to evade taxes, the commercial purpose of these companies has yet to be explained.

“There is now collaboration between INK and Malawian journalists on a story about a statutory body that has invested in the British Virgin Islands and Panama. We are now in the next phase of the Panama Papers and attention is on mineral resources,” concluded Ntibanyane.

OF MORALITY AND TAX HAVENS There are several big firms in Zimbabwe, such as Innscor and Zimplats, named in the Panama Papers for paying executives through offshore accounts and companies — allegations they have denied.

According to Transparency International Zimbabwe’s executive director, Mary-Jane Ncube, the Central Bank claims that it is so far “keeping an open mind” and moving with caution because not everyone named in the Panama Papers is guilty of a crime.

“The Central Bank has, however, questioned the morality of transferring such large amounts of cash to tax havens such as the Cayman Islands and British Virgin Islands,” said Ncube. “The Central Bank of Zimbabwe director of exchange controls blames the introduction of a multicurrency system in 2009, which though credited with initially stabilising the economy for a time between 2009 and 2012, also had the negative effect of setting off a wave of international criminal syndicates taking advantage of the country’s lax policing systems.

“Of the 280 Zimbabweans implicated, some names include business tycoon Ken Sharpe, Cottco chief executive Happymore Mapara, and Billy Rautenbach and his ethanol Green Fuels plant, who is being constantly mentioned by committees and accused of human rights violations.”

Ncube said that the Thabo Mbeki Report compiled by the African Development Bank and Global Financial Integrity revealed that Africa had lost $1.4-trillion in IFFs between 1980 and 2009. “This staggering figure brought the magnitude of the crisis home for Zimbabwe, as for many countries in Africa,” she continued.

Samuel. Photo OSISA

Briggs Bomba, TrustAfrica. Photo OSISA

“In the same period, Zimbabwe lost $11.8-million in IFF transfers.

CONTRABAND“The staggering revelations roused a lot of anger and kindled interest in strengthening financial oversight systems, but as the director of exchange control noted, the wanton liberalisation of the economy did not only open doors to international criminal syndicates, but Zimbabweans proved equally criminal in using the country’s financial system as a fishing pond for hard currency.

“The lack of preparedness on the part of law enforcement to deal with such violations is affecting the effectiveness of investigating the potential criminality of the 280 named companies and individuals. Lack also of strong legislation and know-how about dealing with capital flight in the form of capital outflows from


money transfers through corruption, kickbacks, tax evasion and movement of contraband goods, suggests that the guilty may be actively finding new ways and destinations to hide their illicit gains as we speak.

“Regulations are so lax that in 2015, three foreign nationals externalised $270 000 over just 30 days.”

According to Ncube, high levels of corruption and impunity have made it possible for international and indigenous criminal syndicates to take advantage of the porous financial systems and oversight institutions.

The first case study she raised was the suspension in May 2016 of Hashmon Matemera for the externalisation of $330-million while he was still managing director of BancABC, before he joined the National Social Security Agency (NSSA).

“NSSA suspended him amid allegations and suspicions that while in his position as managing director of BancABC, Matemera was conniving with Chinese diamond mining company Jinan Mining. There is evidence that the money was moved to [a] BancABC Botswana account, then to accounts in DRC, Zambia, Sierra Leone, Dubai and China. Of the total amount externalised only $11.7-million was transferred back to Zimbabwe,” continued Ncube.

“No know-your-customer requirements of the officials of the company were fulfilled and now all three are at large. Matemera was accused and charged, and given bail of a mere $10k. Does this represent seriousness on the part of the state?”

CASH CRISISThe second case study was the Central Bank governor saying that externalisation is partly to blame for current deflation in which Zimbabwe lost $1.8-billion in 2015, which was funnelled out as export sale proceeds, inflated management fees and payment for technical and professional fees.

“In the 2003 to 2012 period, Zimbabwe lost $2.6-billion in IFF due to transfer pricing in one industry alone – the fishing industry. All these losses have contributed to the current Central Bank cash shortage crisis.”

In the third case study, Zimbabwe finance minster, Patrick Chinamasa was mentioned. Chinamasa has been making news when in July 2016, protestors in London, United Kingdom, blocked him leaving Chatham House on his desperate visit to Europe to

Jeggan Grey-Johnson Program Officer Research and Advocacy - Africa Regional Office, AfRO. Click on photograph to view video

try to raise money for the bankrupt Zanu PF regime. His vehicle was pelted with eggs and he had to be rescued by police.

“Legislation is proposed to compel mining companies to release production data to the fiscus to curb rampant losses through IFFs and transfer pricing,” said Ncube. “While many countries are yet to thoroughly investigate all the implications of what is revealed by the Panama Papers, for Zimbabwe as for many African countries, the possibility of finding extensive criminal and corrupt activities is potentially high.

“This implies that financial vehicles of both corporates and individuals that require secrecy must be discouraged because of the high probabilities of misuse for illicit purposes such as money-laundering, bribery, tax fraud, terrorist financing and insider dealings.

MISSING DIAMOND BILLIONS“Zimbabwe needs to embrace processes and mechanisms such as the Extractive Industries Transparency Initiative, Publish What You Pay, the Kimberley Process Certification

Scheme, Open Government Partnership and the African Mining Vision.

“Through the office of the National Prosecuting Authority, Zimbabwe is currently pursuing the missing $15-billion externalised illicitly by diamond mining companies in Marange and Chiadzva by seeking identification of beneficial ownership and legal ownership. The media tells us that so far the

trail has led to London.

“Tracking beneficial and legal ownership and the source of the corporate vehicle assets helps law enforcement and financial oversight institutions to stem misuse and criminal activity, and capacitating these institutions to ‘follow the money’ is key to enabling successful illicit financial outflow investigations.

“Revelations from the Panama Papers will mean nothing if law enforcement does not have the capacity to investigate suspect accounts or assets held in corporate vehicles. Mutual legal assistance and international technical assistance agreements provided by different international instruments including Uncac help to overcome stiff challenges faced when implementing measures that ensure timeous availability of beneficial ownership information.Francisco Miguel Paulo: Photo OSISA

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“Criminals are aware that authorities, especially in compromised countries like Zimbabwe, have little capacity to follow the money trail that is spread across multiple jurisdictions using diverse legal persons and legal arrangements. This makes extra-territorial co-operation critical.

“Zimbabwe also needs to deal effectively with corruption and impunity on the home front to make it less attractive to international criminal syndicates. Currently we can say there are 280 local potential accomplices of IFFs and other nefarious activities,” said Ncube.

When you get a quarter you put it in the piggy bank. The piggy bank is on a shelf in your closet. Your mom knows this and she checks on it every once in a while, so she knows when you put more money in or spend it.

Now one day, you might decide “I don’t want mom to look at my money.” So you go over to Johnny’s house with an extra piggy bank that you’re going to keep in his room. You write your name on it and put it in his closet. Johnny’s mom is always very busy, so she never has time to check on his piggy bank. So you can keep yours there and it will stay a secret.

Now all the kids in the neighbourhood think this is a good idea, and everyone goes to Johnny’s house with extra piggy banks. Now Johnny’s closet is full of piggy banks from everyone in the neighbourhood.

One day, Johnny’s mom comes home and sees all the piggy banks. She gets very mad and calls everyone’s parents to let them know.

Now not everyone did this for a bad reason. Eric’s older brother always steals from his piggy bank, so he just wanted a better hiding spot. Timmy wanted to save up to buy his mom a birthday present without her knowing. Sammy just did it because he thought it was fun. But many kids did do it for a bad reason. Jacob was stealing people’s lunch money and didn’t want his parents to figure it out. Michael was stealing money from his mom’s purse. Fat Bobby’s parents put him on a diet, and he didn’t want them to figure out when he was buying candy.

Now in real life, many very important people were just caught hiding their piggy banks at Johnny’s house in Panama. Today their moms all found out. Pretty soon, we’ll know more about which of these important people were doing it for bad reasons and which were doing it for good reasons. But almost everyone is in trouble regardless, because it’s against the rules to keep secrets, no matter what.

Mary-Jane Ncube: Executive Director, Transparency International, Zimbabwe. Click on photograph to view video

BOTSWANA’S DIAMOND DECEPTION REPORT

HTTP://WWW.OSISA.ORG/OTHER/BOTSWANA’S-DIAMOND-DECEPTIONThe Panama Papers have blown open the debate on lawful and illicit financial flows, as they describe billions of dollars sheltered in tax havens by the world’s economic and political elite. Hundreds of offshore-registered companies are linked to investment in extractive industry concession trading in Africa and many of these are registered in tax havens such as the Cayman Islands, the British Virgin Islands and Bermuda.

This poses major developmental questions for Africa, which has some of the richest mineral assets in the world. The report by the OECD puts IFF outflow at $150-billion, which means the continent is losing huge amounts of money that could potentially fund education, health care or investments.

The world is dependent on leaks for critical information that should be in the public domain but isn’t. Systemic gaps in global financial reporting means publicly accessible data holds little value; it hides rather than reveals; it tells a lie or says nothing. Tax havens have commericalised sovereignty so everything can be legal somewhere not here. The main draw is secrecy as a market.

This is essentially what the roundtable in Johannesburg in June 2016 aimed to do, bringing together experts from the around the region to discuss and debate the implications of the Panama Papers for SADC. In addition, Osisa has been working with Ancir on exposing systemic secrecy in the exploitation and trade of Botswana’s diamonds, the outcome of this being the Botswana Diamond Deception report.

ISLAND ECONOMIESThe Panama Papers exposed the myth of the offshore. The UK, example, is the force behind poor islands becoming tax havens – former colonies stuck between coconuts and criminality,” continued Khadija Sharife, then-Ancir editor. “The Cayman and British Virgin Islands are politically captured, elite-controlled, vulnerable economies used by powerful governments and companies as a place to ‘outsource’ their own dirty work. No democracy exists.

“The United States is suffering the same way as Africa and there is not just one villain. Panama stands out because it is a maritime tax haven connected to some of the US’s worst wars. Offshore havens are connected to systematic offshore onshore powers, be they villains or politicians.

“While offshore is technically legal, the first point of secrecy is the virtual secrecy. Pharmaceutical companies with their patents, for example, should release the cost of the patents and research, but they cannot do that. Patented medicines are unaffordable because of illicit activities.

“This is not a one-dimensional corruption story. We need to look at what is

“Source: Reddit user DanGliesack, quoted by Mary-Jane Ncube at the launch

of Botswana’s Diamond Deception Report.

”

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morally right and morally wrong. Poor governments are coerced because they are poor and Africa currently has the incapacity to monitor itself.

“We need to know [in] what way governments are addressing the problems, for example, why is Nigeria getting nothing for 50% of the oil it produces? Contracts are secret from the start of the process, so we need to understand how contracts are sold to companies,” she concluded.

BEGGING FOR INVESTMENTLevels of IFF in Angola between 2000 and 2008 reached $34-billion, or five times the country’s expenditure on health, which is around $6-billion. This is also nine times the $3.8-billion it received in official development assistance. Angola is one of the top 10 most fragile states, and one of the top 10 exporters of illegal outflows.

According to Angolan researcher Francisco Paulo, Centre for Research and Investigation for the Catholic University: “Our main concern is looking at the capital Angolans are investing abroad and investigating what the revenues are that Angola is benefitting from.

“We believe that on average, $4-billion leaves annually as a result of profit and dividends. Angola is begging for foreign investment and almost 98% of its exports are oil. Now that prices are dropping, revenue is affected and falling and government is asking foreigners to invest, but if there is no trust there is no investment.

“As a consequence, the inflation rate is high with the period January to May this year showing a 70% inflation rate and the currency exchange rate value has also been decimated. As much as 70% of consumable goods in Angola are imported and money is not being invested into productive sectors, but going offshore.”

Sharife said, “Angola isn’t a former colony buying out its colonialist through investment. The regime’s elites, siphoning revenue to Portugal, are no different from old Bantustan kings.

“Everything is camouflaged using resources that belong to the government, and they are also following what the UK and USA are telling them.”

ACTIONS DETERMINE OUTCOMESPolicy recommendations that came from the roundtable and the Botswana Diamond Deception report could lead to a relatively achievable financial nirvana, but the reality is that the creative can always circumnavigate policy and red tape.

In Botswana, the recommendations encompassed the disclosure of the Botswana Democratic Party’s (BDP) internal financing structure including domestic and foreign entities, shareholdings, investments, donations and other inflow and outflow, and capping political finance donations related to elections. It was urged to separate BDP’s and De Beers’ interests, including principals shared in both party and corporate structures.

Generally for the diamond industry, the removal of monopoly, oligopolies,

and cartels was emphasised, as was the disclosure of mining and sight-holder contracts and valuation formulas by De Beers.

“There needs to be created a bespoke electronic diamond platform accessible to the public and an exceptional diamond registry by value, volume, buyer, company and jurisdiction,” said Sharife. “There also needs to be publication of the terms, companies and benefits of GRB shareholding in De Beers.

“Nationally we need to implement foreign exchange controls and mandatory automatic information exchange with strengthened anti-trust legislation in relation to monopolies, oligopolies, and cartels.

“We also need publicly-accessible company ownership and company accounts nationally, and publication of country-by-country reporting including names of linked companies, transactions between subsidiaries, names of beneficiaries, details of where companies pay tax and where companies record profits.”

The need to know where employees are based and their wage levels is vital, as is the value, interest, and extent of loans. Tighter controls and knowledge of cost and net book value of assets in each jurisdiction and gross and net tangible assets are required, as is the sanctioning of the use of tax havens for linked company purposes.

“Jurisdictions must pass the test of substantive economic activity relevant to the industry,” said Sharife.

Nqobizitha Dube and Ali Douglas. Photo OSISA

Osisa is a growing African institution based in Johannesburg, committed to deepening democracy, protecting human rights and enhancing good governance in the region. Its vision is to promote and sustain the ideals, values, institutions and practices of open society, with the aim of establishing vibrant and tolerant southern African democracies in which people, free from material and other deprivations, understand their rights and responsibilities and participate actively in all spheres of life.

In pursuance of this vision, Osisa’s mission is to initiate and support programmes working towards open society ideals and to advocate for these ideals in southern Africa. Established in 1997, the initiative works according to local conditions in 11 southern African countries: Angola, Botswana, DRC, Lesotho, Malawi, Madagascar, Mozambique, Namibia, Swaziland, Zambia and Zimbabwe.

It is part of a network of autonomous Open Society Foundations established by business magnate, investor, political activist and author George Soros, located in Eastern and Central Europe, the former Soviet Union, Africa, Latin America, the Caribbean, the Middle East, Southeast Asia and the US.

Southern African Resource Watch is a formative project within the Natural Resources Governance Initiative of Osisa. Its main objective is to monitor corporate and state conduct in the extraction and beneficiation of natural resources in southern Africa and seeks to assess the extent to which the policies, practices and efforts of the players in the sector can and do contribute to sustainable development.

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