Out of Africa:
Law firm sets up shell companies to hide wealth from Sierra Leone residents
Diamond miner funnels profits from Sierra Leone, where poor pay price.
Once or twice a week, as the sun sets on the city of Koidu in eastern Sierra Leone, residents pack their things and head uphill. A diamond mine is about to blow.
Some families leave behind boiling cooking pots, moved on by police and security forces before miners set off charges to blast away the dirt and rock that hide the diamonds. For some in this city of more than 100,000 residents, the explosions remind them of the mortar bombs that fell when Koidu was attacked by rebels during the West African nation’s civil war in the 1990s.
The earth shudders. Buildings crack. And Koidu residents’ lives go on as they have ever since an international mining conglomerate resumed digging in Koidu 13 years ago.
“When the blasting is done during the dry season, dust and pieces of rock sometimes fly into the air,” said Bondu Lebbie, a 21-year-old mother of two who lives at the foot of the mine’s waste heap.
Africans who live near underground stores of natural wealth, such as Lebbie, often struggle amid pover- ty and environmental hazards. Ventures that extract diamonds, oil and other valuable commodities, meanwhile, shuffle billions of dollars around the globe with the help of shell companies in Panama, the British Virgin Islands and other offshore havens.
“Whether it’s dust, water contamination, loss of land or violence, nearly all of the costs of mining activities in Africa are borne by the communities,” said Tricia Feeney, executive director of the British non-governmental organization Rights and Accountability in Development. “And all the benefits are going to this tiny cadre of wheeler-dealers — individuals or companies.”
The Koidu diamond mine is operated by Koidu Limited, a company set up in the British Virgin Islands in 2003 for $750 (U.S.) by Mossack Fonseca, the law firm at the centre of the leak of millions of files now known as the Panama Papers. The documents show that Koidu Limited is owned by Octea Mining Limited, a company in turn owned by a series of offshore companies in the British Virgin Islands, Guernsey and Liechtenstein controlled by billionaire Israeli mining magnate Benjamin Steinmetz and his family.
Many of the diamonds blasted from the ground around the city of Koidu end up adorning engagement rings and pendants sold at Tiffany & Co., the luxury U.S. jeweller that loaned Koidu Limited tens of millions of dollars for rights to the stones. Koidu Limited has become one of West Africa’s most recognizable — and controversial — mining companies.
In 2007 and in 2012, local residents and workers protested the company’s working conditions and environmental impacts. In both confrontations, police opened fire, killing two in 2007 and two more in 2012, including a 12-year-old boy.
In 2015, Sierra Leone authorities threatened to strip Koidu Limited of its licence, accusing the company of failing to meet loan repayments owed to the government and bankers, according to the Wall Street Journal. That same year, lawyers for the city of Koidu alleged in court that the company had dodged $684,000 in local property taxes. Koidu Limited, for its part, said it has spent millions in community development, including building a resettlement village and providing water taps, buses and a health clinic. Koidu’s mayor, SAA Emmerson Lamina, led the court battle. Roads are bad and unemployment is high, he complains, and the nearest X-ray machine is 340 kilometres away.
“If we got that money, we would have been able to make some serious changes in the lives of our people, in agriculture, education and even social welfare.”
He said he fears there will be more confrontations if the mining company doesn’t change its practices.
“Otherwise, I’m afraid for the stability of Koidu City,” he said.
Koidu’s diamonds first appeared in the Panama Papers in 2002, shortly after the end of Sierra Leone’s civil war, when records indicated that the Steinmetz family’s private foundation signed off on a deal to pay $1.2 million to buy half of the mining licence issued by the national government for the Koidu mine.
Koidu Limited became one of Mossack Fonseca’s busiest mining industry customers, with hundreds of emails and attachments sent over more than a decade that detail mundane to urgent administrative tasks, accounts at five banks in Sierra Leone and London and a flurry of loans worth $170 million.
The Sierra Leone mining company is one of 133 companies set up by Mossack Fonseca connected to Steinmetz and the company that sits at the top of his corporate empire, BSG Resources, according to the law firm’s internal files.
These companies include diamond mine operators, traders and polishers in Namibia, Botswana, Angola, Liberia and the Congo.
Koidu’s mayor Lamina was removed from his job shortly after filing the lawsuit against the mining company, which “deprived my community of the much needed resources to undertake development activities,” he wrote in an affidavit. “I believe the community that owns it(s) resources cannot be deprived of benefiting from their own minerals and have to go cap in hand begging.”
Koidu maintained it was exempt from taxes but that it was committed to its corporate social responsibilities. In April, four days after the release of Panama Papers, Justice Bintu Alhadi of the High Court of Sierra Leone ruled that Octea and Koidu Limited were separate entities and Octea was not technically the mine’s owner. As a result, the judge found, Octea had no duty to pay property tax.
“The secrecy of tax havens and the complexity with which companies can arrange their businesses makes it difficult for developing countries to get a fair deal in the share of revenue from their natural resources,” said Tatu Ilunga, a former tax lawyer and senior policy adviser on tax for Oxfam America.