Africa: Rich in Resources and Even Richer in Corruption
In January, the Nigerian Federal High Court seized control of Oil Prospecting Licence (OPL) 245 for the government. It was a long-overdue payback after two oil giants had allegedly paid $1.2 billion in bribes to the country’s former petroleum minister long before.
However colorful this story and its details (to be described later) are, unfortunately this is just the tip of an incredible iceberg of corruption throughout the continent. It involves an estimated $25 billion+ a year in illegal money flows leaving the country, an ingenious concept called “trade mispricing” amounting to $38.4 billion a year and easy access to illegal tax havens as far away as the British Virgin Islands.
The data above come from averages estimated between 2008 and 2010 and three reports from the OECD, the 2012 Global Financial Integrity Illicit Financial Flows from Developing Countries Report 20012010 and the World Global Economic Prospects Report from January 2013.
Illegal money flows constitute everything from illegal kickbacks (often made to internal government officials in return for helping close an international business deal) that, in turn, head directly out of the country for protection purposes to shield them from future seizure all the way to overcharging and overpricing of services at every step of the resource processing values chains.
“Trade mispricing” is the fine art of mispricing some- thing so the actual value is hidden and the difference is easily pocketed and then, like other illegal gains, sent offshore.
With $100 million worth of legitimate oil exports flowing out of Nigeria to elsewhere in the world every year, plus $70 billion of oil exports shipped from its very successful southern neighbor Angola, one can see what could happen just from those opportunities alone.
Besides oil, the African continent is also richly endowed with many other much-in-demand resources, including:
77% of the world’s platinum: mostly from South Africa
53% of the world’s cobalt: Democratic Republic of the Congo
46% of the world’s chromite: South Africa
22% of the world’s diamonds: Botswana
21% of the world’s industrial diamonds: Democratic Republic of the Congo
21% of the world’s manganese: South Africa
16% of the world’s uranium: Namibia and Niger
9% of the world’s gold: mostly from Ghana, Tanzania, Mali, Guinea and Burkina Faso
8% of the world’s bauxite: Ghana
Other countries have launched projects in the past few years that, while not as fully up and running as the above harvesting enterprises, also have strong potential. Examples, including how much money each country earned from those resources in 2011, are:
Gas and coal, which earned Mozambique $3.5 billion
Gas, gold and nickel, which earned Tanzania $3.5 billion
Iron ore and petroleum, which earned Liberia $1.7 billion
Iron ore, which earned Guinea $1.6 billion
The Jubilee Oil Field, which earned Ghana $850 million
With all of this money at stake – and especially money coming mostly from raw resource gathering enterprises (which are harder to count as precisely, like, for example, autos in production) – it is no wonder that the funds often go overseas.
In addition, the governments of these nations are also riddled with corruption. It is no coincidence that African nations’ own financial budgets – the place where one could search for funds heading in the wrong direction – are some of the least transparent in the entire world. With few exceptions, African nations generally appear in the bottom 25% of all country rankings for the openness of their budgets.
Another aspect of the corruption involves the initial purchase of rights to each of the various raw materials often involving behind-the-scenes trades and bribes that are generally virtually impossible to trace. Even if the initial prices of the actual raw material exploration rights are disclosed accurately, the negotiations behind the scenes with government officials and border trade representatives will likely not be. And those numbers are often staggering to behold, especially as they become more visible with various leaks.
The Siren Song of Offshore Tax Havens
One of these leaks was the recent uncovering of the Panama Papers, which showed numerous foreign officials with offshore bank accounts. Even if the source of the money that flowed into those accounts might not be clear enough to file charges against the officials, the amount of money – in the trillions of dollars worldwide – makes it clear that something inappropriate had to be going on.
The top tax havens in the world, per the Panama Papers list, in order from highest to lowest usage, with the number of tax havens listed beside each locale, are:
British Virgin Islands: 113,648
Hong Kong: 452
United Kingdom: 148
The British Virgin Islands tops the ranks for the number of tax havens, with an estimate going back to as early as 2000 that some 41% of the world’s offshore companies were formed there. And of the 823,000 companies registered there as offshore entities as of 2008, over 113,000 were what are generally called tax havens.
The reason why the British Virgin Islands has become such a magnet for such companies is quite obvious when one studies the local tax regulations: It charges zero taxes to offshore companies who do no business in the region. That includes profits, interest, dividends, corporate tax, capital gains tax, estate tax, withholding tax and income taxes. All a company registered there with no business in the region has to do is pay an annual fee to the government.
The offshore bank accounts there are also tax-free, with tight protections on privacy and confidentiality. Only the account holder’s permission or a court order can reveal what is held in those accounts.
Other tax havens work in a somewhat similar manner but generally without the full benefits provided by the British Virgin Islands entities.
The Democratic Republic of the Congo Connection
As to the linkage to Africa and to give a sense of how much can be made there illegally, one example that surfaced recently involved a detailed investigation in corruption involving five major sales of mining rights.
The investigation, conducted in 2013 and directed by the Africa Progress Panel and chaired by Kofi Annan and Global Witness, revealed several interesting facts. One was fairly easy to uncover – that the estimated gap between the total market value of all five mining rights concessions and what was paid as of the official records was at least $1.36 billion.
According to the results of the report, the money was hidden relatively easily through the use of offshore shell corporations, commercial secrecy on the part of the mining companies themselves, limited requirements for reporting by state companies and government agencies to the DRC’S legislators and the complex interlocking nature of the offshore companies where the money was laundered.
As the study indicated, the state-owned mining companies themselves created a lot of the problem. They were already poorly managed, and most of their internal operations were hidden deeply from view. Government auditing procedures on the companies were also mostly nonexistent; the legislature had almost no financial oversight capabilities over such companies, and many involved actually showed open contempt and disregard for transparency and accountability. That contempt and disregard is not surprising considering the amount of money that was being stolen.
With all of that in place, another serious issue that emerges – but not proven specifically in this case – is the ease by which political leaders and public officials can make their own secret deals with foreign investors.
The Nigerian Malabu Oil Scam
The DRC is of course only one of many corruption cases like this.
The Nigerian case that came up in January 2017 and was mentioned at the beginning of this article is yet another example of where too much secrecy, lax controls, easy access to places to shelter illegal funds and a combination of corporate and personal greed are sucking the profits out of the continent.
What happened is that a highly valued oil drilling block controlled by the Government of Nigeria – the one covered by Licence 245 – was going out for public bidding for exploration and oil rights about six years ago. The two eventual winners of the bid were Royal Dutch Shell and Eni, the petroleum company formerly known as Agip of Italy.
On the books, Nigeria’s state oil company received $210 million from those two companies for those very valuable oil rights.
On the side, and decidedly not a public part of the transaction, Dan Etete, the country’s former petroleum minister, and his cronies pocketed a separate payment of $1.2 billion from Shell and Eni in return for their help in making it all possible.
It was a bribe of the highest proportions. And as a further indication of how brazen the whole case is, the oil companies paid that $1.2 billion bribe into a Nigerian government escrow account at Jpmorgan Chase’s London branch. The funds were then dispersed courtesy of an authorization from former Nigerian justice minister Mohammed Bello Adoke.
Nigeria’s Economic and Financial Crimes Commission, according to a petition filed with the Nigerian Federal High Court, is preparing charges that cover all of this, along with allegations of “conspiracy, bribery, official corruption and money laundering” against Shell and Eni. Back in December, the commission previously filed charges against the former ministers Etete and Adoke, who coordinated the deal along with Aliyu Abubakar, a local businessman.
Those earlier charges lay out an intricate plot in which General Sani Abacha, the former military dictator of Nigeria, and Etete together formed Malabu Oil and Gas Ltd. and then – without any legal basis for it – assigned OPL 245 to themselves long ago. Abacha died in 1998 of unknown causes, and following that, the shareholding for Malabu Oil and Gas Ltd. ended up creating a second fraud by divesting Abacha’s son Mohammed from the corporation.
Though the current charges in this situation have been applauded for their boldness and apparent intent, those watching the situation carefully are reminding everyone that Nigeria attempted to take back OPL 245 16 years ago, when it was under the leadership of civilian Olusegun Obasanjo in 2001. Then, Malabu Oil sued and an out-of-court settlement, likely also fully greased with bribes, returned the OPL to its original illegal owners.
Most feel that this situation – like many others within the corrupt culture of the African governments and economies – is far from concluded. Other dirty secrets and protected illegal funds will likely be revealed as more becomes known from all parties involved.
As for the African continent itself, much more must be done to tighten internal controls, increase oversight and open the books in all aspects of public transactions. It may also take task forces like the ones led by the Africa Progress Panel and Global Witness to penetrate the dark veil that protects other such everyday corrupt transactions from seeing the light of day.
Anti-corruption Billboard in Uganda. Photo by Futureatlas.com