Offshore myth: How Africa lost $1 trillion to tax havens
The myth of the offshore blankets, the lethal truth of the matter: more than 80 percent of international finance activities are conducted through offshore financial markets indirectly or directly connected to UK secrecy jurisdictions.
IN the 18th century, as the legend goes, Russian nobleman Grigory Potemkin ordered the construction of makeshift façades across newly conquered Crimea to impress the visiting Catherine the Great and prevent her from accurately assessing the region’s wealth.
Today, the world’s elite aren’t building elaborate fake villages, but they are creating complex webs of sham corporations.
The modern offshore business world appears pure Potemkin — everywhere and nowhere.
While the African continent loses an estimated $150 billion annually to illicit flows, creating an artificial poverty in the process, the continent itself is not homogeneous.
In fact, as the Panama Papers reveal, African tax havens, particularly Liberia and Mauritius as well as the Seychelles, are frequently used as cogs in the wheels of corporate, criminal and political activities that desire legal and financial veils.
Companies can often be spread out across multiple tax havens — with for example, a legal entity in Mauritius, a shareholder entity in the British Virgin Islands (BVI), nominee directors in the Isle of Man and a bank account in Switzerland.
According to a senior corporate registry source in Portugal’s own tax haven of Madeira, “Due to highly unstable political systems, you can’t create a web which is concentrated in only one jurisdiction.”
But the truth is not that simple: jurisdictions like Mauritius, much like Panama, British Virgin Islands, Cayman Islands and Bermuda are vulnerable and impoverished countries that are often coerced or incentivised by the “onshore” powers.
These range from the financial muscle of multinationals, including accounting and banking firms as well as the political prowess of the UK, US and Switzerland, wishing to maintain ring-fenced financial sectors.
This is because the “offshore” is being used to facilitate activities that the better regulated “onshore” cannot do.
No wonder, then, that the UK’s Serious Fraud Office (SFO) called the City of London a “head office” to the majority of the world’s tax havens that also comprise the UK’s foreign territories, including Anguilla, BVI, Channel Islands, Jersey and a dozen others.
But the UK’s influence and reach is not limited to its own territories. From Hong Kong to Mauritius, the UK has played a critical role in the historical development of global tax havens that have “commercialised sovereignty” in exchange for a small fee.
The myth of the offshore blankets, the lethal truth of the matter: more than 80 percent of international finance activities are conducted through offshore financial markets indirectly or directly connected to UK secrecy jurisdictions.
Fiscal Paradise
“Whenever a judge asks for information from Mauritius during an investigation, there’s no response,” said French anti-corruption magistrate, Renaud Van Ruymbeke. “I recommend Mauritius and Singapore to those with dirty money to launder.”
Generating more than 10 percent of its GDP from its ringfenced financial sector, Mauritius is renowned as both a “gateway” and “banking vault” for African and Indian capital – from wherever it comes.
In fact, between 2000 and 2011, over 54 percent of India’s “foreign direct investment” came from Mauritius through a process called “round-tripping”: Indian capital is remitted to Mauritius before being remitted to India to qualify for various tax exemptions, including capital gains tax.
In 2010, I posed as a client eager to set up a Mauritian entity to avoid taxes from South Africa.
I contacted a well-known offshore provider in Mauritius, Ocra, informing them that while my business generated significant profit, I didn’t like the political climate and sought a jurisdiction that would provide me with high levels of client confidentiality and low tax rates.
My business, I declared, was selling very good egg cartons.
“There is information-sharing only on money laundering and terrorist matters; otherwise, all information remains confidential,” said the kindly Ocra official.
Though the official tax rate was 15 percent, I was told this could be reduced to zero if I opted for the legal form of Global Business Category II entity.
The costs were minimal: bank account — $1 000; the fake (or nominee) directors — $1 200. Total fees for the first year? Less than $3 000.
Best of all, I would never need to step foot in Mauritius. The identity documents required by Ocra and provided by myself could have belonged to anyone at all.
But while Mauritius may serve as a gateway for capital flowing into and out of the African continent, not all “secrecy jurisdictions” are designed for the same purpose, nor do they work in competition.
Rather, they perform specific functions — ranging from aviation and maritime services to mailbox companies and bearer shares, or even simply strategic geographic locations.
Take Liberia’s maritime or “ship” registry: though the country barely has a decent port, the registry ranks as one of the world’s leading “flags of convenience” and hosts over 450 oil rigs active in countries like the US, Angola and Nigeria.
By registering an oil rig in a tax haven, companies are able to elide financial, legal, environmental, labour and other regulatory requirements that would be imposed by the country where oil activity is occurring.
Liberia’s registry, like those of other maritime tax havens, including the Marshall Islands, is not managed by the government.
Instead, it is outsourced to a foreign company — in this case the International Registries Inc (IRI), based in Virginia, USA.
IRI says the purpose of the registry is to “maximise profitability, while minimising the risk of exposing (the) beneficial owner to personal liability.”
The Organisation of Economic Cooperation and Development (OECD) claims that maritime companies seek “cloaking” services to make sure their activities and owners, are “almost impenetrable”.
And the OECD says that when it comes to the registration of ships and rigs, anonymity is the “rule rather than the exception”.
In fact, estimates suggest about 60 percent of the world’s vessels are “falseflagged”.
This secrecy of these ship registries has also helped conceal corruption, as was the case of Charles Taylor in Liberia.
In a case in the US Supreme Court in 2001, Liberia’s murky ship registry was described as a “handy honeypot” for Taylor.
“Taylor’s oversight of (the registry) is so tight he acts in effect as a senior partner, and is intimately involved in all aspects of management, personal assignments (and) distribution of funds, salaries and foreign offices. Moreover, Taylor received a substantial piece of its revenue, up to one-third.” What happens where a crisis occurs? In the case of the Deepwater Horizon oil rig spill in the Gulf of Mexico, the US government could not regulate what it did not know existed.
Though BP leased the rig, it was owned by a company called Transocean which had registered the rig in the Marshall Islands.
Transocean’s liability? Just $27 million. Dividends to Transocean shareholders for the same period were over $1 billion.
Coincidentally, the maritime registry of the Marshall Islands was also managed by IRI. These perks have drawn in over 2 000 vessels keen to “flag” in a jurisdiction that asks no questions.
When I called the Marshall Islands registry posing as a client some years back, I was told: “if the authorities . . . come to our Registry and Jurisdiction and ask to disclose more information, regarding shareholders, directors of the company etc . . . we are not privy to that information anyway . . . unless the name of directors and shareholders are filed in the Marshall Islands and become a public record (which is NOT mandatory), we are not in a position to disclose that information.”
A project by the African Network of Centres for Investigative Reporting (ANCIR) called the doubleoffshore.org revealed that more than 70 percent of Nigeria’s deepwater oil rigs are incorporated in tax havens.
Though oil companies come under scrutiny, those ghost ships that also perform the function of human, drug, wildlife, timber and other criminal trafficking, do not.
Not only do multinationals operate in criminal ways, but criminals camouflage themselves as multi-nationals for the same end: secrecy.
Conveniently, the process of intra-company pricing, impacting 60 percent of global trade that occurs within different subsidiaries of the same multinational, not between different multinationals, has created a situation where global trade is essentially self-regulated.
This is because national governments only regulate at national levels, not the transnational. Yet, businesses operate across countries.
The process of using foreign shell companies in numerous tax havens to create artificial costs, high interest loans, and false management and service fees is rampant.
The International Accounting Standards Board (IASB), which determines the global financial reporting practice, says that multinationals don’t need to disclose disaggregated or granular information to national governments in annual reports.
The financial reports, claimed the IASB to this author, are for investors only. — newafricanmagazine.com
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