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Africa/Global: Following the Money
July 10, 2017 (170710)
(Reposted from sources cited below)
"As an important tool in our fight against corruption, tax evasion, terrorist
financing and money laundering, we will advance the effective implementation of the
international standards on transparency and beneficial ownership of legal persons and
legal arrangements, including the availability of information in the domestic and
crossborder context." - G20 Summit Communiqué, Hamburg, July 8, 2017
The issue was not high profile in Hamburg, the wording was generic, and
implementation, as always with such communications, remains highly dependent on
interpretation and political will. But, unlike contentious issues on climate change
and trade, the global consensus on the need to rein in illicit financial flows
now seems well-established. The rapid acceleration of global finance has
increased both global and national inequalities, and gravely imperilled the capacity
of states in both rich and poor countries to provide for public needs. And there is
growing recognition of the need to act.
In practice, of course, financial transparency seems most conspicuous by the absence
of effective mechanisms to deter tax evasion (legal) and tax avoidance (ostensibly
legal but often illegitimate). But, a little more than one year after the Panama
Papers' revelations, which won the International Consortium of Investigative Reports
the Pulitzer Prize, the imperative to follow the money is a guiding thread not only
by a host of investigative journalists but also for activist groups, international
agencies, and legislative bodies.
Most prominent are the scandals surrounding the current presidents of the
United States and South Africa. But the campaign to stop illicit financial flows is
continuing at many different levels less widely covered in global media.
This AfricaFocus Bulletin contains recent short articles or excerpts from articles on
five such cases.
For previous AfricaFocus Bulletins on tax evasion, inequality, and related issues,
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Corporations secretly lobbying UN to allow tax avoidance in its anti-poverty agenda
Humanosphere, 23 June 2017
by Tom Murphy
Multinational corporations are lobbying the U.N. behind closed doors to keep tax
avoidance off the list of targets in the Sustainable Development Goals, say advocates
of global tax reform.
Many experts cite tax avoidance by corporations and wealthy individuals as a major
driver of inequality and poverty worldwide. The United Nations' Sustainable
Development Goals (SDGs), established by international consensus as a series of goals
for reducing poverty and inequity, includes reducing improper tax avoidance and
Now, say advocates of transparency and global tax reforms, it appears that many large
corporations, with the backing of the International Monetary Fund, are pushing the
U.N. to alter its definition of "illicit flows" to only limit illegal activities and
ignore legal means corporations avoid paying taxes.
Legal tax avoidance is cited by many as a major global problem that especially
impacts developing countries. Corporations, such as Microsoft, often use legal means
to shift profits out of countries and into tax havens or other countries to reduce
their tax burden.
Tax evasion is the term used for illegal means to avoid paying taxes; many say
there's often a blurry line separating legal 'avoidance' from 'evasion,' but the
impact on poor countries in lost revenue is significant. By some estimates,
governments lose out on anywhere from an estimated $200 billion (if the definition is
limited to avoidance) to more than $1 trillion each year (if you include evasion) in
Corporations successfully lobbied in the past to prevent attempts to reign in tax
avoidance. Those who advocate for fairer taxation and a reduction in corporate tax
avoidance and evasion say, in a pair of letters addressed to the U.N. SecretaryGeneral
António Guterres, that this new lobbying push to 're-interpret' the SDGs must
"For the U.N. to allow this global agreement to be subverted now would be a damning
betrayal of that leadership and all who signed up to the Sustainable Development
Goals (SDGs)," Dereje Alemayehu of the Global Alliance for Tax Justice said in a
The SDGs are a series of targets meant to reduce poverty and inequity by 2030. Goals
include increasing access to clean water, universal secondary education and
eliminating extreme poverty. Goal number 16 calls for the reduction of illicit
financial flows worldwide. Reports prepared in the run-up to the finalization of the
SDGs in 2015 listed tax avoidance as an illicit flow, but it was not named
specifically in the final targets.
Corporations are taking advantage of the language. The issue of tax avoidance gained
some popular attention when a series of documents revealed how wealthy individuals
kept money in Panama to avoid paying taxes. Tax reform advocates say the system is
rigged in favor of corporations. The average citizen in a country subjected to forms
of tax avoidance is hurt because the money could be used to pay for schools, roads
"The research and policy analysis on illicit financial flows are unanimous in
including multinational tax abuses in the definition - and we also have the most
robust estimates of the scale of the problem in this area," Alex Cobham of the Tax
Justice Network said to Humanosphere. "So it makes no sense, in either political or
technical terms, to subvert the SDG target in this way."
The Tax Justice Network, The Independent Commission for the Reform of International
Corporate Taxation (ICRICT), and the Global Alliance for Tax Justice are concerned by
the fact that the U.N. Office on Drugs and Crime is in charge of determining the
definition for the illicit flows target. They say that the body does not work on
taxes and appears to be vulnerable to lobby efforts by companies trying to change the
The group of advocates say they have a strong case for including tax avoidance in the
definition for illicit financial flows. Two major documents that informed the
formation of the SDGs specifically mention the issue of tax avoidance. The Report of
the High-Level Panel of Eminent Persons on the Post-2015 Development Agenda, chaired
by then U.K. Prime Minister David Cameron, set up the framework for the SDGs. It
names tax avoidance as an issue that must be addressed in order to realize a world
free of extreme poverty.
A second report concerning illicit financial flows was used as the basis for
establishing SDG 14. It too names tax avoidance and uses it in the context of the
phrase 'illicit financial flows.'
"It is clear the two documents that underpin the U.N. agreement have explicit
statement that avoidance is a part of illicit flows," explained Cobham. "I don't
think anybody can argue that what everyone agreed to is about multinational corporate
The hope is that a direct appeal to Gutteres will ensure the definition is not
"We urge Secretary-General Guterres to stand up for lower-income countries against
the lobbying of special interests in what we consider is a critical element of the
global commitment towards eradicating poverty and transforming economies through
sustainable development," Jose Antonio Ocampo, Chair of ICRICT said.
Illicit Financial Flows in the Extractives Sector in Africa - Reflections on the
Osoro Report in Tanzania
Maendeleo Group Blog, June 21, 2017
by Selemani Kinyunyu
North Mara open pit gold mine in Tarime, Tanzania
On 12 June 2017, President John Magufuli of Tanzania received a report from the Osoro
Committee which was commissioned to examine the economic and legal implications of
the country's export of gold and mineral concentrates. The establishment of the Osoro
Committee follows a visit made in March by President Magufuli to the port of Dar es
Salaam where he barred the export of 277 containers of gold and mineral concentrate
belonging to Acacia Mining PLC, pending government verification of the amount and
value of the minerals.
A probe team was established to carry out the chemical analysis and a report released
in early April 2017. The chemical analysis pointed to significant variances in the
amount of gold concentrate in the containers, suggesting that Acacia had under
declared the export value and amount of mineral concentrate by as much as three
times. The probe team also found that at least 10 other minerals were not declared by
Acacia including zinc, nickel and lithium.
Based on the findings on the chemical analysis, the Osoro Committee estimates that
Tanzania lost up to $ 84 billion between 1998 and 2017. Given that Tanzania's
proposed 2017/2018 budget is approximately $ 15 billion, the losses would be
sufficient to run the country for at least 5 years. The Commission's findings suggest
that Acacia engaged in a number of dubious practices that contributed to Illicit
Financial Flows including;
- Base erosion and profit shifting - Acacia would include illegible costs in the
computation of its costs of production with the aim of eroding its tax base in
Tanzania. Then through a network of subsidiaries, Acacia would export the gold
concentrate from Tanzania (which now has a lower book value due) and sell it to third
parties through its treasury department in South Africa at a much higher value.
- Trade misinvoicing - Acacia would misreport the nature, amount and value of
mineral ore being exported.
- Transfer pricing - Acacia would collude with companies to sell gold and mineral
ore at prices that were not reflective of the actual market value. The manipulation
of the sale price was done for the purpose of avoiding or reducing its tax
Following these findings, the Osoro Committee made 21 recommendations related to
legal, policy and institutional reforms. It noted that there were significant
internal deficiencies in the countries tax, mining, business registration, judicial
and freight management authorities. The Osoro Committee also recommended public
disclosure of mining contracts and for appropriate criminal and administrative
sanctions be taken against individuals who had occasioned losses or engaged in
corruption and mismanagement.
Acacia which operates 3 mines in Tanzania is a subsidiary of Barrick Gold, the
largest gold mining company in the world. Acacia strongly disputes findings of the
chemical analysis and of the Osoro Committee. It has called for an independent audit
of the findings. Following considerable pressure on its cash flows and a share price
that nose-dived by 30%], executive vice chairman of Barrick Gold John L Thornton met
with president Magufuli in Dar es Salaam on 14 June 2017. A statement issued by the
presidency after the meeting suggested that Barrick would pay Tanzania any money it
owes and that Barrick would help Tanzania build a smelter. Thornton's brief statement
after the meeting was coy, instead insisting that further discussions would be held
by a joint team of experts to resolve the impasse.
What way forward for Tanzania?
The Osoro report is not the first time there has been a detailed scrutiny of the
country's mining industry. There have been at least 5 other inquiries into the matter
namely the 2002 General Mboma Committee, the 2004 Dr. Jonas Kipokola Committee, the
2005 Enos Bukuku Committee, the 2006 Lau Masha Committee and the 2008 Judge Bomani
Committee. The real challenge therefore appears to be implementation deficit.
Commendably, president Magufuli announced that all the recommendations of the Osoro
Committee shall be implemented. ...
Muammar Qaddafi's lost treasure may be stashed in boxes hidden around Africa
by Lynsey Chutel
The violent fall and bloody death of Muammar Gaddafi in 2011 triggered an
international treasure hunt for the riches of the wealthy and flamboyant Libyan
dictator. Now, a United Nations report reveals that much of Gaddafi's loot was hidden
in plain sight across Africa.
For years, rumors have swirled that billions of dollars, at least six million carats
of diamonds, and an unknown number of solid gold bars were hidden in South Africa.
About $20 billion was believed to be held across four banks, while the rest was
allegedly hidden in warehouses and bunkers around Pretoria and Johannesburg.
In 2013, South Africa agreed to return Libyan funds worth 10 billion rand (nearly
$780 million at today's rate) to the new government, in line with the UN's rules,
with no mention of the rumored cash, diamonds, and gold hidden in storage lock-ups.
Now, the panel's investigation reveals that even more money than was previously
reported may have moved through South Africa's financial institutions. Information
that only came to light in 2016 showed that another $8 billion was moved from a
Standard Bank of South Africa account to a Stanbic account in Kenya. ...
The Kenya transfer was allegedly authorized by Bashir Saleh al-Shrkawi, Gaddafi's
former banker and ex-head of the Libya Africa Investment Portfolio. The portfolio, a
subsidiary of the Libyan Investment Authority, is believed to be a source of funding
for the Gaddafi family, which has since been "reformed".
A panel of experts appointed by the United Nations Security Council released a 299-
page report to the council earlier this month on the continued chaos of post-Gaddafi
Libya. In it are documents, photographs, and interviews detailing how the dictator's
assets, frozen under the UN's resolutions, flow freely around the continent. [Report
available at http://tinyurl.com/ybgbzt64]
Accra, the capital of Ghana, holds another part of Gaddafi's legendary hoard. There,
the money was was stored in boxes marked with the seemingly innocuous stamp of a
humanitarian organization, Le Comité International pour la Protection des Droits de
l'Homme. The security council panel contacted the Ghanaian police and the rights
organizations' headquarters in France, with no response. Last seen in February 2016,
the money has allegedly been moved to another country.
The UN investigation follows an exposé in the Panama Papers, published by the German
newspaper, the Süddeautsche Zeitung. The papers documented how the Libya Africa
Investment Portfolio invested in oil in other African states to move money around.
The investment company also held shares in a front company, the Vision Oil Services
Limited, run by the controversial Panamian law firm Mossack Fonseca. The company was
founded in 2007 but lay dormant until March 2011, the twilight of the Gaddafi regime.
Former Gaddafi banker Bashir, who has since been spotted in Niger, South Africa, and
Swaziland, dismissed the treasure hunt as "mirages."
Bipartisan Bill Targets Criminal Money Laundering, Terror Financing
FACT Coalition, June 28, 2017
http://www.thefactcoalition.org - direct UTL: http://tinyurl.com/y92kgp2l
Transparency measures have broad support from financial institutions, law
enforcement, and anti-corruption advocates
Washington, D.C. -- Bipartisan legislation introduced on June 28, 2017 aims to crack
down on one of the prime enablers of criminal money laundering and terrorist
financing — the abuse of anonymous shell companies. The senate bill is sponsored by
Sen. Sheldon Whitehouse (D-RI) along with Senate Judiciary Committee Chairman Charles
Grassley (R-IA) and Ranking Member Dianne Feinstein (D-CA). The house bill is
sponsored by Reps. Carolyn Maloney (D-NY) and Pete King (R-NY). The measures enjoy
widespread support from law enforcement groups, financial institutions, and anticorruption
advocates, such as those in the Financial Accountability and Corporate
Transparency Coalition (FACT Coalition), a non-partisan alliance of more than 100
state, national, and international organizations promoting policies to combat the
harmful impacts of corrupt financial practices.
The Senate bill is called the "True Incorporation Transparency for Law Enforcement
(TITLE) Act." The House bill is called the Corporate Transparency Act. Both are
being introduced shortly after journalists behind the groundbreaking Panama Papers
investigation received the Pulitzer Prize at an award ceremony at Columbia
Gary Kalman, the executive director of the FACT Coalition, issued the following
"Just over a year ago, journalists worldwide began publishing the Panama Papers —
exposing global webs of anonymous shell companies used to facilitate all forms of
corruption and criminal activity.
"While Panama received all the unwelcome attention, U.S. laws are no better. In many
ways, it is easier to hide behind an anonymous company in this country than Panama or
any other in the world.
"Terror financing. Sanctions evasion. Human trafficking. Just about any financial
crime you can conjure up has an anonymous company behind it. It is the vehicle of
choice for bad guys to hide and launder money. Police and prosecutors cannot follow
the money trail because at some point it disappears behind a wall of secrecy. Cases
fall apart, and criminals walk away.
"The bipartisan bills introduced today offer a relatively simple yet effective remedy
to the problems caused by anonymous companies.
"The measures enjoy widespread support from financial institutions, law enforcement
groups, and anti-corruption advocates. Political momentum for transparency continues
to grow, and we look forward to working with Sens. Grassley, Feinstein, and
Whitehouse and Reps. Maloney and King to close the U.S. financial system to those who
would abuse it."
FACT Sheet: Anonymous Shell Companires
FACT Coalition, April 2017
- Creating a U.S. shell company takes less information than acquiring a driver's
license, or in some states, even a library card. When a person sets up a company,
they aren't required to disclose the real people who profit from its existence or
control its activities, known as "beneficial owners."
- Individuals can conceal their identity by using front people, or "nominees," to
represent the company. For instance, the real owner's attorney can file paperwork
under their name even though they have no control or economic stake in the company.
Finding nominees is incredibly easy--here are corporations whose entire business is
to file paperwork and stand in for company owners.
- An academic study found that the U.S. is the easiest country in the world for
terrorists and criminals to open anonymous shell companies to launder their money
More details (2 page summary) at http://tinyurl.com/y92kgp2l
Tax evaders exposed: why the super-rich are even richer than we thought
Analysis of a massive trove of data - much of it leaked from tax havens - suggests
that inequality levels across the world should be revised upwards dramatically
by Annette Alstadsæter, Niels Johannesen and Gabriel Zucman
The Guardian, June 14, 2017
The statistics on inequality - those used, for instance, in Thomas Piketty's
bestseller, Capital in the Twenty-First Century - only include the income and wealth
the taxman sees. So how high is inequality when also accounting for what he doesn't
see? Recent leaks from tax havens suggest the gap between the rich and the rest is
even wider than we think.
Tax records are invaluable for the study of economic inequality. They contain
detailed information about the income (and, in some countries, wealth) of taxpayers.
Much of this information comes directly from employers and banks, and is therefore
reliable. And because tax records exist as far back as the early 20th century, they
can be used to shed light on the long-term evolution of inequality.
The graphs published on the World Wealth and Income Database, for example, show just
how powerfully this information can inform the public debate. The top 1% income share
is now closely scrutinised by journalists and policymakers in the US, where the rise
of inequality has been particularly extreme; it even gave the Occupy movement its
motto: "We are the 99%."
But for all their merits, tax data raise an obvious issue: by their very nature, they
entirely miss tax evasion. Is this a serious problem? That depends: if tax evasion is
equally prevalent among rich and poor, measured inequality will be unaffected. But if
the rich dodge taxes more than others, tax records will underestimate inequality.
Before now, there hadn't been any attempts to address the measurement of global tax
evasion systematically. The reason is simple: the lack of comprehensive information
about who skirts taxes. The key data source used in rich countries to study tax
evasion is random tax audits - but these audits do not capture tax evasion by the
very wealthy, because few of them are audited, and because random audits fail to
detect sophisticated forms of evasion involving shell companies and hidden accounts.
In our recent study, however, we exploited a massive trove of data leaked from HSBC
Switzerland, the so-called HSBC files, to fill this gap. In 2007 a systems engineer,
Hervé Falciani, extracted the internal records of HSBC Private Bank, the Swiss
subsidiary of HSBC. In 2008, Falciani turned the data over to the French government,
who shared it with foreign tax administrations. The documents leaked by Falciani
included the complete internal records of more than 30,000 clients of this Swiss bank
At the time of the leak, HSBC Switzerland was a major actor in the offshore wealth
management industry. It managed US$118.4bn - about 4% of all the foreign wealth
managed by Swiss banks. This is a unique source of information through which to study
tax evasion, because the leak can be seen as a random event, and it comes from a
large (and, the available evidence suggests, representative) offshore bank.
We also made use of the Panama Papers, which last year revealed the identity of the
shareholders of shell companies created by the Panamanian firm Mossack Fonseca. Just
as with HSBC, this leak is valuable as it can be seen as a random event and involves
a prominent provider of offshore financial services. The Panama Papers, however, have
one drawback: they do not allow us to estimate how much tax was evaded (if any) by
the owners of the Mossack Fonseca shell companies. It is not illegal per se to own
shell corporations in Panama or elsewhere.
We combined random audits with these new sources of information to shed light on who
really evades taxes in Denmark, Norway and Sweden - and the results are striking.
The higher one moves up the wealth distribution, the higher the probability of hiding
assets. Scandinavian households in the top 0.01% of the wealth pyramid - the ultrarich,
who own more than $40m in net wealth each - are 250 times more likely than
average to hide assets. Furthermore, the ultra-rich HSBC customers had considerably
more wealth in their accounts than other customers - so although they were very few
in number, they owned around half of all the wealth hidden at HSBC.
This pattern is not specific to HSBC or the Panama Papers. Over the last few years,
thousands of Norwegians and Swedes have voluntarily declared previously hidden assets
under a tax amnesty. Here again, the super-rich are found to own half of the total
amount of offshore wealth.
what are the consequences for inequality? At the very top of the pyramid, it is
much greater than previously estimated. In Norway, where the available wealth data is
particularly detailed, the super-wealthy appear to be 30% wealthier than previously
thought, when all the wealth hidden in tax havens is taken into account. The share of
wealth owned by the top 0.1% increases from 8% to 10%.
Since Scandinavians generally pay their taxes and hide little wealth in total, our
results are likely to be even stronger in Great Britain and elsewhere. A more
accurate measurement of tax evasion would likely increase inequality levels even more
than in Scandinavia.
These results underscore a basic truth: in a world where wealth is globalised and
where a big industry has specialised in helping the ultra-rich avoid and sometimes
evade their taxes, our ability to track great fortunes - and to tax them
appropriately - faces considerable challenges.
But does this mean nothing can be done? Not at all.
It is possible to collect much better information on wealth and its distribution.
Progress has already started in this area, as a number of tax havens have agreed to
automatically exchange bank information with foreign countries' tax authorities - a
major evolution since the time of the HSBC leak.
But this policy faces an obvious issue: what are the incentives for offshore bankers
to provide truthful information? After all, these are the same people who for decades
have been hiding their clients behind shell companies, and sometimes even smuggling
diamonds in toothpaste tubes or handing out bank statements concealed in sports
magazines - all of this in violation of the law and the banks' stated policies. Yet
it still should be possible to secure their cooperation, if they face stiff enough
sanctions for non-compliance.
More broadly, the key to successfully fighting tax evasion is to change the
incentives for the providers of wealth concealment services. Over the last few years,
a number of banks have pleaded guilty in the US to criminal conspiracies to defraud
the Internal Revenue Service - yet they were able to keep their banking licences, and
the fines they had to pay paled in comparison to their profits. A more ambitious
approach would put criminal organisations out of business. If tax evasion ceases to
pay, it will disappear.
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