4 June 2018

West Africa: Tax Evasion Without Borders

analysis

"On paper, the company that engineered and built the [$50 million mineral sands] processing plant [in Senegal] was SNC Lavalin-Mauritius Ltd, a local division of SNC Lavalin [Canada]. In reality, SNC Lavalin-Mauritius wasn't involved. It was a shell, created for the specific purpose of helping the engineering giant avoid tax payments. The company had no construction equipment and no office of its own. It operated from inside the Mauritius office of the offshoring law firm Appleby, which helped SNCLavalin create the shell company." - West Africa Leaks

This case, in which a Canadian company evaded an estimated $8.9 million in taxes that would have been due to the Senegalese government, through a shell company based in Mauritius, is only one example from the West Africa Leaks series from the International Consortium of Investigative Journalists (ICIJ) just released in late May. ICIJ worked with 13 local journalists in 11 West African countries for the six-month secret investigation, combining on-the-spot investigative journalism with ICIJ's vast database of leaks previously reported in the Panama Papers and Paradise Papers investigation.

These and other similar cases resulting in losses to tax revenues of both developing and developed countries are often defined and defended by multinational companies and their defenders as simply "tax avoidance" (that is, making clever use of existing laws) rather than "tax evasion" (clearly illegal actions). But this ignores the often significant ambiguity in what is "legal" as well as the role of special interests in both writing and interpreting the laws and regulations.

In fact, there is a vast system of interlocked law firms, accounting firms, complicit governments, corrupt individuals, and large companies that works systematically to facilitate transactions that are at least morally and ethically questionable and unfair, even when the legal case against them may be difficult to prove. For a excellent recent update on why tax avoidance by multinational companies as well as tax invasion should be considered "illicit financial flows," see the May 12, 2018 article by Sol Picciotto (http://tinyurl.com/ycvsqbda). A more extensive blog post by the same author is available at http://tinyurl.com/y96xuldk

This AfricaFocus Bulletin contains excerpts from two articles in the ICIJ West Africa Leaks series, one an overview of the 11-country investigation and the other a case study of the construction project in Senegal cited above. The full series is available on-line at https://www.icij.org/investigations/west-africa-leaks/

For a map of West Africa with a full list of stories on each country included, many in French, go to http://tinyurl.com/y9nuhhel

For previous AfricaFocus Bulletins on tax evasion and related issues, visit http://www.africafocus.org/intro-iff.php For previous Bulletins on West Africa, visit http://www.africafocus.org/west.php

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Editor's Note

How Officials, Businesses And Traffickers Hide Billions From Cash-Starved Governments Offshore

International Consortium of Investigative Journalists

May 22, 2018

https://www.icij.org/investigations/west-africa-leaks/

Reporting by Will Fitzgibbon

Contributors to this story: Moussa Aksar and Alloycious David

[Note: excerpts only. The full text of this overview article, with embedded links and links to other specific country cases, is available at http://tinyurl.com/yb42huob

Government officials, arms merchants and corporations have spirited away millions of dollars from destitute West African nations through offshore tax havens, an investigation by journalists from the region and the International Consortium of Investigative Journalists has found.

Offshore companies were set up for a global engineering firm that avoided paying millions in taxes to Senegal, one of the world's poorest countries; for a littleknown entrepreneur who won a contract to build West Africa's largest slaughterhouse and for a well-connected arms trafficker from Chad. In several cases, the companies, as well as the companies' transactions and offshore bank accounts, were not declared or are only now being revealed in more detail.

The findings were drawn from a collection of almost 30 million documents, representing several leaked financial records obtained by and shared with ICIJ since 2012.

From Cape Verde's islands of white-sand beaches and rocky volcanoes to Niger's vast deserts, West African countries are plundered by companies and individuals, while governments do little to stem the flow.

West Africa accounts for more than one-third of an estimated $50 billion that leaves the continent untraced or untaxed each year, according to the United Nations. Overall, a combination of corruption, drug, human and weapons trafficking and other furtive import and export activities strip Africa of three to 10 times as much as it receives in foreign aid.

"For poor regions of the world like West Africa, the use of shell companies, tax evasion, aggressive tax planning, tax havens and offshore bank accounts can be dramatic" in the deprivation and suffering it creates, said Brigitte Alepin, professor of taxation at the Université du Québec. "These countries are in need of public finances, and these losses of tax revenues affect the basic services they can offer to their citizens."

The money reappears in safe deposit boxes in European banks, as equity in high-rise New York condos and smooth limestone Parisian apartment buildings, far from the collapsing hospitals and other buildings of West Africa. It also fills wealthy investors' pockets.

ICIJ partnered with 13 journalists on West Africa Leaks to investigate high-profile individuals and powerful corporations in the region. The investigation included journalists from six countries where reporters hadn't before examined files pertaining to the individuals and businesses.

The source material is millions of files that make up ICIJ's four offshore databases: Offshore Leaks, Swiss Leaks, Panama Papers and Paradise Papers.

Grande Côte mineral sands refinery on the coast of Senegal. Canadian construction company evaded an estimated $8.9 million in taxes by using a shell company in Mauritius for its conttract.

The leaked records include the secretive Persian Gulf real estate plans of a candidate in this year's Mali presidential election; the Swiss bank account of an intimate friend of Togo's hereditary dictatorship who manages the country's overseas real estate; and a Seychelles foundation directed by the childhood friend of Liberia's Nobel Peace Prize-winning former president, Ellen Johnson Sirleaf.

Often the offshore documents paint only a partial picture of the secretive financial affairs of prominent and wealthy West African individuals and businesses. In several cases, emails, spreadsheets and contracts don't explain why a shell company was created or how much money was held in a far-flung offshore bank account.

Yet the files provide rare insights about untouchable potentates who have long benefited from weak tax enforcement and supine courts in countries that struggle to hold them to account.

While several European nations have recovered small fortunes hidden offshore by citizens and companies exposed by previous ICIJ leaks, no African country has confirmed recovering a cent after previous revelations from these offshore troves.

Ousmane Sonko, a former Senegalese tax inspector who is now a member of parliament, said many West African tax authorities are doubly plagued: They don't have the means to investigate complex foreign transactions, and, when investigators do make headway, politicians find ways to torpedo their small successes.

Sonko said the situation is made worse by general ignorance of the importance of corporate tax - or any tax - to society.

"When people don't even understand what taxes are, acting on something like the Paradise Papers is challenging," Sonko said.

"If you talk about 'tax havens' in some countries in Africa, people will look at you and think you're insane."

In the Central African country of Chad, David Abtour, who married the sister of an ex-wife of President Idriss Déby, set up two companies after becoming involved in a helicopter deal with Chad's armed forces.

Abtour teamed up with the air force chief of staff to help Chad buy Russian helicopters in 2006, French journalist Jacques-Marie Bougret reported. It was the beginning of a lucrative association between Chad's leaders and Abtour.

Chad, which has been identified as one of the world's 10 least developed countries, was at the time fighting Sudanese-backed rebel groups. In April 2006, rebels and government forces clashed close to Chad's National Assembly palace in fighting that killed hundreds.

Chad's army crushed the rebels, who had launched the attack from Sudan's Darfur region, with tanks and attack helicopters - weaponry that proved critical in the scrappy, small-scale conflict.

At the time, Chad was declared the most "highly corrupt" country in Transparency International's global corruption rankings. Deby's government starved schools, roads and hospitals while lavishing millions of dollars on the military.

Politicians and rebels quarreled over a billion-dollar tax windfall from Chad's oil boom, exacerbating instability. "Chadians are watching to see who will try to take the money, and how," a New York Times guest columnist wrote in 2007.

From operating bases in Chad, Dubai and Paris, Abtour and his contacts provided Chad with ammunition in 2007, according to Bougret. Abtour fell out of favor in 2008, Bougret reported, after Chad's prime minister replaced the head of defense.

The next year, Abtour set up two shell companies in Panama, according to the Panama Papers. One company, Bickwall Holdings Inc., had a bank account in Switzerland with HSBC Private Bank. The other, Tarita Management Corp., used UBS. In both cases, the companies were set up to issue shares to Abtour in a way that kept his identity concealed. Panamanian lawyers at Mossack Fonseca held no information on the activities of the two companies, which were closed in 2013.

Abtour did not reply to requests for comment.

Countries involved in West Africa Leaks

Summary list (not complete) compiled by AfricaFocus Bulletin.

In West Africa Outside West Africa

Senegal Mauritius, Canada, UK, France, and Australia

Senegal Switzerland, France, USA, and Zimbabwe

Togo Switzerland

Niger British Virgin Islands, Australia, Saudi Arabia

Liberia Russia, Seychelles, Belgium

Mali Seychelles, Panama, Dubai

Ghana USA, UK, Cayman Islands, Cyprus, Luxembourg

Burkina Faso Luxembourg, Seychelles, Panama

Cape Verde Switzerland, Italy

Benin France, Panama, Monaco

Côte d'Ivoire Bahamas and Panama

Côte d'Ivoire Panama, Bahamas, and UK

Nigeria USA (Chevron), Bermuda, Panama

In Niger, emails and contracts from ICIJ's Offshore Leaks investigation show, a little-known New Zealand operator signed a $31.8 million contract with officials to build West Africa's most modern refrigerated slaughterhouse. Livestock is central to Niger's culture and accounts for 14 percent of all goods and services produced.

The slaughterhouse was started but not completed. Nine years, three court cases and one coup d'etat later, it is unclear how much Niger paid for the nonexistent slaughterhouse, why an obscure offshore company won the region's most lucrative livestock-related deal and whether any of the earnings were ever taxed.

Sign inside the office of L'Evenement, where ICIJ member Moussa Aksar is editor in chief.

According to Niger's prime minister at the time, Seyni Oumarou, the company, Agriculture Africa, and the operator, Bryan Rowe, were chosen for their "expertise and know-how" and "global reputation."

"Never heard of them," said professor David Love, a slaughterhouse management and construction expert who works with international organizations and national governments, including in Africa.

Rowe set up seven companies in the British Virgin Islands, including Agriculture Africa Ltd., according to the documents, leaked from the British Virgin Islands. Agriculture Africa Ltd. was created in February 2009, and he signed the contract two months later.

Rowe, whose background is primarily in emerging market telecommunications, told ICIJ that only Agriculture Africa and Global Development Holdings International Ltd. became operational.

Rowe said that progress on the slaughterhouse was on schedule until a military junta overthrew the government in February 2010. Construction stopped. The new leaders refused to pay Agriculture Africa's bills for work completed since 2009, Rowe said. He declined to say how much the company had been paid, citing confidentiality. Nor did he explain why he chose to create the companies offshore.

Rowe said that he had won three court cases in Niger seeking payment for work completed to date but that the judgments had not been enforced.

The Niger government did not respond to questions about the slaughterhouse.

Lack of responsiveness was one of myriad challenges faced by reporters during the five-month West Africa Leaks project.

Recurrent, lengthy and erratic power and internet outages hobble reporting in many countries in West Africa. Nigeria averages nearly 33 blackouts a month, many lasting eight hours or more. Another problem is the limited access to even the most benign documents or communications, and government agencies and politicians - even presidential candidates - regularly refuse to comment.

Several ICIJ partners felt pressure to halt publication of their findings from business leaders who threatened to withdraw newspaper advertising. Reporters also struggled with unreliable, essential equipment to do their jobs. Two reporters worked on computers whose malfunctions blacked out at least one-third of their screens.

ICIJ partnered with the Norbert Zongo Cell for Investigative Journalism in West Africa (CENOZO), a West African nonprofit that supports regional collaborations and receives funding from philanthropist billionaire George Soros' Open Society Initiative for West Africa.

Despite the difficulties, reporters connected many West African power players to offshore accounts and companies. For instance, Liberia's first female pharmacist, Clavenda Bright-Parker, was the sole shareholder and director of a Seychelles company, Greater Putu Foundation Ltd., according to Panama Papers documents.

Bright-Parker went to elementary school with former Liberian president Ellen Johnson Sirleaf. As teenagers, at the cinema one evening, Bright-Parker introduced the future president to her future husband and later took part in Johnson Sirleaf's wedding as maid of honor. Bright-Parker was also a personal envoy of the president and was appointed chairwoman of Liberia's medical regulatory agency.

The Panama Papers do not describe the specific purpose of Greater Putu Foundation Ltd. or disclose whether the company had a bank account.

Bright-Parker's offshore role in Greater Putu Foundation coincided with disagreements between a Canada-based company in charge of the Putu iron ore mine and Liberia's government.

Canada's Mano River Resources signed a deal to develop the mine in 2005 and later sold its interest to the Russian global steel and mining company Severstal. Residents and members of parliament have long complained that the owners of the mine did not deliver on promises for development.

Mano River Resources' co-founder, Guy Pas, did not describe Bright-Parker's work in detail but told ICIJ in an email that Bright-Parker "came recommended to take up this role" with the Putu mine to "defend its interest at the highest level" against ministerial pressure to have a larger mining company take over the project.

"Dealing with the Ministry was sometimes 'complicated'," Pas wrote, adding that government officials never asked for money.

Reached by telephone, Bright-Parker said she had no knowledge of the Seychelles company and asked reporters to call back for more details. She did not respond to further calls or to emailed questions. Johnson Sirleaf said she was not aware of Greater Putu Foundation Ltd. and never discussed the Putu mine with her friend.

Other West African findings from the offshore files examined by reporters highlight techniques that profitable foreign companies use to reduce tax payments that could otherwise be owed.

Canada's SNC-Lavalin, one of the world's largest construction firms, benefited from a controversial treaty to avoid paying up to $8.9 million in taxes to Senegal.

...

[see separate article below]

One Company's Tax 'Heaven' Is Senegal's Tax 'Hell'

A lopsided tax treaty between Mauritius and Senegal means, with the right paper work, companies working in Senegal can avoid paying millions in taxes.

International Consortium of Investigative Journalists

May 22, 2018

https://www.icij.org/investigations/west-africa-leaks/

Reporting by Will Fitzgibbon

Contributors to this story: Momar Niang

[Note: excerpts only. Full text of this story, with additional embedded links, available at http://tinyurl.com/y7dg7jbq

When one of the world's largest engineering companies scored a $50 million deal to build a processing plant in Senegal, one of the world's poorest countries, it looked to a tiny Indian Ocean island for help.

That island, Mauritius, has an established banking system, a level of political stability unusual across Africa and a well-trained workforce.

It is also a renowned tax haven.

And Mauritius offered engineering company SNC-Lavalin a significant benefit: a lopsided treaty signed with Senegal that, with the right paperwork, made it easy for the Canadian firm to avoid up to $8.9 million in taxes.

That lost revenue is no small matter in Senegal, a country where nearly half of the population lives in poverty, where 5 percent of newborns die and where one in six children are stunted by years of poor nutrition. The forgone tax would have covered half the cost of running Senegal's largest public hospital for a year.

The Senegal-Mauritius treaty, concluded in 2004, is one among scores of agreements that keep billions of dollars in tax revenue every year from reaching poor African and Asian countries.

That was never the intention. Countries usually sign treaties to avoid taxing a company's income twice, once in each country. Developing countries, in particular, have signed agreements in the hope that clarifying taxes paid by multinationals would encourage investment and jobs in countries that multibillion dollar operations might otherwise deem too risky.

Although originally hailed as deals that would benefit both sides of the agreements, a chorus of critics increasingly denounces treaties between wealthier and developing countries, particularly in Africa, as harmful to nations like Senegal.

Senegal is in West Africa, a poor region in one of the world's most impoverished continents. While parts of the capital, Dakar, teem with creperies and upscale seaside fish restaurants, most of the countryside remains trapped in poverty. In remote thatched-roof villages on Senegal's lush coast, just 2 percent of the residents receive piped water provided by public infrastructure.

In 2011, century-old Montreal company SNC-Lavalin signed a deal to design and build the $50 million processing plant for the Grande Cote mineral sands mine. At the time, the project appeared to represent great opportunity for Senegal.

The mine is now the largest operation of its kind in the world. It extracts mineralladen sands from 60 miles of beach along Senegal's coastline.

The sand yields, among other minerals, finely grained zircon, which is used in the United States, Norway and beyond as a glaze that brightens ceramic kitchen tiles, toilets and sinks. It also yields an ingredient in titanium dioxide, a whitener used in toothpaste.

But the mine wasn't universally welcomed. Local tensions began to flare in 2012 during construction of the processing plant. At least seven villages were forced to make way for the project. Vegetable farmers and other residents complained of footdragging resettlement schemes that displaced them from more-fertile to less-fertile land.

In June 2017, members of Senegal's parliament issued a report - obtained by International Consortium of Investigative Journalists - that faulted Grande Cote on several fronts. In particular, the report criticized the lack of diverse compensation options for those who were resettled.

On paper, the company that engineered and built the processing plant was SNC LavalinMauritius Ltd, a local division of SNC Lavalin.

In reality, SNC Lavalin-Mauritius wasn't involved. It was a shell, created for the specific purpose of helping the engineering giant avoid tax payments. The company had no construction equipment and no office of its own. It operated from inside the Mauritius office of the offshoring law firm Appleby, which helped SNC-Lavalin create the shell company.

The company's true nature as a conduit rather than as a contractor is revealed in emails, invoices, financial statements and bank statements from the Paradise Papers, a trove of 13.4 million documents, most from Appleby, which specializes in administering tax-shelter companies.

SNC-Lavalin's involvement with the mine ended when it finished building the processing plant. A French-Australian consortium owns most of the operation, and the government of Senegal holds a 10 percent stake.

By 2012, when almost all the work on the Senegalese plant was done, Grande Cote had paid $44.7 million in fees to SNC-Lavalin Mauritius, according to the company's 2012 financial statements and 24 invoices.

Senegal's taxes disappear

Experts estimate that Senegal could have missed out on $8.9 million in taxes as a result of the 2002 tax treaty between Senegal and Mauritius. Under the treaty, companies like SNC-Lavalin with a subsidiary company in Mauritius can avoid Senegal's usual 20 percent tax on the kind of technical service fees paid to SNC-Lavalin. The final tax rate in some cases can be reduced to zero. Senegal is one of only two continental African countries with a Mauritius treaty with a zero percent tax rate.

SNC-Lavalin insists that it did not use the Mauritius company, SNC Lavalin Mauritius Ltd., with the main goal of reducing its taxes. Its reasons for choosing the tax haven, it said, instead included low political risk, a bilingual workforce, good banks and "facility for doing business in Africa."

It could have reduced its taxes in the same way by billing for services from Canada under a treaty signed with Senegal, the company told ICIJ.

Experts consulted by ICIJ said it was unclear if the Canada treaty could have delivered the same tax benefits to the company.

Senegal potentially could tax fees under the treaty with Canada, said Prof. Vern Krishna from the University of Ottawa who is the managing editor of the legal publication Canada's Tax Treaties. He added that Senegal's ability to tax would be consistent with the United Nations' philosophy of encouraging developing countries to tax income "as soon as possible."

A spokesman for Senegal's tax office said it signed the treaty in the hope of a winwin situation but now feels it is "unbalanced in Mauritius' favor" and allows companies to set up in Mauritius for treaty benefits only.

It is renegotiating Mauritius and waiting for the island's response. "Failing that," the spokesman said, "Senegal may withdraw from the treaty - pure and simple."

SNC-Lavalin said it was "entitled to rely on the Mauritius-Senegal Tax Treaty similar to any other company based in Mauritius."

But experts say that tax treaties of the kind that SNC-Lavalin used to avoid paying millions to Senegal should be a thing of the past.

"You are legalizing the earning stripping-out of the country," said Alexander Ezenagu, a tax researcher at McGill University.

"It's a redesign of neocolonialism," Ezenagu said, who is Nigerian. "In the 1800s, in the 1900s, they came with violence. Now, they come with sophisticated accounting systems and the lure of investment. But no country needs investment if it's not going to be rewarded."

Around the world, civil society, academics and members of parliament have criticized many of the estimated 500-plus tax treaties signed between developed and developing countries.

While the overall value of losses is not known, the International Monetary Fund estimated that U.S. tax treaties cut the revenue of less developed countries by $1.6 billion in 2010. Dutch nonprofit SOMO estimated that developing countries lost more than $1 billion in 2011 alone through tax treaties signed with the Netherlands. In response to fears of inequitable deals, countries such as Rwanda, South Africa, Zambia and Mongolia have cancelled or renegotiated some of their tax treaties.

Senegal and Mauritius present a sharp contrast. While a third of Senegal's population lives in poverty, Mauritius is considered Africa's second-most-developed country and one of its richest. When the two nations signed the agreement, officials said it would spur development in both by encouraging investment in Senegal by Mauritius.

Increasingly, however, critics say the agreement has allowed foreign companies to bypass Senegal's tax laws with shell companies in Mauritius or elsewhere. The companies created in Mauritius generally don't invest in Senegal, but they do provide huge tax savings to their parent companies, outside Africa, and deprive Senegal of badly needed tax revenue.

Tax heaven or hell?

"A tax haven might be heaven for multinational companies to avoid taxes, but, for the country, it's hell," said Ousmane Sonko, a former tax inspector who became a member of Senegal's parliament in 2017 after running on a platform on tax fairness.

Sonko is currently lobbying other members of parliament to reject a proposed treaty with another tax haven, Luxembourg. "At the time when we should be talking about ending the tax treaty with Mauritius," Sonko said, "they are instead talking about signing a new one with Luxembourg." Luxembourg is also well known for its creation of shell companies.

...

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