Under instructions from the Minister of Finance, Malawi's Attorney General, Thabo Chakaka-Nyirenda has written Columbia Gem House of Vancouver, USA demanding US$309.6 billion as claim for unpaid tax revenue in respect of ruby and sapphire minerals extracted from Chimwadzulu Mine in Ntcheu District by the US company's subsidiary, Nyala Mines Limited.
The Malawi Government also claims interest at the commercial lending rate from the date the said taxes and royalties fell due to the date of payment within 30 days from the date the notice of claim was issued on July 26, 2022.
There will also be a claim of 15% collection costs on the same US$309.6 billion and failure to pay or to indicate how the US company intends to settle the said sum, "the State of Malawi reserves the right to institute criminal proceedings on money laundering and tax evasion charges against Columbia Gem House and Nyala Mines Limited -- and all persons involved in the evasion of the taxes".
Facts on the ground that Chakaka-Nyirenda argues from, are that Chimwadzulu Hill on which the mine is situated, has rare deposits of rare rubies, which is said to be the best in the world as it does not require heat treatment.
These rubies are said to be 30 to 50 times rarer than diamonds, hence they are sometimes priced more than diamonds and that the hill also has deposits of sapphire -- another rare mineral.
The Attorney General says the first company that was issued with a Mineral Exploration Licence for Chimwadzulu mine was Mineral Exploration Pty Limited in 1994 -- a 10-year licence up to 2004 and the company had a 100% foreign shareholding, with York Fidelity of Singapore as the main shareholder.
On expiry of the licence, the Attorney General said the government was reluctant to renew it wholesale and instead issued a licence of only 2 years "because it was the desire of the government to afford local participation in the mining sector".
"The government issued a notice to that effect, inviting local participation in the mining," says the Attorney General. "Then Mineral Exploration Pty Limited, which had been denied renewal of the initial 10-year licence, later changed its name to Nyala Mines Limited and was issued a straight 10-year licence.
"The shareholders of Mineral Exploration Pty Limited remained the same shareholders of Nyala Mines Limited. Columbia Gem House owns Nyala Mines Limited as its subsidiary."
The government of Malawi indicates that ruby and sapphire at Chimwadzulu Mine are mined and sold to the world market by Nyala Mines Limited through Columbia Gem House in the USA, which then sends it to China for cutting and polishing.
The polished minerals are then sent back to the USA and marketed through Trigems, which is a retail outlet for Columbia Gem House owned by Eric Brauwart.
"Columbia Gem House branded the ruby from Malawi as Nyala Ruby. This branding is not known in Malawi but has been declared worldwide in the same way as the Tanzanite from Tanzania," says Chakaka-Nyirenda.
He goes further to indicate that according to Malawi's findings, Columbia Gem House market outlets for the Malawi ruby and sapphire are:
(a) Sterling with 1,500 stores in the USA and Ratners has another 1,800 stores in Europe
(b) also sold through Helzburg Diamond and Group owned by Warren Buffet -- one of the richest persons in the world; and
(c) also sold to Princes Cruise Line and Tiffany.
"Columbia Gem House declared its record prices for the Malawi ruby as having been set at US$425,000 per carat and sapphire at US$48,871 per carat. Natural untreated ruby from Malawi is sold between US$20,000 and US$25,000 per carat while top grade untreated ruby from Malawi is sold at US$50,000 per carat.
"Between 15th August, 2008 and 30th July, 2013, Nyala Mines Limited paid taxes amounting to MK604,413.13 -- yet according to the USA Department of Interior, Nyala Mines exported 150kg of ruby and rare Padparadscha and 300kg of sapphire every year.
"Going by Nyala Mines Limited's own declared minimum price of untreated ruby of US$20,000 per carat, this yields the sum of US$9 billion worth of sales revenue per year from ruby alone, and another US$15 billion worth of sales revenue per year from sapphire."
Thus the total net tax revenue that Malawi Government calculated that had been evaded by Nyala Mines Limited amounts to US$309.6 billion.
Chakaka-Nyirenda quotes an article by Gavin Hilson in 2014 entitled 'Constructing Ethical Mineral Supply Chains in Sub-Saharan Africa' -- the case of Malawian Fair Trade Rubies (2014) 45(1) International Institute of Social Studies 53, 62.
In the article, Gavin Hilson observed that "the first collection of ruby from Chimwadzulu Mine was made available for US retailers in February, 2014". He further observes that "these stones are of extremely high quality and therefore have considerable market potential" and Hilson goes on to bemoan the unfair trading that was being practiced by the mine owners.
Chakaka-Nyirenda emphasises that the legal basis for the claim is that "multinationals and international investors carrying on business in Malawi owe the state of Malawi fiduciary duties of good faith and the duty to account".
"Multinationals and international investors are not supposed to engage in conducts that have the propensity of harming the economic welfare of the country -- they are supposed to operate legally and this includes disclosure of all income earned from their investment and to diligently and promptly pay taxes in Malawi.
"Nyala Mines Limited and Columbia Gem House breached those fiduciary duties and the law in Malawi when they failed to disclose all the income realized from their investment and when they engaged in trade mispricing and improper transfer pricing techniques in the exportation of ruby and sapphire from Malawi.
"The State of Malawi complied with all its international obligations when you operated your investment in Malawi by among others putting in measures to protect your investment -- you never reciprocated."
Further, Nyala Mines Limited and Columbia Gem House are also accused to have "committed tax evasion, money laundering offenses and other kindred offenses when they evaded the payment of taxes".
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"The State of Malawi has the right to institute criminal proceedings against Nyala Mines Limited and Columbia Gem House and against every person charged with or concerned or acting in, the control or management of the affairs and activities of Nyala Mines Limited and Columbia Gem House and against every person that participated in the evasion of taxes and fraudulent invoicing of exports.
"It is Malawi's position that:
(a) you dishonesty changed the name of the mining company from Mineral Exploration Pty Limited to Nyala Mines Limited to disguise the origin of the company, i.e., so that the new name of the company sounded local to avoid suspicion and detection;
(b) you dishonestly exported ruby and sapphire from Malawi;
(c) you have been unjustly enriched by your failure to pay appropriate taxes and royalties in Malawi and consequently you have become a constructive trustee for the State of Malawi;
(d) you failed to carry on your investment in Malawi pursuant to international investment law and international law;
(d) you are required to account for all unpaid taxes and all the gains realized from the unpaid taxes and royalties.
Thus Chakaka-Nyirenda emphasizing that the State of Malawi will concurrently institute civil proceedings against the two entities without further recourse to them whatsoever should they fail to pay the demanded amount nor should they fail to indicate how they intend to pay the sum of money as indicated.
