The Paradise Papers investigation, based on a leak of 6.8 million documents from the offshore law firm Appleby, is the largest of recent revelations of the hidden world of financial manipulation used by both multinational corporations and rich (high net worth) individuals from around the world. Like the Panama Papers investigation that won the 2017 Pulitzer Prize, it is based both on "big data" analysis and on collaborative investigative reporting by teams of hundreds of journalists. But it is based on the records of only one offshore law firm, albeit one of the most prominent. Despite the size of the leak, it still reveals only the tip of the iceberg.
Such massive data leaks, plus dozens of other more focused investigations, show that the system of hidden wealth is not at all an aberration but rather an essential feature of today's globalized capitalism. In the United States as well as in South Africa, to take only two of the most prominent examples, untangling such financial webs is central to the future of national leaders and the shape of the political system. And its ramifications are evident in the real estate markets of cities such as London, New York, Miami, and Cape Town.
In addition to a few key background links just below, this AfricaFocus Bulletin contains excerpts and links to two key Africa stories from the Paradise Papers, one highlighting links of the multinational Glencore with the Democratic Republic of Congo, via Bermuda and Israel, and the other highlighting links of Mauritius, Switzerland, and management of Angola's sovereign wealth fund. It also includes excerpts and links to two additional South African documents, one highlighting the case of the Lonmin mining company which made use of the Appleby Bermuda location, and the other an open letter from the Southern African Catholic Bishops Conference, posing questions to multinational mining companies in South Africa that make use of multiple overseas tax havens.
On December 5, the European Union released its new "blacklist" of 17 countries regarded as non-compliant on tax issues (tax havens). As noted by the Tax Justice Network (TJN, http://tinyurl.com/ya35rwk6), the list notably fails to include notorious tax havens such as EU members Luxembourg, Ireland, and the Netherlands, or any of the British Crown Dependencies or Overseas Territories, such as Jersey and Bermuda. Nor does it include the United States, the United Kingdom, Hong Kong, or Singapore, all of which feature among the top 15 on TJN's Financial Secrecy Index ( http://www.financialsecrecyindex.com/).
The International Consortium of Investigative Journalists website at http://www.icij.org, provides searchable access to a database as well as a wide range of articles based on the Paradise Papers investigation and earlier similar leaks such as the Panama Papers and Swiss Leaks.
For previous AfricaFocus Bulletins on tax evasion and illicit financial flows, visit http://www.africafocus.org/intro-iff.php
On the distribution of world wealth, see the just-released World Wealth Report by Credit Suisse (http://tinyurl.com/y99owkw9) "While the bottom half of adults collectively own less than 1% of total wealth, the richest decile (top 10% of adults) owns 88% of global assets, and the top percentile alone accounts for half of total household wealth."
For an update on how the Republican tax bill further encourages offshore tax havens, see "Senate Votes to Increase Tax Avoidance, Offshore U.S. Jobs," a December 2 press release by the FACT Coalition, at http://tinyurl.com/y7tdz7p4
--End editor's note
The inside story of Glencore's hidden dealings in DRC
Ben Doherty, Petra Blum and Oliver Zihlmann
The Guardian, Nov. 5, 2017
Also see for more on Glencore and DRC, "Room Of Secrets Reveals Glencore's Mysteries" at http://tinyurl.com/y89x5u5e abd "The Heart of Africa" at http://tinyurl.com/yagvw8jj
A secretive multinational company worth billions, whose founder turned fugitive was pardoned by a president.
An Israeli diamond tycoon, rumoured to be the inspiration for a Hollywood blockbuster.
And a struggling African nation, blessed and burdened by natural resources, riven by war and corruption.
Behind the black letters of the Paradise Papers lies a world of extraordinary colour.
Obtained by the German newspaper Süddeutsche Zeitung, and shared with the International Consortium of Investigative Journalists, the Guardian and more than 90 media partners across the globe, the Paradise Papers [from the files of offshore legal firm Appleby] reveal the reality of the arcane world of offshore tax havens and global finance.
The Jersey offices of Appleby. Jersey is a British Crown Dependency located in the English Channel.
And they raise serious questions about the conduct of the commodities multinational Glencore and the Israeli mining billionaire Dan Gertler in Africa.
They show that in 2009, Glencore, the world's biggest mining company, gave a secret $45m loan to Gertler's company after it enlisted him to secure a controversial mining agreement in the Democratic Republic of the Congo.
Over hundreds of pages, the papers expose in forensic detail how Gertler, whose previous diamond monopoly in DRC was described by the UN as a "disaster" for the country, held Glencore's imprimatur as key negotiator with Congolese authorities.
In Kinshasa, Gertler first met the president's son Joseph and then the president. A friendship had begun and, according to a 2001 UN investigation, a deal was struck: $20m in cash from Gertler that Kabila would use to buy weapons and fund his war against rebels to consolidate his grip on power.
In exchange, Gertler's company IDI was granted a monopoly on the DRC diamond trade, worth hundreds of millions a year. The deal was a "nightmare" for the country, the UN report found.
Gertler's lawyers said he denied all allegations in the UN report and was not given an opportunity to comment before publication. The UN has not cited him "in any negative context" since 2001, his lawyers said.
The diamond deal would be the first of many. In the nearly two decades since, Gertler has become an unofficial gatekeeper in dozens of mining deals across DRC - a country the size of western Europe with a surfeit of natural resources.
But those valuable resources have not uplifted the country from poverty. Instead, they have brought war and exploitation. DRC remains one of the least developed nations. Devastated by long-running conflict and famines, it remains a place of chronic communal and state violence, where infants die at almost the world's worst rates and nearly half of all children are stunted by chronic malnutrition.
According to the 2013 estimate of the Africa Progress Panel, headed by the former UN secretary general Kofi Annan, the unique ability of companies linked to Gertler to win cut-price mining licences and agreements in DRC cost the country more than $1.3bn, almost twice the nation's combined health and education budgets, in one three-year period alone. Gertler's lawyers said his companies "categorically refute" the allegations in the 2013 report, which they were not given an opportunity to respond to.
The Glencore room
The Paradise Papers are an insight into the inner machinations of Appleby, one of the "magic circle" of leading offshore investment firms.
Glencore is one of Appleby's most important clients. So central, in fact, has the company been that at one time, on the second floor of Appleby's Bermuda headquarters, was the Glencore room.
Across the hall from the women's bathroom, it was nondescript and rarely used. Glencore executives never visited. It contained no more than a filing cabinet, computer, telephone, fax machine and chequebook.
But the room gave Glencore a "robust footprint", in the words of one Appleby MD, in the zero-tax island of Bermuda: a helpful asset in the event of any taxation investigation.
The files that are likely to have once lived in that room, and the contents of which were known only to a handful of people, are now globally exposed by the Paradise Papers.
Full article at http://tinyurl.com/y97ev4gm
[Glencore operates world-wide. Another new ICIJ report focuses on a Glencore project in Burkina Faso. See http://tinyurl.com/yb858uqf]
Paradise Papers - It's not just tax evasion, it's wage evasion by the wealthy and powerful
Brian Ashley and Dick Forslund Daily Maverick, 14 Dec, 2017 http://tinyurl.com/y6vqybcg
The Alternative Information and Development Centre's (AIDC's) 2015 research on Lonmin exposed the centrality of wage evasion as the principle motivation behind the illicit siphoning of hundreds of millions of rand out of South Africa to a Bermudan company called Western Metal Sales. We also exposed Appleby as Lonmin's preferred enabler.
A summary of the Lonmin case is now necessary to enable readers to better appreciate the wage dimension in the use of tax and secrecy havens.
AIDC's report, “The Bermuda Connection”, started as a research project for the Marikana Commission. The commission's authority provided access to the financial statements of Lonmin's subsidiaries in South Africa. These statements are lodged in the archives of the Commercial and Intellectual Property Commission.
In August 2014, we reported to the Marikana Commission that the annual reports of Lonmin's main subsidiary in South Africa, Western Platinum, revealed transfers of about R250-million a year in “sales commissions” to Bermuda, which continued until 2012. This occurred despite nobody sitting on the paradise island selling anything. Alone, this off-shore payment would have allowed for a R3,500 a month wage increase for 4,000 rock drill operators who started to strike in August 2012.
According to the annual reports lodged at the Commercial and Intellectual Property Commission - duly audited by KPMG - the transfers did not stop in 2008, as Lonmin stated in a 23 September 2014 media release. The research also revealed that it was off-shore specialist law firm Appleby Services which facilitated Lonmin's “Bermuda Connection”. According to the Bermudian Companies' Registry, the address of Lonmin's letterbox company ever since 2003 has been 22 Victoria Street, Hamilton, Bermuda, which also is the address of Appleby Services.
But what is it really that Appleby is helping transnational companies to “avoid” when their staff manage bank accounts and letterboxes? The media and many commendable campaigns continue to focus on “tax avoidance”. They are ignoring that the central purpose of these schemes is to avoid all obligations or stakeholder claims that would make inroads into profits, not least wages.
Measured in rand or dollars, the biggest effect of “tax avoidance and tax evasion” on the social and political situation in South Africa is not losses of tax incomes. For example, using a rough calculation for simplicity, with a corporate tax rate of 28%, for every R100-million taken illicitly out of the country, the tax authority loses R28-million while the remainder, R72-million, is lost for wages and investments. The illicit outflows to tax havens are instrumental in keeping the low wage regime in place.
The second biggest effect is on the minority shareholders who hold shares in the subsidiaries which are getting their funds depleted by fake invoicing from Dubai, Mauritius, Malta, Bermuda, British Virgin Islands, Netherlands, Cayman Islands, etc. This can be BEE capitalists or workers' pension trusts, but they get screwed well before the SA Revenue Services.
Thus, SARS is not the first in the queue of losers. If the illicit flows were to be curbed or blocked, the government would only take its smaller percentage share in tax after other stakeholders had taken what is due to them. It would take its share only as number four in the queue, if we speak of mining communities, because without cross-border profit shifting, the subsidiaries of transnational mining companies could not plead poverty when reneging from the social labour plans and land rehabilitation obligations. Or even as number five, because in many cases (and we are working on such cases) shareholders in the listed mother company are also being screwed: The transfers offshore are secret to them. In the consolidated annual reports, these transfers are booked as paid to external service providers. Bank accounts managed by firms such as Appleby Services are then only accessed by a group of insiders, the real rulers of the world.
Full article at http://tinyurl.com/y6vqybcg Additional background on Lonmin and the Marikana massacre at http://www.africafocus.org/docs15/mar1506b.php
Tax Haven Mauritius' Rise Comes At The Rest Of Africa's Expense
International Consortium of Investigative Journalists, Nov. 7, 2017
[For another investigation featuring Mauritius and the case of the mobile phone company MTN, see "Tax Tricks, Mobile Phones, and Beer" at http://www.africafocus.org/docs15/td1510.php]
Jean-Claude Bastos de Morais was trying to invest offshore but was having a hard time finding a place to put his money.
The 50-year-old Swiss-Angolan financier turned to Appleby, an elite law firm with offices in tax havens around the globe.
First, Bastos tried Appleby's office on the island of Jersey, a popular offshore financial center in the English Channel. But Appleby employees there balked at his 2011 request to set up a shell company without being told why it was needed or what assets it would hold. One thing that concerned Appleby's Jersey lawyers was the possibility that the shell company would own a shipping port in corruption-prone Angola.
Next Bastos, an amateur tennis player who runs an asset-management firm, Quantum Global Group, tried Appleby's office on the Isle of Man, in the Irish Sea. Appleby's management there decided that Appleby would require a seat on the offshore company's board of directors to exercise some supervision over what they described as his highrisk business. The arrangement did not go ahead.
Finally, in 2013, after Angola's sovereign wealth fund entrusted Bastos with $5 billion, he turned to another Appleby outpost: Mauritius, an island nation in the Indian Ocean, 1,200 miles off the east coast of southern Africa.
“We are pleased to be able to act on your behalf,” Appleby's top lawyer in Mauritius, Malcolm Moller, wrote to Bastos' Quantum Global in October 2013.
A window onto a tax haven
The warm email welcome for Bastos' business is one of more than half a million secret records from Appleby's Mauritius office that were obtained by the German newspaper Süddeutsche Zeitung and shared with the International Consortium of Investigative Journalists and 94 media partners around the world. The Paradise Papers come from the offshore law firm Appleby and corporate services provider Estera, two businesses that operated together under the Appleby name until Estera became independent in 2016.
The emails, bank account applications, PowerPoint presentations on tax avoidance, and other confidential documents open a window into the operations of Appleby's 40-plusemployee operation in Mauritius; By extension, they illuminate the surprising importance of Mauritius, an island nation with a multiethnic population of 1.3 million, as a hub in the secretive offshore financial network that enables legitimate, humdrum business to thrive but also helps wealthy people and profitable businesses shield their assets and profits from taxation.
Using an array of complex schemes and companies that are little more than addresses on a piece of paper, this global system has helped corporations shift $100 billion to $300 billion a year in tax revenue away from developing countries, according to the International Monetary Fund.
For full article, visit http://tinyurl.com/ydzegc4q
Open Letter to Multinational Mining Companies in South Africa urging greater transparency in their use of tax havens
Justice and Peace Commission, Southern African Catholic Bishops Conference http://www.sacbcjusticeandpeace.org
29th November 2017.
[full text of letter available at http://curtisresearch.org/publications/ or http://tinyurl.com/ya9kob5o]
Attention: Anglo American and Kumba Iron Ore, Anglogold Ashanti, ASA Resource Group PLC, Bushveld Minerals, Central Rand Gold Limited, DiamondCorp PLC, Eastern Platinum Ltd, Exxaro Resources, Galileo Resources, Gold Fields Limited, Harmony Gold, Impala Platinum, Jubilee Platinum, LonMin PLC, Petra Diamonds, Resource Generation Ltd, Sibanye Stillwater, Sylvania Platinum Ltd, Tower Resources PLC, Xtract Resources
Tax avoidance and tax havens present major problems to governments seeking to maximise the resources available for public spending. Globally, tax avoidance by multinational companies amounts to hundreds of billions of dollars; one recent estimate is $500 billion. In addition, vast amounts of wealth are held in tax havens: Research for the Tax Justice Network estimates that the figure may be a staggering $24-36 trillion. Another estimate, using a different methodology, estimated the figure to be 8 per cent of global wealth, or $7.6 trillion. Gabriel Zucman, an academic at the London School of Economics in the UK, estimated in 2014 that rich Africans were holding a massive $500 billion offshore (i.e, in tax havens) - amounting to 30% of all Africa's financial wealth. The fact that this wealth is untaxed means that African elites have stolen around $15 billion from their own countries, according to Zucman's conservative estimate.
A tax haven (also known as a tax shelter or secrecy jurisdiction) provides facilities that enable people or entities escape and frequently undermine the laws, rules and regulations of other jurisdictions elsewhere,often using secrecy as a prime tool. They are countries or jurisdictions offering certain tax benefits such as lower tax rates, credit mechanisms or deductions resulting in limited or no tax being levied on certain profits. Different jurisdictions make different offshore offerings. The British Virgin Islands, for example, specialises in incorporating offshore companies. Switzerland and Luxembourg offer secret banking, corporate tax avoidance and a wide range of other offshore services. The Tax Justice Network's Financial Secrecy Index ranks the most serious country cases, with the UK, Cayman Islands, Jersey, Switzerland, British Virgin Islands, United States, Hong Kong, Luxembourg and Switzerland among the worst. Mauritius is another low-tax, secrecy jurisdiction often favoured by companies operating in Africa. Bermuda is another.
A controversial issue is whether tax havens should be allowed at all. International negotiations among governments have been unable to agree a comprehensive list of 'blacklisted' countries. Currently, tax havens can be used legally in tax planning where profits are properly attributable to the tax haven and where the company has a sufficient presence there. Deloitte, the tax advisory firm that is part of the offshore industry, notes that companies seeking to operate within a tax haven should, in essence, be managed and controlled from that jurisdiction and have sufficient operations that can justify their tax residency.
The presence of tax havens in corporate structures does not mean that companies are engaged in tax avoidance, and this letter makes no allegations concerning this for the companies listed below. However, the risk that some companies may engage in tax avoidance is heightened by their use of tax havens and the inability of outsiders to scrutinise adequately their tax affairs. Some individuals and companies use tax havens illegally purely to evade tax: this usually involves creating shell companies or 'letterbox' companies with no economic activity in order to hide profits and benefit from lower tax rates than in their true home jurisdictions.
Questions to companies
We have undertaken research into the financial accounts of mining companies operating in South Africa, using the companies' published financial accounts and other information publicly available on the internet, especially the company database, Orbis. The research entailed analysis of the key financial information of the largest mining companies by market capitalisation operating in South Africa. The list below highlights that the use of tax havens is common among mining companies: 21 of the largest companies are using tax havens.
The questions we highlight below [included in full text letter for each company] are not accusing companies of anything. We believe it is important for companies to provide an explanation for why they use tax havens and the roles of these subsidiary companies.
Anglo American : Anglo American lists a very large number of subsidiaries and associate companies in tax havens: Bermuda (two companies), British Virgin Islands (8), Cayman Islands (1), Isle of Man (2), Luxembourg (10), Mauritius (5), and the Netherlands (17).
Why does the company have so many subsidiaries based in tax havens?
What purpose do these companies serve?
How many employees does each subsidiary employ in the country where it is incorporated?
What tax advantages does the company receive by having subsidiaries in these tax havens?
How is the use of tax havens consistent with the company's corporate social responsibility policies?
Is the company willing to report its key financial figures on a country-by-country basis in all countries where it operates, including its subsidiary companies and/or holding companies in tax havens? If not, why?
[Note: similar questions for each company are in the full text of the letter]
Anglogold Ashanti: The company has a subsidiary, AngloGold Ashanti PLC, which is incorporated in the Isle of Man and a joint venture, Kibali (Jersey) ltd, which is incorporated in Jersey.
ASA Resource Group PLC: ASA resources has seven subsidiaries in the British Virgin Islands, five in Mauritius and one in the Cayman Islands.
Bushveld Minerals : Bushveld Minerals has seven subsidiaries in Mauritius, one in the British Virgin Islands and three in Guernsey. These 11 subsidiaries in tax havens account for more than half of the company's total number of subsidiaries (19).
Central Rand Gold Limited: Central Rand Gold's Annual report 2015 (the latest available on its website)states that the company has subsidiaries in the Netherlands Antilles (Central Rand Gold (Netherlands Antilles) BV) and in Guernsey (Central Rand Gold Benefit Trust).
DiamondCorp PLC : DiamondCorp lists two of its six subsidiaries as incorporated in the British Virgin Islands (DiamondCorp Holdings Ltd and Botswana DiamondCorp Ltd).
Eastern Platinum Ltd: Of Eastern Platinum's 12 subsidiaries, three are in the British Virgin Islands and one is in Barbados.
Exxaro Resources : The company's 2016 Annual Financial Report states that it has subsidiaries in Mauritius (Mayoko Investment Company but which was sold in 2016), Bermuda (AKI Exploration (Bermuda) Proprietary Limited, also sold in 2016) and three in the Netherlands (Exxaro Base Metals International BV, Exxaro International BV and Exxaro Mineral Sands BV).
Galileo Resources : Galileo has one subsidiary in the British Virgin Islands (Skiptons Global Investments Ltd).
Gold Fields Limited: Gold Fields Ltd has three subsidiaries in British Virgin Islands and one each in Switzerland and the Netherlands. The financial statements of the company's Gold Fields Netherlands Services B.V. The financial accounts indicate that the Dutch company had only one employee but a significant role in Gold Fields' structure. The company's 2016 annual report states: "Gold Fields does not artificially shift profits to... [low-tax] locations."
Harmony Gold : Harmony Gold has a subsidiary in the Isle of Man (Harmony Gold Ltd).
Impala Platinum: Impala Platinum has one subsidiary in the Netherlands (Impala Platinum BV), one in Guernsey (Zimplats Holdings Ltd) and a joint venture in Mauritius (Mimosa).
Jubilee Platinum : Jubilee Platinum lists one subsidiary (Braemore Holdings (Mauritius) Pty Ltd) in Mauritius.
Kumba Iron Ore : Kumba Iron Ore, part of Anglo American, has two subsidiaries in the Netherlands and two in Luxembourg.
LonMin PLC : LonMin has three subsidiaries in the British Virgin Islands and one in the Cayman Islands.
Petra Diamonds: Petra Diamonds is incorporated in Bermuda and has subsidiaries in the British Virgin Islands (BVI), Bermuda, Jersey and the Netherlands.
Resource Generation Ltd: Of the company's eight subsidiaries, two are incorporated in Mauritius.
Sibanye Stillwater : The company database Orbis lists 34 subsidiaries for Sibanye of which two are in Bermuda. However, the company's 2016 Annual Financial Report 2016 does not mention any subsidiaries in Bermuda. It lists a company called Sibanye Proprietary Platinum Ltd. It is not clear if this is the same company as listed elsewhere on the Sibanye's website as Sibanye Platinum Bermuda Proprietary Limited; this is a wholly owned subsidiary of Sibanye registered in Bermuda.
Sylvania Platinum Ltd: Sylvania is itself incorporated in Bermuda and has three subsidiaries in Mauritius.
Tower Resources PLC : Tower Resources lists two subsidiaries in the Isle of Man and one in the British Virgin Islands.
Xtract Resources PLC : Xtract Resources lists three subsidiaries in the Netherlands and one in the British Virgin Islands.
We look forward to receiving your reply.
Bishop Abel Gabuza. Email: firstname.lastname@example.org
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