ISS Today: No paradise for DRC citizens being cheated of profits

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    First published by
    ISS Today

    The latest revelations around tax evasion,
    dubbed the “Paradise Papers”, are certainly embarrassing for
    powerful individuals like Britain’s Queen Elizabeth ll and
    Canada’s Prime Minister Justin Trudeau. Both are accused of
    links with funds stashed offshore.

    But the most striking of the Paradise Papers
    revelations is how poor African countries are being cheated out
    of taxes. The papers reveal what many citizens in resource-rich
    African countries already know: powerful multinationals, in
    collusion with shady middlemen and top officials, evade taxes
    through a complicated system of illicit flows, leaving next to
    nothing for local development.

    The news is similar to that of last year’s

    Panama Papers
    . The Paradise
    Papers report on a number of African countries including
    Zambia, Kenya, Angola, South Africa and the Democratic Republic
    of the Congo (DRC). They show how the law firm Appleby, based
    in Bermuda, helped companies use loopholes in legislation to
    evade taxes.

    According to one report, mining company
    Glencore paid $45-million to Israeli businessman Daniel Gertler
    in 2009 in order to obtain copper mining rights at a heavily
    discounted price in the DRC’s resource-rich Katanga region.
    Gertler is reputed to be close to President Joseph Kabila and
    some of his advisers. Since then Glencore has allegedly been
    underpaying, simultaneously making huge profits out of copper
    mined in the DRC – conveniently stashed offshore.

    In the 2013 Africa Progress Panel, it was

    estimated
    that the DRC lost
    $1.36-billion between 2010 and 2012 due to the undervaluing of
    mineral assets. The panel showed that multinational companies
    like Glencore had vastly greater annual revenues than the DRC’s
    gross domestic product (GDP). 

    The effects on the ground are clear for all to
    see. The United Nations Human Development Index rates
    the DRC as 176 out of 188
    countries worldwide. Life expectancy is 60 years and an average
    child can hope to get 10 years of schooling. Yet the DRC is one
    of the most resource-rich countries on the globe.

    Nelson Alusala, a senior researcher at the
    Institute for Security Studies’ Enact
    programme, says it is clear to
    anyone travelling in the country that the profits from mining
    should have gone to amenities, schools and health services.
    “You wouldn’t find a water tap in these rural mining
    communities. Disillusioned citizens have resorted to
    artisanal mining
    as a way out of
    the desperation,” he says.

    The DRC doesn’t have a clear tax regime, and
    Alusala says a “grab-while-you-can” attitude makes civil
    servants in such countries susceptible to bribes.

    The
    illicit flows
    from Africa
    through tax evasion have been pointed out numerous times and
    documented in reports such as that by former South African
    president Thabo Mbeki in 2015. Mbeki headed the African Union
    (AU) High Level Panel on Illicit Financial Flows, which
    continues to keep tabs on the siphoning off of funds by
    multinationals doing business in Africa. The AU has also
    decided to devote 2018 to combating
    corruption
    in Africa.

    But how and when is this going to stop? Does
    the naming and shaming of companies and individuals actually
    make a difference?

    Researchers who are part of the International
    Consortium of Investigative Journalists privy to the leaks
    admit that it’s a cat-and-mouse game where some multinationals
    are constantly on the lookout for loopholes in local
    legislation to evade paying tax.

    Micah Reddy, a researcher for
    amaBhungane
    , the
    investigative unit in South Africa that had access to the
    Paradise Papers, says while some might be frustrated that
    illicit flows and tax havens still exist, there is greater
    global awareness of the dangers of tax havens thanks to these
    leaks. Following the Panama Papers, the Paradise Papers now add
    to a body of evidence that shows how tax havens are part of the
    reason “Africa is haemorrhaging wealth”, says Reddy.

    Enact head Eric Pelser agrees that while
    combating cross-border crime is a slow process, the leaks have
    an impact on the movement of resources globally because they
    show law enforcers where the loopholes are in legislation and
    enforcement. However for national governments to crack down on
    those abusing the system, it is essential to have a free media
    and independent justice system. “Ideally, the kind of things we
    are seeing in the leaks should be documented in court records,
    but this is not the case,” he says.

    He also says that even if good legislation is
    in place, the political will of the elite and of law
    enforcement institutions is crucial.

    Communications technology has made it possible
    for huge funds to be moved around the globe very quickly, but
    it is now also enabling whistle-blowers to expose illicit
    activity. The Paradise Papers comprise 13.4-million documents
    leaked from the Appleby systems.

    Meanwhile,
    political instability
    in
    countries such as the DRC favours those who exploit the
    weaknesses of the state. The fact that presidential elections
    in the DRC have been postponed to December 2018 – while they
    should have taken place in 2016 – counts in favour of mining
    companies involved in dubious dealings, says Alusala. If a new
    regime that replaces that of Kabila wants to clean up the
    mining sector, it will take a lot of political will and
    in-depth structural change to tackle an endemically corrupt
    system.

    Those involved in the latest revelations, like
    Glencore and Gertler, deny that they’re doing anything wrong.
    According to the letter of the law, they might not be, but
    because they are underpaying for mineral rights and not paying
    taxes – or not nearly as much as they should be – the quality
    of life of people in the DRC remains dismally poor.

    DM

    Liesl Louw-Vaudran,is an ISS
    Consultant

    Photo: The DRC produced 17% of the world’s
    tantalum concentrates in 2o14, nearly double the nine percent
    it produced in 2000. Photo: Julien Harneis (wikimedia
    commons)

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