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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
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.
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
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.
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
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.
Liesl Louw-Vaudran,is an ISS
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