Forget the UK’s phoney political war over the offshore fund created by Prime Minister David Cameron’s late father. This is a Panama Papers sideshow that is diverting attention from a heist that is siphoning billions of dollars out of the world’s poorest countries in Africa, reinforcing poverty, undermining growth and facilitating corruption on an industrial scale.
Over the past fifteen years, Africa’s vast natural resource wealth has acted as a magnet for foreign investment. Much of that investment has been channelled through offshore centres, with the British Virgin Islands (BVI) the circuit of choice. Fortunes have been made. Elites have been enriched. But the minerals boom has done little to improve the lives of ordinary people.
Part of the explanation can be traced to a web of offshore secrecy.
Consider the case of Beny Steinmetz, a prominent name in the Panama Papers roll call of investors. In 2008, Mr Steinmetz’s BVI-registered company, BSG Resources, secured rights to a 50% stake in one of the world’s richest iron ore deposits, the Simandou mine in Guinea, paying nothing at the time but promising future investment. (BSGR says it invested $160 million in Simandou and other Guinean projects). Two years later half the stake was sold to the Brazilian company, Vale, for US$2.5 billion – roughly twice Guinea’s annual budget.
The Sudanese billionaire and philanthropist, Mo Ibrahim, has described the Guinean deal brokers as ‘idiots, or criminals, or both.’ Investigators in Guinea have alleged that BSG Resources was implicated in a bribe delivered to the wife of the country’s former President, Lansana Conte, channelled through another BVI-registered company. Mr Steinmetz denies wrongdoing – but the lack of transparency of BVI-registered companies has obstructed the investigations.
Another name listed in the Panama Papers is that of Dan Gertler. Two years ago, the Africa Progress Panel (APP), which is headed by former UN Secretary-General, Kofi Annan, and Global Witness, an anti-corruption campaign group, investigated five major concession sales in the Democratic Republic of Congo (DRC) between 2010 and 2012. Each involved BVI-registered companies linked to Mr Gertler, who has close ties to President Kabila.
In each case, according to the APP-Global Witness estimates, Mr Gertler secured natural resource concessions at prices well below market valuations. The losses to the DRC state as a result of systematic under-valuation were put at $1.4 billion – almost double the combined annual budget of DRC for health and education. This in a country with one of the world’s highest child mortality rates and 7 million children out of school.
Why did state agencies in the DRC sell prime national assets on the cheap? The questions raised by Mr Annan remain unanswered, in part because BVI accounting secrecy makes it impossible to determine whether or not DRC's political leaders are beneficiaries of Mr Gertler’s companies.
The DRC also figures in new evidence to emerge from the Panama Papers. Khulubuse Zuma, a nephew of President Jacob Zuma, is associated with a BVI-registered company – Caprikat Ltd – that acquired an oilfield in DRC in 2010, after it had been stripped from a rival investor.
Some of the companies named in the Panama Papers have used offshore centres for what is euphemistically described as ‘aggressive tax planning’. The papers report accountants operating for Heritage Oil and Gas seeking to avoid paying US$400 million in capital gains tax to Uganda by moving the company’s registration from the Bahamas to Mauritius (which has a double tax agreement with Uganda meaning companies pay tax in only one of the countries and Mauritius does not levy capital gains tax). Even Starbucks and Google might squirm at the chutzpah, although Heritage were reported as saying that the move was part of a 're-domiciling' of a subsidiary that began long before any tax dispute with Uganda.
Failures of governance and lack of transparency estimated to cost Africa up to $82 billion a year
The Panama Papers have turned the spotlight on a murky world of offshore finance – a world in which the boundaries between legitimate commercial activity and illicit finance are increasingly blurred. Relative to national income, sub-Saharan Africa pays the world’s highest price for the governance failures and lack of transparency associated with offshore finance.
One estimate puts the losses at $82 billion a year, much of it channelled through offshore centres. These are resources desperately needed for investment in schools, health and infrastructure. To put the outflow in context, for every $1 Africa gets in aid it loses $1.30 through illicit transfers.
Corrupt elites make abundant use of off-shore opportunities. In Tanzania, an energy deal involving the state provider Tanesco was found by the Tanzanian Public Accounts Committee to have plundered $120 million from the central bank through offshore bank accounts, prompting donors to withhold aid. With a modest reported salary as education minister, Teodorin Obiang, son of Equatorial Guinea’s president, purchased through offshore companies a $30 million mansion in Malibu, a fleet of luxury cars – including seven Rolls Royces, eight Ferraris and five Bentleys – a Gulfstream jet, and some $3 million in Michael Jackson memorabilia, including the original Thriller glove. Some $30 million of assets was handed back to Equitorial Guinea in 2014 after settlement of a US civil forfeiture claim, although Mr Obiang got to keep the glove.
The Panama Papers have raised new unanswered questions. Why did the Rwandan government establish a BVI-registered company to lease aeroplanes for its leaders – and who benefits? Why is the second highest judge in Kenya, a country in which large-scale corruption is an elite sport, linked to at least 11 companies listed in the BVI? How was James Ibori, a former governor of Nigeria’s Delta State now serving a 13-year sentence in the UK for fraud and theft of $50 million, able to open bank accounts, purchase property and open shell companies in London and Switzerland?
Time for action
Not all offshore activity is harmful to Africa’s interests. Funds held offshore can enable investors to aggregate finance for infrastructure and investments other investment through efficient tax-neutral structures. The problem is that an absence of transparency in some jurisdictions is blurring the lines between legitimate activity and criminality, exposing investors to potential risks.
Three years ago, Mr Cameron demonstrated great leadership in pushing tax evasion to the top of the G8 agenda. Next month he hosts a summit to tackle corruption. What better opportunity to galvanise action?
Africa’s leaders attending the summit will justifiably be called upon to defend their records on transparency. But Africa’s citizens surely have a right to expect the UK to follow the principles it espouses for others.
It is time to draw back the cloak of secrecy and legislate for all UK-linked offshore territories to establish full public registries of beneficial ownership. The current policy of seeking voluntary information exchanges between offshore jurisdictions and UK law enforcement authorities is manifestly not working, either for Britain or for Africa.