Is offshore banking or shareholding in an offshore company illegal? An interesting breakdown was found on Reddit via The Guardian after the Panama Papers leak in April 2016. The Panama Papers was the biggest leak in the history of data journalism, with 11.5 million documents equaling 2.6 terabytes, from Panamanian law firm Mossack Fonseca, which showed how hundreds of thousands of people, including world leaders, celebrities, athletes, FIFA officials and criminals hid money using anonymous shell corporations across the world. 18 Africans were named in the leaked documents. A new leak The Paradise Papers has broken the record set by the Panama Papers with 13.4 million documents from a Bermuda-based law firm, Appleby. The document reveals how the firm helps its clients (rich people from 180 countries) evade taxes and obscure ownership of assets. Again, Africans were not left out.
The papers mentioned Nigeria’s Senate President Bukola Saraki as a director of Tenia Limited, a company established in the Cayman Islands in 2001.
Ibrahim Mahama, the brother of the former president of Ghana, John Mahama, was also named in the Paradise Papers. In 2013, representatives of Mahama contacted Appleby to create offshore companies that would provide consulting in the oil and gas industry besides real estate. Another Ghanian Ken Ofori-Atta, a minister was named.
There is also Sam Kahamba Kutesa of Uganda, President Ellen Johnson Sirleaf of Liberia, Sally Kosgei of Kenya.
Plato, a Greek philosopher who lived in the city-state of Athens. In 380 A.D., wrote “The Republic” as a collection of conversations of his teacher Socrates. Plato described government going through five stages, the third stage being oligarchy, which he described as an insider clique, a ruling class. “These are lovers of “money” and “gain.” They seek money to get into office, then once elected they funnel money and favors to family, friends, constituents and supporters who in turn help them stay in power. The insider ruling class raises taxes on everyone except themselves. They pass laws, but exempt themselves,” Plato wrote.
“They invent illegal modes of expenditure; for what do they or their wives care about the law? … Their fondness for money makes them unwilling to pay taxes. … And so they grow richer and richer … the less they think of virtue … and the virtuous are dishonored. … Insatiable avarice is the ruling passion of an oligarchy.”
Their fondness for money makes them unwilling to pay taxes.
Every year, Africa loses more than $50 billion in illicit financial outflows as multinational companies, the rich and the powerful, engage in schemes aimed at avoiding tax payments. But if the existence of tax havens encourage illicit financial flows, why allow their continued existence? They have continued to exist because powerful people and big companies benefit from the offshore system. They avoid tax payment at the expense of the many, especially the middle-income taxpayers, who are often left to bear the burden of taxation. Multinational corporations also have an unfair advantage over smaller competitors this way.
Thabo Mbeki, Chair of the African Union/UN economic commission for Africa AU/UNECA High Level Panel on illicit financial flows (IFFs) spoke against tax havens in April 2016 after the panel released a report that illegal transfers from African countries have tripled since $20 billion was siphoned off in 2001.
“Now is the time for the global community to act in a firm and comprehensive manner to end the Illicit Financial Flows and close down the Tax Havens/Financial Secrecy Jurisdictions which serve as the domicile of these Illicit Financial Flows,” Mbeki said in a statement.
“The undeniable fact is that the Illicit Financial Flows which derive from tax evasion deserve our full attention both continentally and globally,” he added.
Mbeki noted at the time that, according to the Panama Papers, the fourth most used Tax Haven by Mossack Fonseca is an African country. “Worse still, the reports show that this firm only knew the identities of the real owners of just 204 of 14,086 companies it had incorporated in the country.”
The Chair of the High Level Panel stressed, therefore, that no one must rest under the illusion that the issue of Tax Havens does not directly affect Africa and the world at large, because it does.
In Mauritius, one of Appleby’s bases, the law firm helped Jean-Claude Bastos de Morais, the Swiss-Angolan owner of an asset-management firm, Quantum Global Group and his company to move some Angolan public funds slated for the management of investments in African hotels and infrastructure. The money reportedly moved through offshore companies in three jurisdictions – including some incorporated in Mauritius, an African island known for its low taxes and high tolerance for secrecy. Quantum Global Group had earlier secured a Mauritius business license.
In 1989, the government had embarked on a plan to turn the island into a hub for investment from all parts of the world. The island slashed its taxes and entered into tax treaties with neighboring African nations and others. The double taxation agreements (DTAs) were sold to treaty partners as a development tool that would encourage investment in those countries by the growing number of global companies incorporating in Mauritius. In theory, DTAs are supposed to help companies avoid being taxed twice on the same economic activity. In practice, however, signing a DTA with a low or no-tax country such as Mauritius means that some taxes may not be applied at all.
Appleby’s Mauritius office has emphasized the services it offers to companies seeking to reduce or eliminate the tax burdens on their operations in Africa. The office has served corporate clients with business in South Africa, Togo, Mozambique, Madagascar, Kenya, Equatorial Guinea, Nigeria, Zimbabwe and Liberia.
ICIJ reported that in 2013, Appleby shared with another law firm a PowerPoint presentation about a hypothetical company operating in Mozambique with $10 million in interest payments due to be paid to its parent company in Singapore. If the money went from Mozambique directly to Singapore, the presentation explained, Mozambique would take $2 million in taxes. With the payments shunted through a company incorporated in Mauritius, however, a treaty between the two countries would slash the tax owed Mozambique by more than half. Mozambique receives $800,000, and the company, assuming the operation in Mauritius costs $30,000, saves $1.17 million.
As it seems, for countries like Mauritius, the state comes first, even if it means that other African countries suffer in the process.
Mbeki had in April 2016 urged continued efforts to put political pressure on the countries that enable a high level of financial secrecy or that have laws enabling banking secrecy and the registration of shell companies. “Otherwise harmful tax practices and high levels of opacity in financial transactions … will continue to be a scourge that we find ourselves discovering only when there are people bold enough to expose them.”
Mbeki notes that until all countries begin to work together to combat IFFs in all its forms, including by closing down Tax Havens and all activities encouraged by them, there will always be a cavernous opportunity for the exploitation of tax laws at all levels and in all countries for negative purposes.
Mauritius has taken steps to reform its offshore sector. and discourage misuse of offshore companies, authorities introduced requirements that such companies become more active in Mauritius – which would include having employees and meetings there. In July, Mauritius signed a global anti-tax-avoidance treaty and agreed to review half of its double taxation agreements.