The Politics of Poverty

Ideas and analysis from Oxfam America's policy experts

New leak reveals Africa’s ‘big men’ aren’t who you think they are

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Each year, over $14 billion in tax revenues is lost in Africa to tax havens, robbing millions of the funds that could be put to needed use in schools, hospitals, infrastructure, and more. Photo: Abbie Trayler-Smith / Oxfam

The Panama Papers are at it again.

Kathleen Brophy is a Research Assistant for Extractive Industries at Oxfam America.

The ugly stereotype of Africa’s “big man” normally shows a corrupt leader walking out of a negotiation with briefcases full of dollar bills and gold rings on every finger, grinning from ear to ear. It is the all too familiar story of African corruption, portrayed as a uniquely African problem. However, this depiction is as crude as it is wrong and incomplete.

New investigative stories released this week by the International Consortium of Investigative Journalists (ICIJ) and media partners in Africa – based on the treasure-trove of “Panama Papers” from the Mossack Fonseca law firm – provides insight into the methods, techniques and tricks that politicians, politically-connected elites and their cadre of offshore middlemen and trusted lawyers use to rob African governments of public tax revenues.

While much is alleged of Africa’s notoriously corrupt “big men” caricatures, the stories released this week provide concrete examples of how these swindles happen; revealing details of a diverse and lesser known set of shadowy characters responsible for shifting millions of taxable dollars offshore. The leaked internal records from Panamanian law firm Mossack Fonseca shed light on the role that legal and accountancy firms play in the global offshore tax havens game.

The stories highlight high-level schemes of complex embezzlement, bribery and money laundering resulting in millions of dollars diverted from government treasuries into the offshore bank accounts of the global elite. Helping the rich in Africa and those that do business there avoid taxes and hide their assets is a big business opportunity. The richest ten people in Africa now have a combined wealth equivalent to the GDP of Kenya. According to the World Bank, the number of African billionaires has doubled since 2010 while the number of people living in poverty across the continent has increased by 50 million since 1990.

Almost one third of rich Africans’ wealth is held offshore in tax havens amounting to $14 billion in lost tax revenues from African countries every year. This loss in tax revenue helps to entrench endemic poverty while increasing extreme inequality. Today, seven of the most unequal countries in the world are in Africa.

Lost tax revenues are desperately needed to invest in healthcare, education and jobs on a continent where 1 in 12 children die before their fifth birthday, 34 million children are not in primary school and 40 million young Africans are out of work.

Extractive industries have been a hugely corrupting force at the heart of many of these leaked scandals. In fact, more than half of all illicit flows leaving Africa between 2000-2010 came out of the oil, precious metals and minerals, ores sectors. In the newest Panama Papers stories, journalists found records of offshore companies that were established to own, hold or do business with petroleum, natural gas and mining operations in 44 of Africa’s 54 countries.

The cases highlighted so far demonstrate the urgent need for transparency in mining and energy deals. Deals that are made behind closed doors organized through shell companies and offshore bank accounts put millions of dollars, and valuable oil and mineral assets, at great risk of being misused and diverted for personal gain.

The Mossack Fonseca Nigerian client base included three former oil ministers, senior national oil company employees and two former state governors alleged with embezzling oil money. One of the individuals under investigation by Nigerian and international authorities reportedly used a web of shell companies and anonymous accounts in tax havens set up by Mossack Fonseca to launder his money and develop an impressive portfolio of assets and real estate including two Beverly Hills mansions, Manhattan penthouses, fifty eight cars and three airplanes.

In numerous other cases revealed in the leaks, the firm provided stand-in shareholders to hide the true owners of extractive industry companies. Under this type of scheme, both government officials and corrupt businessmen can conceal their illegal involvement in a project. One case from Algeria reveals that Farid Bedjaoui, son of the country’s former prime minister, incorporated anonymous shell companies all over the world to allegedly help transfer hundreds of millions of dollars in bribe money between oil companies and decision-makers in the Ministry of Energy.  Through this scheme, public contracts were won not because of proficiency or operational excellence, but allegedly due to political connections and other forms of corruption to gain illicit influence over key government decision-makers.

Despite a lot of rhetoric, governments are simply not doing enough to stop illicit flows, tax evasion and tax avoidance. The tax system needs to be overhauled. A good place to start is ending the financial secrecy that enables rich individuals and international companies to avoid paying their fair share of tax and by putting a stop to the damaging race to the bottom on corporate tax.

And there’s a lot to be done here in the US too. The US, after all, is the second easiest country to obtain an untraceable shell company.  In fact, Delaware was labeled as the global extractive industries favorite place to incorporate; housing more than 900 subsidiaries owned by the top ten extractive industry majors alone.

Oxfam has worked for many years to bring light to these shadowy schemes and practices. We have long supported an oil and mining sunshine law – Section 1504 of the Dodd-Frank Act passed in 2010 – that requires oil, gas and mining companies listed on US stock exchanges to publicly disclose tax and other payments they make to the US and governments around the world. After six years, this law has finally been implemented by the US Securities and Exchange Commission. We have also advocated for strong “Country by Country” tax reporting rules which were passed by the US Treasury at the end of June and will provide tax authorities their first-ever glimpse into where multinationals are engaging in economic activity, compared to where the company is declaring their costs and incomes, and where they are paying taxes.

And we are also calling for Congress to pass the bipartisan Incorporation Transparency and Law Enforcement Assistance Act, which would bring sunshine to the secret shell companies that criminals, despots, and corrupt officials use to hide their money right here in the United States.

The widening Panama Papers scandal shows how urgently Congress needs to take action. Will you help nudge them a bit?

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