British Tax Havens and Congo`s Missing Billions

re posted from                          Global Witness

originally published 4 May 2016

Out of Africa

British tax havens and Congo’s missing $1.5 billion

Democratic Republic of Congo should be one of the richest countries in the world, thanks to the trillions[i] of dollars’ worth of gold, diamonds, copper, cobalt and other natural resources in its soil.  The demand for those minerals – used to make smartphones, computers, batteries and countless other popular consumer goods – is incredibly high, yet rampant corruption and mismanagement has kept Congo’s citizens in poverty while the illicit trade in minerals has funded violence and armed conflict for decades. Congo consistently ranks at or near the bottom of the United Nations Human Development Index.[ii] One in seven children is dead before the age of five[iii] and nine per cent of the population is considered in need of humanitarian assistance.[iv]

While the vast majority of Congo’s population suffers from a lack of basic services, the state has sold off valuable mining assets at suspiciously low prices, losing the Congolese treasury hundreds of millions of dollars in crucial revenue in the process. This money has instead gone to a handful of anonymous companies, whose real owners are hidden under layers of paper companies, located in an offshore tax haven in the British Overseas Territories. The secrecy of the offshore business world which facilitated these deals allows corrupt politicians and businessmen and women to launder money, dodge taxes and strike suspect deals while keeping their identities secret.

This exploitation of Congo’s natural resources reached a peak around Congo’s presidential elections five years ago; it is particularly relevant today as Congo is due to go to the polls again in November 2016. Journalists and Global Witness researchers have previously revealed how, in the period around the disputed 2011 elections, a series of suspicious mining deals was struck with anonymous offshore companies that cost Congo $1.36 billion in potential revenues. Reports at the time suggested that proceeds from at least one of these questionable sales were used to contribute to an election fund.

Each deal took advantage of the secrecy regime in the British Virgin Islands – a UK Overseas Territory and tax haven – to help disguise the real people involved; major mining companies and Israeli businessman Dan Gertler were also central to the transactions. Gertler, a billionaire, is a close friend of Congo’s President Joseph Kabila, who eventually won the contested polls amid claims of ballot stuffing and intimidation. [v]

The astonishing revelations in the ‘Panama Papers’ data leak – a slew of 11.5m files from the world’s fourth biggest offshore law firm, Mossack Fonseca – gave the public an unprecedented glimpse into the murky world of anonymous offshore tax havens used by politicians, wealthy businessmen and criminals.[vi] It was this offshore world that was exploited to facilitate these huge natural resources deals that drained so much money out of Congo. According to reports, Gertler is mentioned more than 200 times in the Mossack Fonseca documents.[vii] The law firm also set up two of Gertler’s companies that obtained oil blocks in eastern Congo under controversial circumstances.[viii] Mossack Fonseca’s dealings with the companies ceased soon after they were set up in 2010.

Now in 2016, Kabila is reported to be seeking a way to stay in power despite being obliged by the constitution to step down at the end of his second mandate in December 2016. As elections loom, Global Witness has seen evidence of mining deals being struck without public announcement, with no clarity on where the cash is going. History appears to be repeating itself, with Congo’s valuable natural resources at risk of being stolen to fund an election campaign instead of the basic services that the country’s population needs so urgently.

2016 is not only a watershed moment in Congolese electoral politics; it is also a critical year in the global fight to end the offshore secrecy that facilitated these deals. UK Prime Minister David Cameron is hosting an anti-corruption summit in May where company ownership transparency will be on the table.  It is difficult to see how the summit can be a success unless Cameron clears up the financial secrecy for sale in the UK’s own constitutional backyard. In the wake of the Panama Papers, Cameron has said that UK law enforcement will have fast access to beneficial ownership information of companies incorporated in UK tax havens,[ix] but this is not enough. A central registry of ownership information must be made publicly available if it is to be effective. It is essential for the people of Congo that these secrecy laws change, so that the identities of all of the owners of the companies who benefitted from these deals can be revealed and if any were involved in any wrongdoing, brought to justice.

Above all, it is essential that Congo’s mineral wealth starts to benefit the Congolese population. Congo has recently suffered from the temporary downturn in world metals prices but has enjoyed a mining boom over recent years, producing a record one million tonnes of copper in 2014.[x] However this has failed to translate into improvements for the vast majority of Congolese. Conflict and instability persist: in late 2012 an armed rebellion erupted in Congo’s war-torn North Kivu province and lasted for 20 months.[xi] Basic services like roads, hospitals and schools are still largely absent. The $1.36 billion lost to the suspicious mining deals around the elections translates into twice the country’s annual spending on health and education[xii] – a spectacular loss to the public purse.

Congo’s government announced in March 2016 that a revision of its mining law would be suspended until metal prices improve.[xiii] This suspension is particularly worrying as the revision would have offered a chance to introduce robust transparency and accountability measures in Congo’s mining sector. Global Witness is warning that unless Congo strengthens and enforces its mining law, the country could once again see its natural resource wealth siphoned away from the Treasury and used to help fund an election that will likely be brutally contested and possibly even unconstitutional.

Fighting an election campaign is not cheap. If dodgy deals like these secret sales helped in part to finance contested polls marred by violence in the past, then now is the time for change. In particular Global Witness is calling for:

  •  Congo’s government and state-owned mining companies to be pressured – from within the country as well externally – to adhere to domestic laws and international obligations by publishing the details of new mining, oil and gas contracts, especially in the lead up to the 2016 elections.
  •   Congo’s new mining law to ensure that there is an open and public tendering process for new mining rights, that new contracts are published promptly and are freely accessible, that the identities of the ultimate beneficial owners of companies are made public, and that state-owned mining companies are monitored, audited, well-governed and held to account.
  •   Congo’s government to introduce a public register of the beneficial owners of all the companies who bid, invest and operate in extractive industries.
  •   The UK and other developed economies to insist on public registers of beneficial owners and put an end to tax haven secrecy jurisdictions.
  •  The companies and individuals involved in the secret sales scandal to be fully investigated by the relevant Congolese and foreign authorities and, where wrongdoing is revealed, prosecuted.

What follows is the story of these secret mining sales, from Congo via Caribbean tax havens to the heart of London’s financial district. It will look at the fallout from the exposé of the deals, show how the loopholes that allowed them to happen remain in place, and examine what needs to be done to prevent Congo’s 2016 elections being beset by the same turmoil as in 2011.

Source: Global Witness



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