Fulfilling Africa’s Economic Dreams Part One

 AFRICA MUST ACHIEVE POLITICAL STABILITY FIRST BEFORE ECONOMIC                                                                                    DEVELOPMENT

The greatest threat to the economic development of Africa is political instability. Political stability is the magnet that holds all other activities in its rightful place. However, Africa is one of the few places noted for its political instabilities. It scores badly among investors as a place where the risk of investment is high and where businesses are done different from the normal rules of engagement. Such concerns are largely informed by the anarchy in Somalia, Democratic Republic of Congo, Sudan, Northern Uganda, Guinea and many other places. It is also informed by the violence in Kenya, Zimbabwe, Nigeria and the tensions in Ivory Coast. Such instabilities, wars and election violence seen in Africa do not auger well for economic and social development and are major reasons why investors are repelled, capital flight is high and the confidence of those with investment continue to wane. At the moment about $150b leave the continent annually due in part to the political stalemate in Sudan, Chad, DRC, Niger Delta, Northern Uganda, and the Great Lake Region. The chaos, confusion and violence that always characterise elections create an atmosphere that only work to isolate the continent as attractive destination for investment and are the reasons why the continent is seen as the most expensive place in the world to do business.

To ensure investor confidence, promote and sustain economic development and growth, there should be a complete political stability in the whole of the continent. Without political stability it is impossible to achieve any economic development and progress. It is a fact that you cannot rebuild your house while it is still in flames and so African countries must ensure they get stability first before talking about economic development. How do you construct roads in war zones or build a factory in militarised territories? Political stability is the homework African countries must do to achieve economic development. Establishing political stability through a democratic process should not be an idea to toy with.

To achieve political stability there area a number of tough decisions Africans must make. First the leadership in the continent must realise that instability anywhere is a threat to stability everywhere. Therefore they must work together to eliminate all those factors that act as magnet to engineer and fuel the instabilities.

Tyrannical rule, civil wars, and military adventurism must give way to democratic governance. It is the only way that can bring stability to the continent and prepare her for the economic development that has eluded her peoples for decades. Political stability is highly compatible with economic development; a disruption of one is a disruption of the other. Democratic governance is the political path Africa must chart if it is to prepare itself for economic development and social progress in this 21^st Century and beyond.

This therefore calls for an end to dictatorial rule in all parts of the continent especially in Gabon, Equatorial Guinea, Angola, Congo, Libya, Egypt and Zimbabwe where few people, their families and cronies have hijacked their countries and taken the people ransom. All undemocratic leaders and tyrants must be made to understand that the days of unchecked power and despotic rule are over. The current situation where Gaddafi, a dictator is calling for a federal Africa is totally unacceptable. The only acceptable way is for all leaders including Gaddafi, Obiang Nguema, and Blaise Campore to make themselves available for elections if they wish to serve the people and I mean serve the people not to be served by the people. All leaders in the continent must be reminded that they do not own their countries and the resources in them. The claim by Mugabe that “Zimbabwe is mine” should be condemned unequivocally.

The stability also calls for an end to all civil conflicts, military interventions and armed rebellious currently seen in Sudan, Uganda, DRC, Guinea, Mauritania, Chad, Nigeria and Ivory Coast. Use must be made of the few Africa role models in the continent like Joachim Chissano, Kofi Annan and Desmond Tutu to mediate to bring an end to the conflicts in Darfur, Somalia, Northern Uganda, DRC and all the troubled parts of the continent. All parties including individuals and groups with grievances must be encouraged to seek redress from the court instead of rushing to take up arms.

The current state of political unrest in Africa is in nobody’s interest not governments, opposition parties or the people and that is the more reason why democratic reforms must be undertaken in countries where people have fewer political rights and cannot democratically change their leaders. People must be given the chance to elect their own leaders. There should be a level playing field for the ruling governments and opposition parties so as to avoid allegations of vote rigging that are major cause of instabilities and violence in Ivory Coast, Kenya, Zimbabwe and Somalia among others. To ensure this there should be financial support to political parties and all must have unrestricted access the state media. Again election observers must be allowed without any restriction to observe elections and make their own assessments without pressure from any quarters.

The AU and the sub regional bodies such as ECOWAS, SADC, EADC, COMESA, AMU and ECCA have a major role to play in ensuring the stability. The AU leaders must be reminded that instability anywhere is a threat to stability everywhere. Therefore, the Charters of AU and sub regional bodies should be implemented to the letter and all those who violate the charters should be punished severely. All clauses that limit the bodies from criticising or having greater role to play in times of crisis should be removed. The democratic countries in the continent should work closely together and encourage the less democratic ones to adopt reforms with the aim that Africa stands to gain more from being democratic than being under dictatorships. Therefore all nations must be encouraged to ratify and implement the New Partnership for Africa Development (NEPAD) charter.

In addition each country should have a constitution that caps or stipulates a fixed term of office for political office holders and that fixed term should be adhered to even if a candidate is a messiah. The current situation in Algeria and Tunisia where both presidents have changed the constitution in order to run for a third term of office and in Nigeria where Olusegun Obasanjo tried unsuccessfully to run for a third term is very unfortunate for and must be discouraged at all a cost for it is such actions by African rulers that have brought wars, coups and mayhem to however a peaceful people. Such actions only fuel corruption, nepotism, cronyism, abuse of power and mistrust between the ruling and opposition parties and serve as breeding ground for coups, civil unrest and political instabilities.

Even though the number of armed conflicts has gone down compared to a decade ago, the continent is still prone to instabilities and giving such a political climate, it is obvious that political stability will not be possible without an African Military High Command with powers to crisis, emergencies and crash any rebellion, arms insurgence that may show its ugly head in the Africa political scene.  The establishment of AMHC should be done on condition that all leaders will submit themselves to the rigour of elections and allow their people to choose whoever they want to lead them without intimidation, threats or whatsoever. Tyrannical rule and military regimes are highly incompatible with the establishment AMHC and therefore all effort must be made to ensure that democracy is respected and that leaders are not forced on the people. Already the Southern Africa Development Community has created what they call SADC Brigade and it is beginning to make impact in the region.  

The Pan-Africa Parliament should be fully resourced to deal with issues affecting the continent more importantly corruption, poverty, environmental degradation and political instabilities. Laws enacted by parliament must be binding on all members and countries that frown on the laws must be severely sanctioned.

 The Africa Court of Justice must be made the highest in the continent with powers to settle disputes between and within countries. It must be a court of last resort in the continent. Africans cannot build a just society without a strong media and without contribution of civil society organisations.

The media, civil society organisations must be allowed to operate freely without fear of intimidation or attack and under no circumstances should a media house, NGO, and CBO be barred from operating in a country. Therefore in Sudan, Zimbabwe, Equatorial Guinea, Guinea and in many other countries where the media and NGOs have been banned governments must be forced by the AU to let them in.

Western political and business leaders must stop doing business with all the dictators, and coup makers the likes of Bongo, Obiang Nguema, Gaddafi, Mugabe and all those who have used undemocratic means to hold on to power. Sanctions and embargo targeting these leaders (not their people) should be enforced so as to force them to loose their grip on power. Western and Asia defence companies and contractors who illegally and irresponsibly ship arms to the continent to fuel the conflict and create instabilities for their own personal interests must be identified and barred from doing any business in the continent.

A democratic Africa is the single most important ingredient necessary for attaining economic development because it is an undisputable fact that development cannot take place in an atmosphere of hostilities and instabilities. There is no way Gaddafi who is the Chairman of AU could advice Mugabe or Mwai Kibaki to accept election defeat when he (Gaddafi) has been a dictator for 39 years. There is no way Omar Bongo could advice Obiang Nguema when Bongo is the longest ruling head of state in the world. For Gaddafi and Bongo to offer any genuine advice they must relinquish power and allow free and fair elections to take place.

Tyrannical rule, civil wars, and military adventurism must give way to democratic governance. It is the only way that can bring stability to the continent and prepare her for the economic development that has eluded her peoples for decades. Political stability is highly compatible with economic development; a disruption of one is a disruption of the other. This is the political path Africa must chart if it is to prepare itself for economic development and social progress in this 21^st Century and beyond.

By Lord Aikins Adusei

Political Activist and Anti Corruption Campaigner. He blogs at www.iloveafrica2.blogspot.com

Please Note: This is the first of a three part write up that seeks to offer alternative ideas as to the requirements Africa must fulfil in order to achieve economic development. 

How Tax Shelters Brought Trouble to Billionaire Clan

By Glenn R. Simpson

Wall Street Journal 

In 2001, Dallas billionaire Sam Wyly picked from a Christie's catalog a pocket watch once owned by Franklin D. Roosevelt. But Mr. Wyly, who keeps the watch at his home, doesn't own it. Instead, it is owned by a tax-exempt company in the Isle of Man called Audubon Limited -- which Mr. Wyly says he neither owns nor controls. Audubon paid $41,125 for the watch at Mr. Wyly's suggestion, a lawyer for the businessman says, and then lent it to him.

Audubon is part of a network of companies and trusts established on the Isle of Man to park large parts of the Wyly family wealth, a move that shields the money from U.S. taxes and lawsuits. To critics, the ability of the Wylys to enjoy benefits from assets that they don't own illustrates what's wrong with the huge offshore tax-avoidance industry.

Representatives of the Wyly family say the Wylys believed their financial arrangements were entirely legal. A family lawyer, William Brewer, says all the Wylys' offshore structures either are detailed as accepted practices in the American Bar Association's manual on "asset-protection strategies" or were explicitly deemed legal by Congress.

Isle of Man entities connected with Sam Wyly and his brother, Charles, also own expensive jewelry worn by family members and property in an exclusive enclave near Aspen, Colo., called Little Woody Creek. The entities have made loans to Wyly family members, according to documents and Mr. Brewer, and in some cases they pay the brothers stipends known as annuities. Another Isle of Man company paid £154,000 (about $287,000) for a 1910 painting called "Noonday Rest" by British realist John William Godward, which wound up at the home of Kelley Wyly, Sam's daughter.

The Isle of Man is a misty, quasi-independent republic of 75,000 people in the sea between England and Ireland. Much of the Wylys' network was set up from a medieval village at its southern tip by a British businessman known locally for greeting clients with a macaw perched on his shoulder. Ronald Buchanan long worked at an 18th-century mansion known as Lorne House, which was also the name of his business.

One of Mr. Buchanan's main associates working on Wyly trusts was an ex-stockbroker who is now wanted on fraud charges in South Africa. A review of court records, legal opinions and Wyly family memorandums, as well as interviews with lawyers and regulators, shows that the two men helped the Wyly brothers set up more than two dozen offshore companies and trusts over the past 15 years.

The Wyly trusts will be examined tomorrow at a hearing by a U.S. Senate panel called the Permanent Subcommittee on Investigations. The panel's senior Democrat, Sen. Carl Levin of Michigan, has been probing offshore tax evasion and money laundering for several years. The panel is also looking into how the elite New York law firm Cravath, Swaine & Moore LLP provided legal advice on offshore tax shelters to wealthy individuals, people familiar with the probe say.

U.S. prosecutors and regulators already are targeting people who promote offshore tax-avoidance plans. One former lawyer for the Wyly family is now in prison on tax and fraud charges involving work for other clients, while another is under investigation by the Internal Revenue Service. The Wyly family's affairs are now the subject of a federal grand-jury investigation in Dallas.

The Wylys' Isle of Man holdings were largely funded with profits from stock options issued during the 1990s. Most of the options came from the Michaels Stores Inc. craft-store chain, which the brothers acquired control of in 1983. Two investor lawsuits allege some of the Michaels options were improperly granted or dated by the Michaels board. Last month a federal grand jury subpoenaed documents from Michaels, which is one of dozens of companies ensnared in recent investigations into stock-option grants.

The Wyly brothers -- Charles, 72 years old, and Sam, 71 -- have enjoyed a storied life in business as pioneers in computer software, hedge funds and retail. They have been top donors to the campaigns of President George W. Bush. Born at the height of the Great Depression in Lake Providence, La., they grew up in a hardscrabble farm town called Delhi and excelled at Louisiana Tech University, where Charles was a football star and Sam was student-body president.

After working for International Business Machines Corp. in the early 1960s, Sam founded University Computer Co., an early business-computing company, in 1963 and was joined there a year later by his brother. Over the next three decades the pair started or acquired many successful businesses including Bonanza Steakhouse. In 1990, they started Maverick Capital Ltd., an early hedge fund. Richard Hanlon, a former Wyly employee who is on the Michaels board, says Sam Wyly "has always had that combination of the analytical skills you would associate with an astute investor with the innovative thinking of an entrepreneur."

In the early 1990s, Sam went through a high-profile divorce from his first wife, Victoria, and paid a large settlement. That instilled a desire to protect his privacy and assets in the future, says his lawyer, Mr. Brewer. He sent a longtime family employee to a seminar put on by a lawyer named David Tedder, who ran an organization called the Institute for Asset & Lawsuit Protection.

Mr. Tedder also was chief counsel for personal-finance guru Charles Givens, who became famous in the 1980s for airing get-rich-quick infomercials. In 1990, The Wall Street Journal disclosed in a page-one article that Mr. Givens was the subject of fraud investigations by the IRS and the Securities and Exchange Commission. Mr. Tedder was soon defending Mr. Givens in court from disgruntled investors. He also continued giving financial seminars.

In June 1991, the family employee wrote a 26-page memo detailing strategies proposed by Mr. Tedder, whose messages she summarized as "never let a creditor get your asset" and "wherever possible reduce income tax." By early 1992, the Wylys were working directly with Mr. Tedder on a plan to shift offshore tens of millions of dollars in warrants and options from Michaels and another firm, Sterling Software Inc. (The Wylys sold Sterling to Computer Associates, now called CA Inc., in 2000 and became a major CA shareholder.)

Mr. Tedder supplied a 16-page opinion declaring it "more likely than not" that the Wylys could transfer the assets to offshore companies in exchange for regular annuity payments without paying capital-gains tax on the appreciated securities. The letter did warn that "this approach is rather novel." A lawyer for Mr. Tedder, who is in federal prison on unrelated tax and money-laundering charges, said he wasn't available for comment. Some aspects of the transactions were also reviewed by the law firm of Wyly family lawyer Michael French.

J. Richard Duke, a tax lawyer in Birmingham, Ala., who doesn't do business with the Wyly family, says the structure promoted by Mr. Tedder appeals to investors who own a property that has greatly appreciated. "The purpose is to stretch the gain out over your life, and if you die prematurely, the gain is not included in your estate," says Mr. Duke. He adds that he doesn't recommend the structure because it is subject to attack by the IRS.

The IRS requires that for a private annuity to be legal, an investor has to truly surrender control over the asset to someone in a foreign country. But any attempt to add legal protections to ensure that the foreign holder doesn't simply pocket the money could lead the IRS to call the whole thing a sham. "You cannot legally control the structure if it is an offshore structure," says Mr. Duke. "But most Americans are control freaks."

In 1992, the Givens organization began to collapse amid civil-fraud suits. Mr. Tedder moved to Florida to work nearly full time helping Mr. Givens transfer some $50 million in assets to offshore tax havens, including the Isle of Man, so they would be out of the reach of creditors, Mr. Tedder later testified in a federal bankruptcy case. Mr. Givens, who settled many of the fraud cases without admitting wrongdoing, died of cancer in 1998.

The Wyly family began to deal with a Tedder legal associate, Michael Chatzky, and with the Lorne House proprietor, Mr. Buchanan, and his associate, Keith Leslie King, according to correspondence from the period. By 1994, this team was working on a set of trusts to hold still more stock options, primarily from Michaels.

Trusts are commonly used to make charitable bequests, provide for heirs or even provide for one's own future. For tax purposes what matters is whether control of the assets is transferred to someone else. If so -- and if the trust is overseas -- then gains on the assets aren't subject to U.S. tax. (U.S. citizens do have to pay tax on income earned overseas, including income from a foreign trust that they bring back to the U.S.)

Mr. King set up four new foreign trusts for the Wyly brothers and their top family lawyer, Mr. French. The beneficiaries included Wyly family members and Sam Wyly. Mr. King wrote letters to the Wyly brothers saying he was establishing each of the trusts with $25,000 of his own money "to show my gratitude for your loyalty to our mutual ventures and your personal support and friendship." The letters were designed to show that the trusts, as required by the IRS, were established by a foreign individual, Mr. King. However, according to Lorne House records, Mr. King actually put only $1 into each trust. He then put in four promissory notes for the other $99,996, which was never paid.

Isle of Man regulators have since alleged that Mr. King was draining funds from other clients and that he was "involved in a conspiracy to defraud the South African Reserve Bank utilizing forged documents." Mr. King, who is the target of a South African arrest warrant, couldn't be reached for comment.

The Wyly brothers didn't know that Mr. King had failed to pay the full $100,000, says their lawyer, Mr. Brewer. "The Wylys have always attempted to surround themselves with appropriate legal, tax and financial-management professionals," says Mr. Brewer. "Unfortunately, in a few instances, certain individuals may not have been quite as they originally appeared." The brothers vetted the financial products they bought from Mr. Tedder and his associates with better-known practitioners such as a London-based lawyer at the law firm Morgan, Lewis & Bockius and accountants at Ernst & Young. In a 1994 opinion, the Morgan Lewis lawyer endorsed the theory that the trusts established by Mr. King for the Wylys could be used to largely shield gains in assets from U.S. federal taxes.

Many trusts invest their assets conservatively in stocks and bonds. But the Isle of Man trusts took their Wyly money and used it to establish a company in the Cayman Islands that would market offshore annuities to other investors. The result was Scottish Annuity & Life, which was set up and run by Mr. French, the Wyly lawyer, and included both Wyly brothers on its board from 1998 to 2000. Scottish Annuity, since renamed Scottish Re Group Ltd., was eventually taken public on the New York Stock Exchange. It has expanded into the business of reinsuring life-insurance policies issued by other companies and has $12 billion in assets.

This year, Scottish Re disclosed it had received an SEC subpoena regarding transactions early in the company's history by the Wylys and Mr. French, now the company's chairman.

In December 1995, Mr. King was formally banned by Isle of Man regulators from acting as a corporate director due to "concerns regarding honesty and integrity," regulatory documents state, forcing him to resign as a director of Lorne House. Over the next several years, Mr. King's legal troubles were chronicled in the offshore trade press, but the Wyly brothers say their advisers didn't inform them.

In 1996, more trust transactions involving options from Michaels were engineered for the Wyly brothers by Mr. Chatzky, who had parted ways with Mr. Tedder. Mr. Chatzky gave the Wylys a 20-page legal opinion decreeing it "more likely than not" that the deals would be largely shielded from income taxes. He did warn that the IRS "might view the transactions that are the subject of this memorandum in a manner differently than you or I would view them." The Justice Department and the IRS now allege in court filings that at the time, Mr. Chatzky was selling questionable offshore tax shelters to dozens of other wealthy Americans. Mr. Chatzky didn't respond to requests for comment.

The Wyly family continued shifting assets offshore. The trusts established by Mr. King bought real estate, artwork and jewelry used by the Wyly family. Documents show that longtime Wyly family employees in Dallas and the Cayman Islands formed a "protectorates committee" advising the trusts what to buy.

For instance, in 1996 Sam Wyly successfully bid at Sotheby's for the painting by John William Godward. Shortly thereafter, an accountant at another Wyly-founded company in the Cayman Islands sent a letter to Mr. Buchanan at Lorne House stating that the protectorates committee recommended buying the painting.

Mr. Buchanan responded a few days later by questioning whether the painting was a wise investment. The trustee was duty-bound to ensure that the trust's assets were invested wisely. Mr. Buchanan said the painting cost more than double the preauction estimate and was by an artist with a less than top-level reputation.

He quickly received a stern letter from Mr. French. "We need to resolve this issue at once," he wrote, insisting Mr. Buchanan had no legal grounds to question the transaction. Then Sam Wyly himself sent Mr. Buchanan a letter encouraging him to buy the painting. Mr. Buchanan then apologized to Mr. French for appearing "excessively obdurate" and bought the painting.

Trust specialists say it is not illegal for an offshore trust to buy a painting or other valuable object and allow someone in the U.S. to use it, and the trustee can even consider suggestions from the U.S. recipient about what to buy. But the trustee ultimately must make independent decisions.

Bob Davis, who represents Mr. French in the grand-jury and Senate inquiries, says his client isn't a tax lawyer and had a minimal role in setting up and managing the trusts. Mr. French ended his ties to the Wyly brothers in 2000, according to Mr. Davis, and the following year Mr. French's Isle of Man trust was unwound.

Problems surfaced only in 2004, when Bank of America Corp. informed the Wylys it had received a subpoena for information about their bank accounts from Manhattan District Attorney Robert Morgenthau.

In February of this year, Mr. Buchanan died of heart problems. He was described as a respected philanthropist and civic booster in his obituary by the Isle of Man newspaper. "Locally, Ronnie may be better remembered by the people of Castletown for his trips into town with his macaw, Sasha, perched on his shoulder," the notice said. A lawyer for Lorne House declined to comment on the Wyly affair.

Legal experts such as Mr. Duke say the extensive involvement of the Wyly family and their business associates with trusts legally controlled by people offshore may prove to be a legal Achilles' heel. "The legal owner cannot be told what to do," by the Wylys or their agents, says Mr. Duke. Otherwise, courts will likely rule that "he is not being treated as a legal owner. He is a patsy."

Mr. Brewer, the lawyer for the Wylys, says they acted in good faith. "For a period of more than a decade, Sam and Charles have spent more than $10 million to obtain professional advice and oversight concerning asset preservation and estate-planning arrangements," he says. "They expected and understood that all of their actions were in full compliance with the law."

ISS Tody: Will The Tax Havens Of This World Survive The Global Recession?

As the maxim goes, every cloud has a silver lining. There is growing hope that this might turn out to be the case with the fallout from the current global financial crisis. One of the defining characteristics of the crisis is the erosion of confidence in the self-regulating powers of markets. In the wake of the summit of the G20 countries in London last week, some critics believe that the deregulation process has been thrust into reverse gear. There have already been numerous company closures, massive job losses, and market collapse, prompting government bailout initiatives in several countries. These developments appear to herald a new era of greater transparency and international co-operation in combating financial crimes. Experts predict that increasing powers will be given to law enforcement agencies to work across borders to track down unlawful capital flight, especially tax evasion.

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The events of the last few weeks suggest that the predictions about greater regulation are not far fetched. On Thursday 12th March 2009, Liechtenstein and Andorra announced that they were loosening their strict bank secrecy laws. The following day, Austria, Luxembourg and Switzerland followed suit. Why are these long-standing offshore financial centres abandoning their tradition of banking confidentiality? Does this mark the demise of tax havens? If so, what will be the implications for developing countries?

 

The distinct feature of financial offshore centres over the years has been that they offered investment environments for foreign companies to either pay very little tax or no tax at all. In addition, they refused to share information on the identity of such companies or on their financial dealings with other countries. Significantly, they would not co-operate with tax authorities from the countries from which companies doing business offshore originated.

 

This protection was over the years extended to individual offshore investors. As a result, tax havens were therefore ideal for criminal elements, seeking to evade tax and to launder ill-gotten wealth. Following up and investigating corruption and tax fraud presents insurmountable challenges for law enforcement agencies if a tax haven is involved. At the heart of the problem lies the fact that tax havens insist that the inquiring agency should present full information on the identity of the account holder as well as the account details. Often this information is the subject of the inquiry, and therefore not readily available. In February 2009, the Union Bank of Switzerland (UBS), which is the world’s largest wealth management firm, admitted that it had helped some of its American customers to evade US taxes. It agreed to pay a fine of $780million and disclose the identity and account information of 250 American clients. In 2008, some banks in Liechtenstein made similar admissions in respect of high net worth German clients.

 

By facilitating tax evasion and capital flight, tax havens impacted negatively on developing countries - which lost both tax revenues and investment capital. Tax evasion erodes the domestic tax base and contributes to balance of payments deficits persistently experienced by developing countries.

 

It must be emphasized that not every individual or company that banked in these tax havens was involved in tax evasion or money laundering. Offshore investment also involves lawfully earned funds, and could be motivated by the uncertainties of economic management in some countries.

 

The global financial crisis has put pressure on tax revenues of developed countries. It also revealed that many of the most complex debt instruments were based in offshore financial centers. Some leaders in the developed world, such as British Prime Minister Gordon Brown, insist that the lifting of tax secrecy in tax havens is central to turning the economic meltdown around. It is argued that financial regulators in tax havens should be obliged to spontaneously disclose information on the identity of offshore investors. They should also disclose full account details and transactions.

 

In response, the tax havens concede their vulnerability to abuse by tax fraudsters. They are however only prepared to enter into bilateral agreements with specific tax authorities. They are firmly opposed to facilitate ‘fishing expeditions’ by tax authorities. In this regard, they are supported by Article 26 of the Model Tax Convention of the Organisation for Economic Co-operation and Development (OECD), which provides for the sharing of tax information on a case-by-case basis.

 

Article 26 falls short of the demand by Gordon Brown and others for automatic sharing foreigners’ account information. Assuming that he persuades other G20 countries to support him, Brown still has long way to go before the dear of spontaneous disclosure by tax havens becomes reality. For that to happen, much legislation will need to be passed. Secondly, the tax havens will need to renegotiate various double taxation treaties and enter into Tax Information Exchange Agreements with various States. Some of these treaties will be subject to approval in referenda.

 

What do these developments mean for developing countries? It is increasingly being recognized that steps to assist developing countries to move beyond dependence on aid and debt will require measures to tackle capital flight, tax evasion and the abuse of international trade to launder money. The lifting of the veil of banking secrecy by offshore financial centers presents an opportunity for developing countries to track down companies and individuals involved in tax evasion and laundering of proceeds of tax evasion and corruption in tax havens.

 

There are numerous hurdles still to be overcome. In addition to those raised above are the significant capacity deficits in developing countries. The investigation of tax evasion in developing countries is usually impeded by the lack of specialized training in financial investigation amongst law enforcement agencies.

 

In the final analysis, the fate of tax havens as a catalyst for tax evasion and corruption will largely depend on the determination of developed countries to tame offshore financial centres. The quality and depth of the legislation to achieve this will be critical. The devil, as they say, will lie in the detail.

 

Charles Kamba: Consultant Researcher, Organised Crime and Money Laundering Programme, ISS Cape Town

Africa loses US$90 Billion in tax evasions

Written by CEDRIC LUMITI     NAIROBI - KENYA, African countries are losing US$90 billion of revenue through tax evasion by international mining companies. A new report by ActionAid titled "Breaking the Curse" observes that African countries rely heavily on aid from foreign donors despite being rich in minerals and other natural resources. "It is surprising how potentially wealthy nations depend, almost at alcoholic proportions, on aid from countries in the West and most recently Asia," Brian Kagaro, ActionAid Pan African Policy Manager said. Kagaro pointed out that Africa's challenge was lack of technical capacity to extract minerals, opening the door for international organisations. He alleged the international mining companies employ underhand tactics to pay as little tax as possible. "Forcing governments to grant concessions by threatening to go elsewhere and falsifying accounts and depressing profit margins to evade tax are some of the measures employed by unscrupulous organisations to defraud governments," Kagaro alleged. Another method, according to the report, is using secrecy when signing contracts to pursue aggressive tax avoidance strategies. The report puts blame on governments in some few cases. In the case of the Democratic Republic of Congo, corrupt politicians award illegal tax exemptions to mining companies in return for private gain. Allowing ministers to negotiate tax deals with individual mining companies has often led to lower royalties, taxes and levies than those stipulated by law, according to the study. The report also highlights that mineral exploitation often leads to environmental degradation and in most cases to evolution of social crisis. The Democratic Republic of Congo accounts for a third of the world's total natural resource deposits but has been plagued by civil war for many years. Sierra Leone is another example where diamond exploitation has seen the emergence of warlords plundering the resources.