Neither the Organisation for Economic Co-operation and Development nor the country’s government agree that Mauritius is a tax haven, but Khadija Sharife’s investigations suggest otherwise.
When is a tax haven not a tax haven? When Mauritius' Vice Prime Minister Ramakrishna Sithanen says so. ‘We are a not a tax haven,’ stated Sithanen, who is also the country's minister of finance. Ironically, Sithanen would go on to reveal that ring-fenced financial services (FS) – the legal and financial secrecy vehicles facilitating corporate mispricing and corruption marketed to foreign clients, especially India – accounts for 12.5 per cent of GDP.
Mauritius is already India's largest single source foreign investor at US$39 billion, almost half of total investment flows. The beautiful tourist island of Mauritius also provides 44 per cent of capital ‘invested’ in India, followed by Singapore at 9 per cent. This often occurs through ‘round-tripping’ where Indians, keen to evade and avoid taxes, park their wealth in Mauritius before ‘re-investing’ in India – tax free.
But Sithanen, the architect behind Mauritius' strategy to become Asia's leading ‘financial centre’ of choice, has the Organisation for Economic Co-operation and Development (OECD) backing his claim and removing Mauritius' name from the list of ‘, Mauritius has an ‘opacity’ score of 96 (where perfect transparency rests at 0 and perfect opacity stands at 100) following assessments of FS using 12 key indicators. This includes banking secrecy though a number of means: By not placing details of trusts on public records, not sufficiently complying with international regulatory requirements nor requiring that company accounts be available on public record, and not maintaining company ownership in official documents. The country has few tax information agreements, allows for company re-domiciliation and protected cell companies, and does not provide adequate access to banking information.
Queries into this cesspool of secrecy are effectively blocked, as even bilateral treaties require separate court orders for disclosure. ‘Whenever a judge asks for information from Mauritius during an investigation, there's no response,’ revealed investigative anti-corruption magistrate Renaud van Ruymbecke of the Paris Pole Financier du Tribunal. ‘I recommend Mauritius and Singapore to those with dirty money to launder.’
Posing as a citizen anxious to shift my own wealth offshore to exempt profits from taxes, I was informed by OCRA Worldwide, an internationally respected corporation peddling offshore shelf companies, that it could be done with as little as an ID, a credit card statement showing my proof of address, and curriculum vitae. Potential investors must sign an application form, provide consent of shareholder and director, and reveal ‘the source of funds, financial forecast and geographic location of business,’ amongst other requirements.
In my initial correspondence, I stated that the ‘business in question yielded significant profit, but the owners, fearful of the political climate, would like to shift their profits to a jurisdiction with high levels of client confidentiality and low tax rates.’ The source of my funds? Massive profits generated from… egg cartons. And just in case my lucrative ‘egg carton’ business might be caught out, the manager kindly responded to my anxious statements saying, ‘There is information-sharing only on money laundering and terrorist matters; otherwise, all information remains confidential.’ I was also told that although the tax rate for companies is officially 15 per cent, this could be reduced to zero by opting for the Global Business Company (Category II). At the bottom of the first page of the application, the document states: ‘Company services for private clients only: privileged information.’
The box-ticking exercise in Section Two of the application form reveals why Eva Joly – the former investigative anti-corruption magistrate who cracked the Elf Affair1 – burst out laughing when describing how ‘nine nominees can administer 1,500 companies.’ The questions in Section 2 are:
Would you like OCRA Worldwide to arrange for the appointment of professional directors to this company?
Would you like OCRA Worldwide to provide nominee shareholders for this company?
Would you like OCRA worldwide to assist in the establishment of a trust or foundation to own this company?
A simple yes or no does the trick.
It's not just India that suffers from the US$1.6 trillion draining maldeveloped nations of revenue due to round-tripping. Many multinationals exploiting African resources – often cheapened through the IMF-imposed policy of ‘tax competition’ – extensively utilise Mauritius. And Mauritius seems bent on establishing itself as Africa's financial ‘gateway’ for foreign investors.
One example of such draining, as quoted in Faim et Développement Magazine, was described by Joly (currently president of the European Parliament's Development Committee) who revealed that ‘Zambian copper producers make use of Mauritius to export its copper. An offshore subsidiary buys Zambian copper at €2,000 per tonne to resell at €6,000. €4,000 of profits are retained by the subsidiary…untaxed. Under this arrangement, the Zambian government doesn't get a single Euro of tax on the profits.’
‘According to our sources, including a Swiss banker, Mauritius is attracting a lot of dirty business migrating out of Europe in response to the EU savings tax directive. European banks are enlarging their offices in Port Louis because they regard the government there as pliable and largely indifferent to the OECD processes,’ stated John Christensen, founder of TJN and former senior official of Jersey, a major secrecy jurisdiction. ‘Mauritius is, therefore, rapidly emerging as a major centre for money laundering and tax evasion and avoidance in the southern hemisphere,’ he added.
But it is unlikely that the OECD would curb this kind of structural injustice which is embedded within the global financial architecture because most ‘developed’ nations on the OECD's member list are systemically powerful onshore ring-fenced ‘treasure islands,’ on the receiving end of US$385 billion in corporate evasion and avoidance from developing countries annually. Such examples include the US (through the state of Delaware); the UK (controlling more than a quarter of tax havens globally through overseas territories operating from the City of London with an FS at 9 per cent/GDP); and Switzerland (washing one-third of illicit flight with an FS at 15 per cent/GDP).
Yet according to the OECD, ‘Since May 2009, no jurisdiction is currently listed as an uncooperative tax haven by the Committee on Fiscal Affairs.’ Cooperation itself is limited to bilateral tax arrangements, dealing specifically with terrorism as well as hard evidence pertaining to tax evasion.
This was echoed by French President Nicholas Sarkozy who stated in September 2009: ‘There are no tax havens anymore.’ He was no doubt keen to shift attention away from Monaco (FS 15 per cent/GDP), the playground refuge for the rich and wealthy, situated on the French Riviera. Monaco's foreign clients are more than triple the number of Monaco's citizens, chiefly from France. Not only does Monaco share banking information only with France, but Monegasque authorities are able to access this information in accordance with France via treaty arrangements, favouring the latter, and thereby preventing authorities and regulators from accessing the legal and financial details of 3,950 offshore companies and 725 trusts under Corporate Service Provider (CSP) management (2002), revealed a TJN study.
When charting illicit flows – defined as money illegally generated, transacted or utilised through methods of tax avoidance and evasion – onshore and offshore ‘treasure islands’ have acted as conduits. According to analysis by Tax Justice Network assessing data produced by Merrill Lynch/CapGemini, Boston Consulting, McKinsey and the Bank for International Settlements, at least US$13 trillion in private wealth has been concealed, siphoned by tax evaders and avoiders to secrecy jurisdictions. If taxed at a moderate 7.5 per cent rate of return, offshore assets – increasing at 9 per cent per annum and constituting a significant portion of OECD ‘donor country’ GDP – would yield US$865 billion dollars annually.
But mandatory information exchange, previously scrapped from the IMF's Articles of Agreement, is marginalised as impractical. Ironically, the OECD's ‘on request’ bilateral tax arrangements have been publicly discredited by entities peddling supply-side corruption. ‘This exchange can only take place if the individual can be identified, the bank account can be identified and sufficient evidence to prove evasion is provided to the Swiss courts. There is no automatic exchange of information and 'fishing trips' are specifically excluded,’ revealed Switzerland's Louvre Group, with branches in London, Geneva, Cayman Islands, Guernsey and Hong Kong. The statement, available on their website for potential customers to peruse, renders the law a mockery.
The narrow geography of ‘corruption’ has been limited to behavioural ‘demand-side’ activities i.e.: Corruption on the part of state officials for public gain. This definition was launched by corruption watchdog Transparency International, and ratified by resource-seeking and financial multinationals, and developed governments – systemic providers of supply-side corruption such as the Louvre Group.
And because Africa's often ineffective tax and revenue administrations have been structured to serve as recipient vessels of Large Taxpaying Units (LTU), multinationals – Africa's primary ‘renters’ conducting 60 per cent of global trade, within rather than between corporations – are easily able to exploit vacuums. This includes using self-regulated ‘arms length transfer’ pricing principles, designed by the International Accounting Standards Board (IASB) as a mechanism motivating for market price. But there is no external body to hold them to account because .
In 2006, the IASB rejected CbC, a version of which already functions smoothly in the US, monitoring corporate activities such as taxes and other revenues remitted to the state, imported materials, labour, and the basis for determining profits, pricing goods and allowable costs, amongst other details. ‘A member stated, “This looks like it deals with transfer pricing, and we don't want to go there”’, revealed Murphy. High-level research by the TJN reveals that 99 per cent of the 97 largest quoted companies in France, the Netherlands and the UK use secrecy jurisdictions while a further 80 per cent of 476 companies surveyed in another study declared transfer pricing crucial to corporate strategy. Paradoxically, ‘first world’ secrecy jurisdictions feature at the top of TI's ‘clean lists,’ while African nations in particular, almost uniformly occupy the bottom ranks.
The paradox of ‘donor countries’ actively incentivising the flow of illicit flight was interrogated in depth by Washington-based and contributor to the under a different title.
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 The ‘Elf Affair’ was Europe's biggest corruption scandal since the Second World War. It was rooted in Gabon and to a lesser extent, the Democratic Republic of Congo's oil industries, where laundering profits through secretive offshore financing was made available to select segments of the French elite as well as Gabonese and Congolese officials.