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Sanctions-busting was a game perfected by the apartheid regime, but modern-day corporates are also adept at finding ways to exploit Africa's minerals, writes Khadija Sharife.

Collective-security organisations such as the United Nations depend on sanctions as political tools designed to bring deviant regimes to heel, providing incentive through non-military means a return to international frameworks. Yet the presence of tax havens, whether specialising in corporate or maritime services, consistently undermines national and international rule-of-law.

This was the case with the capitalist apartheid regime in South Africa, who circumvented oil sanctions through the 'socialist' government of Seychelles. The Iranian revolution evidenced the fall of the US-backed Shah, depriving the apartheid regime of secure oil supplies. In order to counter international resistance and bypass the country-specific sanctions, the South African Treasury deposited, for instance, R320-billion from 1978-1994 into the South African Defense Force’s ‘special defense account’, used not infrequently for the ‘control of sanctions and disinvestment’.

Through key persons such as Giovanni M. Ricco, head of the Seychelles Trust Company (STC) - granted the sole right by the government of Seychelles to incorporate offshore entities - the island quickly became one of three crucial oil trans-shipment centers, alongside the US Virgin Islands.

Ricci established another company called GMR (after his initials), which specialised in oil and other strategic commodities, with operating hubs in major tax havens such as Luxembourg, the UK, Switzerland and Panama. One operating location was based in apartheid South Africa and headed by one of the country's leading intelligence agents, Craig Williamson.

Other companies like apartheid South Africa's Anglo-American - at the time, the world's largest producer of gold and diamonds - bypassed sanctions conducting trade and investment and expanding into global markets by locating the company in other tax havens such as the Luxembourg-based Minorco, a $2 billion international holding company controlled in large part by Anglo (39 per cent), De Beers (21 per cent) and the Oppenheimer family.

The company, initially based in Bermuda, would soon become a major investor in developed countries, investing or accumulating over 100 companies from the 1970s onward, including US financial and mining interests, ranging from Wall Street's Salomon Brothers to zinc mines in the Yukon.

By pyramiding holding companies in jurisdictions characterised by secrecy, the corporate beneficiaries of the apartheid regime were able to access resources and labour on the cheap, while easily navigating global sanctions.

Not much has changed when it comes to the use of secrecy jurisdictions as a means of looting African minerals. Until recently, Sierra Leone’s diamond industry was dominated by two firms: SLDC and Koidu Holdings. The latter was wholly owned by two entities based in tax havens, both of which are directly connected to the UK: Guernsey and the British Virgin Islands (BVI) through BSG Resources, recently implicated as a potential funder for Zimbabwe's Marange fields (via Canadile).

BVI offers complete tax exemption to foreign businesses via tax avoidance - a technically legal mechanism, it enables companies to engage in mis-pricing through ‘management’ fees, as well as the probable use of thin capitalisation - internally loaning high interest capital to subsidiaries and thereafter seeking repayment in tax havens. BVI also provides foreign clients with nominee shareholders, concealing the beneficial owner; complete lack of disclosure; and the use of bearer shares enabling clients to determine ownership through physical possession of shares with no paper trail.

As Fidelity Corporate Services stated, bearer shares ‘represent the ultimate way of ensuring the anonymity of offshore company owners’. To better state the obvious, Fidelity articulated why corporations should maintain entities in tax havens: ‘Tax avoidance generally means creating and organising such business structure which would pay minimum possible amount of taxes without breaking the law. All international offshore financial services industry which is functioning on a legal basis is about tax avoidance and not about tax evasion.’

In this instance, ‘minimum’ really means zero. Similarly, Frank Timis's SLDC, operating in Sierra Leone in the midst of the civil war during the 1990s (then under the name of Africa Diamond Holdings) exploited resources through the Bermuda-based company African Minerals Limited.

So while each year the continent is estimated to lose $148-billion in flight, accounting models do not factor in the billions lost to tax avoidance. The result is a type of poverty that is artificially created, artificially sustained and wholly lethal. As Dennis Fletcher, head of apartheid SA's Caltex (part of then-US corporation Texaco, currently Chevron) stated, ‘Although we are effectively prevented from buying oil openly, we still get exactly what we want.’


* This article first appeared in The New Age.
* Khadija Sharife is Southern Africa correspondent for The Africa Report.
* Please send comments to [email protected] or comment online at Pambazuka News.