home Stories #ParadisePapers: How WMC Drained South Africa of $209 bn (~R3 trillion)

#ParadisePapers: How WMC Drained South Africa of $209 bn (~R3 trillion)

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What is the #ParadisePapers Leak?

Washington DC based International Centre for Investigative Journalism (ICIJ) has reported a vast new trove of 13.4 million leaked financial documents ‘Paradise Papers’ sourced from German newspaper, Suddeutsche Zeitung, of nearly seven decades, from 1950 to 2016, exposing the offshore activities of more than 120 politicians and some of the major companies with their CEOs around the world. The #ParadisePapers expose proves revolving doors between the political establishment and WMC corporate leadership communities in South Africa. ANC Presidential candidate Cyril Ramaphosa had approved offshoring deals for Lonmin and Shanduka during his time as an equity stakeholder and a board member. Pravin Gordhan had teamed up with: Trevor Manuel and Maria Ramos to offshore money for SABMiller and Standard Bank, with Graham Owen O’ Connor for SPAR and a slew of white managers for ASPEN that has 71 companies in Mauritius. The illicit money offshored from South Africa to tax havens between 2004 and 2013 amount to $209 billion, an amount that is capable of running the country for three years.

How ‘White Capital without Borders’ Flew Out of South Africa?

The #ParadisePapers expose serves empirical evidence to the research findings of Prof. Brooke Harrington at the Copenhagen Business School. Prof. Harrington in her seminal work “Capital without Borders- Wealth Managers and the One Per Cent” published in the year 2016 had theorized the modus operandi of flight of capital to tax havens with secret jurisdictions routed through wealth managers that advise power elite clientele on tax evasion by exploiting weak links in the policy design. Mounting evidence on offshoring by Cyril Ramaphosa, Pravin Gordhan, Trevor Manuel, Maria Ramos and Ivan Glasenberg bears testimony to the ability of the WMC lobby to leak wealth away from South Africa by exploiting bottle necks in policy design of the business regulatory framework.

How Did The Tax Payers’ Money Leak Out of South Africa?

Money was leaked out of South Africa by deploying an offshoring strategy to meet objectives of tax avoidance thus opening up avenues for economic crimes:

  • Transfer Pricing – “The Economist” defines transfer pricing as the prices assumed, for the purposes of calculating tax liability, to have been charged by one unit of a multinational company when selling to another (foreign) unit of the same firm.
  • Tax Evasion – “The Economist” defines tax evasion as doing everything possible within the law to reduce your tax bill.
  • Underground Economy – “The Economist” defines underground economy as if you pay your cleaner or builder in cash, or for some reason neglect to tell the taxman that you were paid for a service rendered, you participate in the black or underground economy.

A conservative estimate by Boston Consulting Group (BCG) puts leakages at $10 trillion. Assuming 1% of the $10 trillion is added to South Africa’s GDP of $294.841 billion, it shall raise prospects of outlays on health, education, homes for the poor and major poverty eradication measures.

Paradise papers illicit segregation data

 

Who are the Biggest Tax Evaders Of South Africa?

Cyril Ramaphosa

Cyril Ramaphosa held major equity stakes and board membership in Lonmin. He approved offshoring deals to secret tax havens. Lonmin had transferred over R2.3-billion in fees to two of its subsidiaries, one called Western Metals Sales Limited in Bermuda and another called Western Platinum Limited in South Africa. Between 2008 and 2012, Western Platinum Limited paid $162 million (around R1.2 billion) in “commissions” to Western Metals Sales.

Lonmin

Ramaphosa also held equity stake and board membership at Shanduka.

Shanduka engaged with Investec to seek advisory on dodging taxes on profits made from an energy deal in Mozambique by offshoring money to Mauritius.

Shanduka

Investec

 

‘Pravin Gordhan-Trevor Manuel-Maria Ramos’ Combo

Pravin Gordhan had teamed with his former Finance Minister colleague and WMC tycoon, Trevor Manuel and the latter’s wife Maria Ramos to offshore money from SABMiller. SABMiller had set up operations in secrecy jurisdiction of Mauritius to dodge taxes.

SABMiller

Pravin Gordhan again teamed with Trevor Manuel and his wife Maria Ramos to offshore profits from Standard Bank. Standard Bank arranged a US$70-million facility for the purpose of refinancing Zambia Sugar Plc, a subsidiary of Illovo Sugar Limited for a tax avoidance of 34.5%.

Standard Bank

SugarIllovo

 

‘Pravin Gordhan-Graham O’ Connor’ Combo

The third offshoring enterprise of Pravin Gordhan is SPAR. At SPAR, Pravin Gordhan teamed up with white managers led by CEO Graham O’ Connor to devise special purpose vehicles in tax havens. SPAR CEO Graham O’ Connor has confessed to offshoring money to a newly created shell company in Isle of Man.

SPAR

 

‘Pravin Gordhan-Stephen Saad’ Combo

Pravin Gordhan’s fourth WMC enterprise to offshore wealth was ASPEN. Aspen owns and operates a stunning 71 companies through Mauritius, a pivotal “secrecy jurisdiction” with low tax rates.

Aspen

 

Ivan Glasenberg

Ivan Glasenberg, the CEO of Glencore, the largest JSE-listed corporation, approved a loan of $45 million to Israeli billionaire Dan Gertler to finance coal mine acquisitions and mining licenses in the Democratic Republic of Congo through connections in public offices. Glencore has been accused of state capture in Congo through illicit offshoring of money for tax avoidance.

Glencore

 

SANLAM, FNB & Liberty: BFSI Vertical Under the Seizure of Corrupt White Managers

The entire BFSI (Banking, Financial Services and Insurance) vertical in South Africa is literally under the seizure of corrupt white managers. Three of biggest BFSI corporations in South Africa: Sanlam, FNB and Liberty have offshore money from South Africa to secret tax havens.

SANLAM

FNB

Liberty

 

How Has Corruption Bled South African Economy Of its Resources?

At the macroeconomic level, tax avoidance imposes significant costs on the South African economy in several ways:

  • Tax revenue collections have outperformed the economy, representing a growth of 8.5% from the 2014/15 fiscal year, and increasing the estimated tax to GDP ratio from 25.8% in Budget 2015, to 26.3% as projected in Budget 2016. Surprisingly small business sector provides the largest share of revenue, with 68 per cent compared to 32 per cent from large businesses. Collections from large businesses contracted year on year by R0.7bn (0.2%).
  • The deliberate tax avoidance by large corporations in South Africa compels the government in South Africa to rely on debt financing. The debt to GDP ratio of South Africa has been rising steadily from 28.3% in 2006 to 51.7% in 2016.

Mist on the Screen of South Africa

WMC corporations and leaders like Cyril Ramaphosa, Pravin Gordhan and Ivan Glasenberg offshoring money to avoid taxes begs questions on accountability to investors and the absence of enlightened democracy in white corporations and politics of South Africa. The enormity of the crisis assumes alarming proportions given that a corrupt man like Cyril Ramaphosa is now gunning for ANC leadership and Presidency in South Africa. Availability of information is the oxygen that a democracy breathes. Tax avoiding WMC are robbing South African democracy of its oxygen. There is mist on the screen of the South African economy.

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  • Geepee

    Oh my word 🙁