Entrepreneurs and government officials in 52 of Africa’s 54 countries are using secret offshore companies to hide corrupt dealings and stash away billions of dollars, a major investigation reveals.
The International Consortium of Investigative Journalists (ICIJ) says the Panama Papers, a leaked cache of 11 million legal documents from the Panamanian law firm Mossack Fonseca, exposes the large-scale plunder of Africa.
The revelations come two weeks before former South African president Thabo Mbeki is due to lead a panel discussion on illicit financial flows at the 77th biennial conference of the International Law Association, scheduled for the Sandton Convention Centre, in Joburg.
A UN High-Level Panel on illicit financial flows, chaired by Mbeki, has bemoaned the proliferation of “secrecy jurisdictions” – offshore tax havens which shelter disguised corporations and shell companies that exist on paper only.
These jurisdictions also operate anonymous trust accounts and fake charitable foundations, which specialise in money laundering and trade over-invoicing and under-pricing.
The African Development Bank says between $1.2 trillion and $1.4 trillion has left Africa in illicit financial flows between 1980 and 2009 – roughly equal to Africa’s current gross domestic product and surpassing by far the money received by the continent from outside over the same period.
According to the latest ICIJ investigation, shell companies are used to hide profits from the sale of natural resources and the bribes paid to gain access to them.
Owners of the hidden companies include, from Nigeria alone, three oil ministers, several senior employees of the national oil company and two former state governors, who were convicted of laundering ill-gotten money from the oil industry.
Owners of diamond mines in Sierra Leone and safari companies in Kenya and Zimbabwe have also created shell companies. Huge amounts of money siphoned through shell companies were used to buy yachts, private jets and luxury homes in the US and Europe.
Mossack Fonseca, which facilitates the creation of secret companies, says it should not be blamed for wrongdoing by its clients.
“We merely help incorporate companies, and before we agree to work with a client in any way, we conduct a thorough due-diligence process,” the law firm said. It had not been charged with criminal wrongdoing in nearly 40 years of operation.
But despite the denials, the investigation showed the law firm had sometimes missed or ignored evidence of criminal investigations or charges against its clients.
Although the records show Mossack Fonseca did scrutinise many of those who sought its services, its reviews were often belated or incomplete.
In one major criminal case, Farid Bedjaoui, a nephew of a former Algerian foreign minister, has been accused by Italian prosecutors of arranging $275m in bribes to help Saipem, an Italian oil and gas services company, win pipeline contracts in Algeria worth $10 billion.
Bedjaoui, dubbed “Mr Three Percent” in news media reports for his purported share of the pay-offs, has denied the charges.
The journalists’ consortium found Mossack Fonseca had created 12 of the 17 shell companies linked to Bedjaoui that Italian prosecutors are investigating as possible conduits for bribes from 2007 to 2010. One of them, Collingdale Consultants, was used to divert as much as $15m to associates and the family of Chakib Khelil, Algeria’s energy minister from 1999 to 2010, according to the charges.
Bedjaoui, who has Algerian, French and Canadian citizenship, is accused of spinning a complex web to hide his money, with 16 bank accounts in Algeria, Dubai, Hong Kong, Lebanon, London, Singapore and Switzerland. His assets have been seized in Canada and France, where the police reportedly took a yacht and paintings by Warhol, Miró and Dalí.
US officials are examining three New York properties bought by Bedjaoui, including a $28.5m Fifth Avenue condominium, the records show.
Kola Aluko, an oil and aviation mogul and one of four defendants accused of helping to cheat the Nigerian government out of $1.8bn in proceeds from oil sales, was another jet-setting user of Mossack Fonseca’s services who was examined in the journalists’ investigation.
Last year, it was reported that Aluko had used his shell companies to buy two Beverly Hills, California, mansions for $39m and two others in Santa Barbara, California, for $33m.
In May, shortly after one of the Beverly Hills homes was sold for $21m, a Nigerian court froze Aluko’s assets, including a yacht once rented by music superstars Beyoncé and Jay Z; two Manhattan, New York, penthouses; 132 houses and apartments in Nigeria, $67m in bank accounts, 58 cars and three planes.
Aluko told the journalists’ consortium he had never been convicted of a crime and that speculation about wrongdoing on his part was “misguided”.
“As a private citizen, I organise my business and family matters to maximise convenience, as well as operational and administrative efficiency,” he said.
In another case, the consortium of investigative journalists found 131 companies set up by Mossack Fonseca for the Israeli mining magnate Benjamin Steinmetz and his holding company.
The holding company, BSG Resources, told the journalists’ consortium that it had “no familiarity” with many of the companies.
BSG Resources has previously been mentioned in Zimbabwe’s diamond mining scandals, where gems worth $15bn were looted. However, no evidence has ever been presented linking the company to the corruption.
Another company associated with the Israeli tycoon, Koidu Limited, mines diamonds in Sierra Leone and is the target of protests and complaints from local residents and environmental advocates.
More surprising, perhaps, is the use of shell companies by safari operators in several African countries – at least 30 offshore companies set up by Mossack Fonseca, the consortium found.
As in other African ventures, the offshore operations make it possible to conceal money earned in developing countries but moved elsewhere to hide it from the tax authorities or the public.