Globalising economic apartheid

Published on Pambazuka News, by Khadija Sharife, December 15, 2010.

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’ … //

… 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.’ (full text).

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