With the revelations of the scandalous Panama Papers, Luke Humphrey looks at the detrimental effect of tax avoidance and other economic crimes outside of the Western World.
Last month the world got a glimpse of the secretive and complex economic arrangements set up by some of the developed world’s most powerful people. However these economic crimes (or economic immoralities as they may also be known) not only effect developed nations, but developing countries such as Zambia, Somalia and the Democratic Republic of Congo (DRC) as well.
It’s no secret that in developing countries and failed states fraud and bribery amongst political figures is common, however we now have irrefutable evidence that it is perhaps just as common in developed countries as well. The actions of many Northern companies such as Associated British Foods, Walmart, Primark and Shell all committing economic and social crimes in developing countries due to them having little regulation and law on tax, health and safety and environmental degradation.
Perhaps one of the most famous tax avoidance crimes was by Associated British Foods, depriving the Zambian government of millions every year through lucrative tax loopholes involving tax havens in Ireland, Mauritius, Holland and Jersey ultimately ended up paying “virtually no corporation tax”. According to The Guardian, this has seen Zambia lose up to $27 million in tax each year from Associated British Foods. The avoidance not only damages the Zambian Government, but also locals in the surrounding area, who have to compete with a sugar trade giant which creates pre-tax profits of up to $123 million each year. This story is common in relationships between developing countries and Northern companies. However, the main reason this story came to light is due to ActionAid finding evidence of the Associated British Foods tax avoidance. So much like the Panama Papers, these companies can only be held to account once someone has spent years trying to unravel and release their economic crimes (and even then, as seen with the Associated British Foods case, and almost every other story of tax avoidance by the world’s most powerful, little is done to hold them to account for their actions).
Whilst in the UK we are calling for our MPs tax returns, people in Zambia, the DRC, Nigeria and Somalia have no voice to demand answers from their political and economic elites. But it’s not just tax avoidance these developing countries suffer from as a result of exploitative relationships with some of our best known brands. European and Asian trawlers are often accused of raiding and plundering fishing stocks off the coasts of Somalia and Senegal due to their unregulated surrounding sea. Elsewhere oil companies are accused and under investigation for various crimes including toxic waste dumping by oil trader Trafigura in the Ivory Coast – ending up in a €1 million fine for unlawfully dumping. In Nigeria, Africa’s largest oil producer, pumping out 2.5 million barrels of oil per day, 12 foreign oil firm executives came under investigation in 2011 by the country’s Economic and Financial Crimes Commission due to alleged bribes of up to $100 million. There is no doubt that in these countries, and many other developing nations, Northern companies exploit their lack of voice to commit economic crimes similar to those that have occurred in Nigeria, Zambia, Somalia, the DRC, Ivory Coast and many more.
But why these countries? Unlike Panama, Mauritius or Luxembourg, these countries aren’t considered tax havens where the richest of the world can hide away secret bank accounts. These countries do usually have tax legislation on income, inheritance and corporations, which are enforced across the nation. However these are some of the most fragile and instable nations in the globe – Somalia and the DRC alone are often referred to as ‘failed states’. Therefore bribing political officials, dumping toxic waste or funnelling pre-tax profits to tax havens is easily done, as the people and governments of these countries have little, if any voice on these matters. Like Panama, it is the richest white-collar workers who elevate themselves above the law, feeding on loop holes and insecurity. Yet in the cases in Zambia, Nigeria, Somalia and many more, the people cannot demand answers and force tax return information to be made public, subsequently pushing out the political elites who have committed these crimes like we have seen in Iceland.
So when considering the effects of the Panama papers and tax avoidance in the UK-which is estimated to cost HMRC £16 billion a year – we also have to consider the damning amount of exploitation of fragile and unstable states around the globe who have no say on the actions of their political and economic elites. Economic crime by the world’s most powerful is not just a crisis for the developed world, but for the world’s poorest countries as well.
The views expressed in this article are those of the author and do not necessarily represent the views of Development in Action.
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