President Hichilema’s call to action for the Zambian and regional mining sector must be followed up with a concerted effort to improve the ... domestic operating environment and bring along regional partners if it is to succeed.
We now have scores of fact-checked and compelling stories involving 35 current as well as former heads of state and more than 330 politicians worldwide drawn from every conceivable latitude and political system.
It gives us an unprecedented view of the use – by global elites – of offshore financial structures, institutions and techniques that offer secrecy, asset protection and tax exemption.
Wealthy foreigners do not want to hide their money in Africa, and wealthy Africans mostly want to get theirs out.”
This infrastructure is global. It includes tax havens such as Panama, Monaco, Switzerland and many British Overseas Territories, which have garnered bad publicity; numerous ‘onshore’ jurisdictions, such as the United States, which are revealed to be massive providers of offshore services; and Asian financial centres such as Dubai, Singapore and Hong Kong.
Advocates of offshore have long argued that the problem is its misuse. However, the Pandora Papers show that these practices are not an episodic violation of the system, but [are] the system itself.
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Africa’s ties to the leak
There is a strong African component to this global story. The Pandora papers investigation involved 53 African journalists from independent media working across 18 countries, often at great personal risk.
Their revelations, too numerous and politically significant to address in detail here, show that dozens of African politicians, businessmen and their families have substantial offshore holdings.
The investigation of President Kenyatta’s offshore empire shows extensive interests, including companies in the British Virgin Islands, the use of a private Swiss bank for transactions, and a foundation based in Panama.
Tax evasion seems like a secondary motive, as the rich and powerful in many African countries face little scrutiny by the tax authorities.
For many of these individuals and families, it is a desire for secrecy, asset protection and protection from criminal investigations.
Mostly, the revelations are not shocking. Many of these politicians were rumoured to hold fortunes abroad and that was taken for granted by their fellow citizens.
[African] leaders often control the courts and the mainstream media, and in most cases will argue that holding an offshore account or foreign assets is not illegal per se.
Some, like President Denis Sassou-Nguesso, have recently been the subject of damning investigations. Other research has shown a correlation between aid inflows and capital outflows as well as the economic damage [resulting from] capital flight out of Africa.
However, the authoritative evidence we now have is qualitatively different from the hearsay and speculation on offshore holdings. The Pandora Papers, with other major leaks since the ICIJ’s Panama Papers in 2016, provide a detailed portrait of the mechanisms designed to siphon off and hide away African wealth.
We can identify at least four lessons for Africa from the Pandora papers:
- The first is [how] Africa doesn’t stand out amidst this global trend. Africa is now fully integrated in the global offshore economy. This is a negative dynamic for African development as its much-needed capital leaks into other parts of the global economy, [which shows that] financial globalisation has somehow bypassed the continent.
- Second, the role of apparently reputable professional enablers in major financial centres is pivotal. None of this could happen without an army of real estate agents, accountants, wealth managers, company-formation executives, management consultants, PR operators and lawyers, as well as the politicians who establish the amenable regulatory environment in which they function with impunity. These service providers offer African Politically Exposed Persons (PEPs) the tried and tested offshore strategies [that have been] available to their worldwide client base for the past decades.
- Third, many African leaders are agents in this process even as their populations are victimised by it. The class status of the high-powered Africans featured in the Pandora Papers matters. Their relationship with the service providers who enable the laundering of their monies and reputations is collaborative. Offshore benefits the global rich and powerful wherever they may be from.
- Finally, there is a conspicuous absence. Africa is enmeshed in the offshore world, but other than Mauritius, Seychelles and a few other exceptions, it doesn’t itself “do” offshore. African states are perceived as too politically fraught, and their banks and courts too unreliable, to provide the certainty expected from offshore financial centres. Wealthy foreigners do not want to hide their money in Africa, and wealthy Africans mostly want to get theirs out. This means the continent bears all the ills from the global offshore economy without any of the dubious benefits that others have derived from it.
What is the likely fallout from the Pandora Papers?
It is doubtful that it will have immediate consequences for the domestic politics of most African states.
Leaders often control the courts and the mainstream media, and in most cases will argue that holding an offshore account or foreign assets is not illegal per se.
Popular cynicism about how public-spirited the leadership […] was can also lead towards apathy about such revelations. Still, these can further delegitimise the status quo, especially in the eyes of younger generations.
In western financial centres, it is hoped that the Pandora Papers will not just damage the reputations of those [who have been] outed, but may also unleash regulatory change that will come down hard on enablers. They must bear legal responsibility for their indispensable roles in advancing the interests of global kleptocrats.
The critical offshore infrastructure has for decades resided in the West. This includes lesson-giving donors such as the USA and the UK whose hypocrisy is in retrospect breath-taking. They must clean up their act now.
Reform in OECD economies, however crucial, would still leave major gaps in the international financial system, if it falls short of truly systemic transformation.
The globalisation of offshore means that it is thriving in many parts of the world where the reputational damage that results from the likes of the Pandora Papers, so feared by easily bullied, small Caribbean tax havens, is seen as manageable.
In places like Dubai or China-protected Hong Kong, there is for now robust support by strong authoritarian states for secrecy, low taxation and light, permissive regulation as well as the sense that there is a competitive advantage to be [gained] from deploying them. African PEPs have noted that, with capital flight following suit. The fight is just beginning.
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