As Europe Tightens Oversight, Spotlight Must Remain

March 5th, 2014

Just last month, the European Parliament took a step towards genuine financial transparency, by passing a committee vote that would require centralized registers of the beneficial owners of all companies in the European Union.

These registers would unravel the layers created when companies spin complex ownership webs that make it difficult to really know who owns a company, or where profits are actually going. Additionally, the new oversight would help expose multinational corporations that use the same tactics to evade taxes in developing countries where they operate.

With a universal public register, government officials, civic groups, and journalists will have a much easier time following the money trail. Tax revenue that rightly belongs in the coffers of developing nations can be more readily identified, so that it may be reinvested to carry out infrastructure projects, and health and education initiatives.

But, as Europe tries to sharpen its regulatory teeth, it’s vital that other regions, like Africa, don’t soften their resolve.

Jeff Mbanga, a Ugandan journalist, recently wrote about how the vote in Brussels will be felt throughout African nations, even if it may be overlooked by many:

By trying to rein in shell companies, the European Parliament is dealing with a powerful force with a strong lobby. Top bankers, oil barons, telecom giants, name it, in one way or another have connections to shell companies. Their strong lobby group will be at work to see that they beat these rules.

Should they find any trouble, these lobby groups are likely to turn to Africa. The businessmen behind the shell companies are already looking at ways of influencing policy that could turn some countries in Africa into tax havens

The current system sees tax-dodging companies siphon money out of African states, where they do business, back to their safe zones, which often lie in the vaults of European tax havens, like Switzerland, Austria, and the U.K., or in far-flung island-nations like the Virgin Islands.

. . .there are many firms operating in Uganda with jurisdictions that are located in areas known to be tax havens.

There are multinational firms in Uganda today with offices incorporated as headquarters in such areas like the Isle of Man, the Virgin islands, just to mention a few. A number of these companies are involved in Uganda’s natural resource wealth.

For instance, Heritage Oil Plc (formerly active in the Albertine Graben) is incorporated in Jersey, while East African Mining, which is prospecting for gold in Karamoja, is a subsidiary of East African Gold in Jersey. There are many more.

But, if EU backed regulation begins to throw wrenches into a business model that relies on lax regulation and ownership opacity, it’s only logical that these corporations look toward new tax havens.

Why not choose a place where they’re already doing business?

The island of Mauritius has been seen as Africa’s main tax haven. However, the European businessmen will want to look further inland. Ghana and Kenya are the African countries that are being seen as potential targets. It could be easy to do that in Africa.

More importantly, Mbanga points out that any sort of rebuttal on the part of African leaders could make them susceptible to threats of the withdraw of future investment and development.

A push for policy change could be rolled together with a list of threats to quit the continent, and move their investments elsewhere, if the tax policies do not favour them. And yet, many African countries desperately need these investments.

The practice of using complex webs of ownership to funnel money to private bank accounts already has a place within the upper echelons of Africa’s political elite. As Europe tries to clamp down on the use of shell companies, it’s vital that the spotlight remains to make sure that a new region of tax havens doesn’t sprout up.

Written by Christian Freymeyer

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