The Global Game of Hiding Money
Eswatini, Dubai, Manhattan, North Dakota ... and many many more
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As Oxfam reminds us every year, the global gap between the ultra-wealthy and the rest of us is extreme and still growing. According to its latest report in January 2024, “The world’s five richest men have more than doubled their fortunes from $405 billion to $869 billion since 2020 —at a rate of $14 million per hour— while nearly five billion people have been made poorer.”
One reason is the political power that the ultrarich have within each country to shape the tax code and other laws. But perhaps even more significant is the ease of hiding assets, taking advantage of loopholes and lack of transparency to move money around the globe with clicks of a mouse on a computer.
These “illicit financial flows” have attracted more and more attention in recent years from social movements, governments, and investigative journalists. Meanwhile, climate change in particular has made the need to address global as well as national public goods more visible.
This issue of AfricaFocus Notes highlights three examples recently exposed by the International Consortium of Investigative Journalists (ICIJ), as well as a short article I published in 2021 noting how the U.S. federal system allows the ultrarich to make tax havens of U.S. states.
Just below I include links to other sources with additional in-depth background information. Note that a few of the links included in the sources below may be out of date.
Links for Additional Background Resources
http://africafocus.org/intro-iff.php
https://usafricanetwork.org/home/issues/stop-the-bleeding-africa/iff-resources/
https://bookshop.org/lists/stop-the-bleeding-illicit-financial-flows-and-tax-justice
How international gold dealers exploited a tiny African kingdom’s economic dream
Eswatini’s king professed to have a bold plan for a thriving economic zone. ICIJ uncovered two phantom gold refineries channeling millions of dollars to Dubai through it.
By Micah Reddy and Warren Thompson
April 15, 2024
https://www.icij.org/investigations/swazi-secrets/eswatini-mswati-economic-zone-gold-dubai/
Against a backdrop of rolling hills and sugar cane fields, a generous stretch of cleared land borders the small industrial town of Matsapha in central Eswatini, a tiny landlocked African country between South Africa and Mozambique.
Musa Motsa, a 51-year-old farmworker and father of six, grew up on this land. He and his family used to grow cabbage and other crops here and collected water from a nearby spring. But in 2012, they were forcibly removed — along with around 180 other people — to make room for a government-sanctioned “special economic zone,” or SEZ, called the Royal Science and Technology Park.
The “brainchild” of Eswatini’s king, Mswati III, and his “insatiable desire to help stimulate economic growth,” as one press release put it, the SEZ was meant to be an oasis for new business. Instead, grass and weeds are slowly reclaiming vacant plots. Wide, empty boulevards go nowhere, lined with streetlights that aren’t in operation. One lone building — a multistory government office complex — stands in a surreal ghost land of nearly 400 acres.
There are no remnants of the vibrant community where Motsa once lived. And there’s nothing pointing to the businesses that, on paper at least, are based here: mysterious gold refineries channeling millions of dollars to Dubai.
...
Ostensibly, the SEZ is home to two gold refineries: Mint of Eswatini Pty. Ltd. and RME Bullion Pty. Ltd. Neither of these refineries existed, however. Mint of Eswatini was a shell through which millions of dollars in suspicious transactions flowed, and RME was suspected of being a link in an illicit gold trading operation. The companies eventually set off alarm bells at the Central Bank of Eswatini and the Swaziland Financial Intelligence Unit, now known as the Eswatini Financial Intelligence Unit, an independent statutory entity within the kingdom that aims to “provide financial intelligence that safeguards the local and international financial system” from money laundering, terrorism financing and other illicit activity.
Eswatini’s “special economic zone,” the Royal Science and Technology Park. Image: Yeshiel Panchia / ICIJ
Leaked documents reveal that Eswatini’s authorities were concerned that the gold refining companies were exploiting the SEZ’s loopholes to evade taxes, illegally move money abroad, or potentially move illicit money through the kingdom. Rather than drawing in productive investment and spurring economic growth, the SEZ may have turned the country into a hub for money laundering, the central bank and EFIU feared. The activities of two figures close to the king concerned the EFIU: Swazi jeweler Keenin Schofield, one of King Mswati III’s sons-in-law, who was once found guilty of and fined for diamond smuggling, and Alistair Mathias, a secretive and politically connected Canadian businessman involved in gold trading and construction.
Over 890,000 leaked documents from the EFIU were obtained by Distributed Denial of Secrets, a nonprofit devoted to publishing and archiving leaks, and shared with the International Consortium of Investigative Journalists and seven media partners as part of the Swazi Secrets investigation.
The documents show that in less than one month, from late November 2018 to mid-December 2018, 10 transactions worth about $4.7 million at the time (more than 67 million South African rands) were made from a murky South African “cash-in-transit” company to Schofield, who then sent about the same amount to Mint of Eswatini in the SEZ, from where the money went on to Dubai, United Arab Emirates. Eswatini’s authorities deemed the transactions suspicious.
US prosecutors push to seize apartment tied to Congolese president in luxury Trump complex
Embezzled public funds were allegedly used to purchase the Manhattan apartment for the use of the daughter of one of Africa’s longest-serving authoritarian leaders.
By Nicole Sadek
April 9, 2024
U.S. authorities are looking to seize a $7.1 million Manhattan apartment as part of a corruption probe into the Republic of Congo’s first family, court documents show.
In a forfeiture complaint filed in March, federal prosecutors allege that “funds embezzled from the state coffers” were used to purchase the luxury apartment at Trump International Hotel & Tower for the use of Claudia Lemboumba Sassou Nguesso, the daughter of the Central African country’s longtime, scandal-plagued president.
The complaint describes how a web of shell companies, ultimately owned by Sassou Nguesso, was allegedly used to funnel millions of dollars out of the Republic of Congo, with some of the money invested in the two-bedroom apartment overlooking Central Park. Prosecutors say the property has remained unoccupied since it was purchased in 2014.
At the center of the case is Sebrit Ltd., a Cypriot company that prosecutors say was subcontracted to carry out a geological mapping project for $19.5 million. The money for the public works was allegedly siphoned from the Congolese treasury through “sham” contracts and offshore entities before roughly a third was used to purchase the apartment for Sassou Nguesso’s “personal enrichment,” prosecutors claim.
An incorporation document obtained by ICIJ shows that Sebrit was formed as an “investment company.” It does not indicate that the firm could perform the duties outlined in its contract.
Jose Veiga, a Portuguese businessman described as a “fixer” for the Congolese president, is accused of playing a key role in the scheme, which was uncovered in 2019 by the NGO Global Witness. Construction firm Commisimpex mounted a case against the Republic of Congo soon after, but the case has since stalled.
ICIJ’s Pandora Papers revealed that the Sassou Nguesso family is no stranger to using offshore entities to reroute money. The leaked files showed that President Denis Sassou Nguesso, who came to power through a military coup in 1997, was behind a British Virgin Islands company that largely controlled the rights to the Republic of Congo’s diamond mines.
Global Witness also reported that the president’s son, Denis-Christel Sassou Nguesso, allegedly looted $50 million in state funds through inflated contracts with the Congolese government. Federal prosecutors filed a forfeiture notice in 2020 for an apartment he was linked to in Biscayne Bay, Florida. Both children have served at times as members of the parliament under their father’s rule.
Ian Gary, executive director of the Financial Accountability and Corporate Transparency Coalition, said the Trump International apartment was only the latest example of alleged “criminals or families of dictators” using anonymous shell companies to purchase property in the United States.
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How investment firms shield the ultrawealthy from the IRS
An ICIJ investigation examining hundreds of leaked tax forms offers a glimpse into the huge challenges the U.S. agency faces in tackling the favorite new global investment vehicles of the world’s most wealthy.
By Spencer Woodman
April 3, 2024
https://www.icij.org/inside-icij/2024/04/how-investment-firms-shield-the-ultra-wealthy-from-the-irs/
In 2015, the U.S. Department of Treasury hired an economist named Owen Zidar as a contractor to help a team of government officials examine a problem of growing urgency. The ultrawealthy were increasingly turning to intricate webs of companies and trusts to move their income in ways that auditors could hardly begin to understand. These distinctive new investment schemes are often called “large partnerships,” and they have become pervasive in the private equity funds and similar investment firms the rich have flocked to in recent years.
When the IRS granted Zidar access to its volumes of secret tax data, he was shocked by what he saw. Hundreds of billions of dollars held by the wealthiest people had become effectively hidden from agents in the murky partnership schemes.
“There was a staggering amount of wealth pouring into these opaque structures,” Zidar, now an economics professor at Princeton University, told the International Consortium of Investigative Journalists. “This is where the 1%’s rising share of income is going.”
After years of budget cuts, one of the world’s largest tax agencies was no longer enforcing tax laws for the ultrarich, it seemed to Zidar. The IRS was simply trusting them to pay their taxes.
Now, with a major infusion of funding, the IRS is embarking on an unprecedented effort to try to penetrate these hazy bastions of wealth. For years the agency has been understaffed and outgunned when facing rich taxpayers and their sophisticated financial structures. Its audit rate of large partnerships has hovered near zero percent. In 2022, Congress awarded the IRS $80 billion in part to fix this troubling trend. But this won’t be easy.
An ICIJ investigation examining hundreds of leaked IRS forms offers a glimpse into the often-hidden challenges the tax agency faces in tackling the favorite new global investment vehicles of the ultrawealthy. That review and interviews with more than a dozen former tax officials show an agency struggling with not only a shortage of experienced agents, but also with an entire regime of federal rules — some of those created by the IRS itself — that have enabled investors seeking secrecy to run circles around the agency. Accountants and lawyers who prepare these investors’ tax returns have eagerly exploited weak rules and years of lax enforcement to heap layers of secrecy between their rich clients and the IRS agents attempting to audit them.
The United States of Tax Havens
Like our billionaires at home, foreign oligarchs and despots are sheltering untold sums from taxation across our country.
By William Minter | November 3, 2021
https://otherwords.org/the-united-states-of-tax-havens/
William Minter is the editor of AfricaFocus Bulletin and an advisor to the U.S.-Africa Bridge Building Project. This op-ed was adapted from Africa Is a Country and distributed by OtherWords.org.
There are many ways in which the United States is not one country.
I’m not referring to red states versus blue states, or racial or ethnic divisions. What I mean is that the United States, where countless corrupt billionaires and dictators have stashed their loot, is not a single tax haven, but many separate tax havens.
The Pandora Papers, released in October, show that the United States is second only to the Cayman Islands in facilitating illicit financial flows. But it’s not a simple picture.
Each state and territory has its own laws and regulations about financial transactions used for tax evasion or money laundering. And both red states and blue states are destinations for those who seek to hide their money from tax collectors and public scrutiny.
President Biden’s home state of Delaware has long been renowned for its use as a tax haven, beginning in the late 19th century. Reliably Democratic in national politics, Delaware still ranks at the top among U.S. states providing secrecy for corporations and ultra-high-wealth individuals, both domestic and foreign.
But the Pandora Papers cite ruby-red South Dakota as an attractive destination for billionaires and others seeking to avoid estate taxes.
The International Consortium of Investigative Journalists (ICIJ), which led the Pandora Papers investigation, obtained access to the records of the Sioux Falls office of Trident Trust. Among its clients were the family of Carlos Morales Troncoso, former president of Central Romana, the largest sugar plantation in the Dominican Republic — which is notorious for its exploitation of Haitian workers.
South Dakota led the way in providing such trusts, as reported in detail even before the current revelations. But other states, including Alaska, Florida, Delaware, Texas, and Nevada, have followed suit.
The Pandora Papers also document the luxury real estate holdings of Jordan’s King Abdullah. Like many other politicians and oligarchs around the world, King Abdullah owns real estate in many places outside his country. The ICIJ found records of his purchases in London and Washington, D.C., among other cities, as well as three side-by-side mansions in a luxury enclave in Malibu, California.
Bottom line: those seeking to track down the hidden wealth that dictators, criminals, or jet-setting billionaires have lodged in the United States must not limit their efforts to supporting changes in national legislation in Washington, D.C. They must also turn the spotlight on state and local communities around the country.
In February 2017, for example, the Washington Post called attention to the fact that U.S. relations with Gambia and Equatorial Guinea were not just “foreign policy” but also a local story in Potomac, Maryland.
Ousted Gambian dictator Yahya Jammeh lived at 9908 Bentcross Drive in the D.C. suburb. His counterpart Teodoro Obiang Nguema, who has ruled Equatorial Guinea since his successful coup in 1979, still owns the house at nearby 9909 Bentcross Drive.
The effects of these mechanisms to hide assets from taxation and siphon money to the rich are felt at all levels — from the failure to address global crises such as climate change and the pandemic to gross inequality in housing and other essential needs.
Exposing those mechanisms and building the political will to curb illicit financial flows requires action not only in national capitals and global institutions, but also in all the jurisdictions where wealth is hidden. Nowhere is this more true than for the United States.
In Washington, this message from the Panama Papers is beginning to be heard if not yet followed.
A recent Washington Post editorial read “States must stop letting the ultrawealthy dodge taxes — and the law.” Despite the limited progress on national legislation, that fight can begin in states across the country — probably including yours.