Editor’s note: The Article has been updated/edited in Paragraph 3 after a complaint from law firm Appleby to correct that the ‘panama papers’ were not leaked by the firm or anyone in the firm. The documents came out following a data hack. The Legal Reports is committed to the highest standards of professionalism, accurate and factual reporting.
research paper titled: “Elite Capture of Foreign Aid: Evidence from Offshore Bank Accounts,” indicated that UGX 267 Billion of World Bank aid between 1990 – 2010 was siphoned and hidden in off shore bank accounts that happen to be tax havens. This is just World Bank money alone. It doesn’t include any other aid money from other sources which means that the total amount of aid money and tax payers’ money hidden in off shore tax havens could be in trillions.ecently, a
For some reason, this report doesn’t mention the names of those Ugandan elites involved in offshoring this aid which belongs to the tax payer.
Documents from the off shore law firm Appleby known as the ‘paradise papers’, indicated that Sam Kutesa – Uganda’s Foreign affairs minister, was using the services of an offshore law firm, located in Bermuda to avoid paying taxes in Uganda. In its simplest form, the scheme is structured like this:
It was a sophisticated use of English trust law rules. He created the Obuyonza Discretionary Trust in the Seychelles in 2012. The trust held shares in the Seychelles Company, Katonga Investments Ltd. He created the trust, watched over its administration and was one of its beneficiaries.
Kutesa’s daughter, Ishta, also is listed as a beneficial owner as well as a future recipient of money from the trust. The money for Katonga was to come from Enhas Uganda Ltd., another Kutesa owned entity, Appleby’s notes state. Kutesa owned Enhas, a ground-handling service at Uganda’s Entebbe Airport, since the 1990s when the World Bank was telling government to privatize state institutions – he only recently sold it in 2018.
In a separate development, in an interview with Sahara Television’s Milton Alimadi, Zoe Bakoko Bakuru – the former minister of gender, labour and social development (2001 – 2006) Zoe Bakoko said before she took over the ministry, $5million every week was hemorrhaged out of the National Social Security Fund (NSSF) and ended up in a British spider’s web tax haven, known as the ‘channel islands.’ In the interview, she states, it was the first family members taking that money to tax havens.
This only implies that with time, more astronomical amounts of money hidden in tax havens by Uganda’s ruling elite will come to light.
“The reason Uganda doesn’t have a law that limits how much money can be transferred out of this economy is that these ruling elite keep wanting to take money out the economy. There is not political will to pass such a law.”
Mid last year, I was listening to an audio version of a book titled: Treasure Islands: Tax Havens and the Men who Stole the World (2011) – it’s a non-fiction book, that details the secretive role of offshore banks and tax havens in global economic affairs. Shaxson, author of the book, admits that there is no universal definition of a tax haven but goes on to define it as “a place that seeks to attract business by offering politically stable facilities to help people or entities get around the rules, laws and regulations of jurisdictions elsewhere.”
The whole point is to provide escape routes from the duties that come from living in and obtaining benefits from society. In other words, you take money elsewhere to escape the rules you don’t like, those laws might be tax laws, they might be disclosure rules, transparency rules or you might be looking for secrecy to hide stolen money.
I agree with this definition because it’s the broadest definition I have seen. Even the OECD definition doesn’t come close. Though the IMF has pointed to Britain being a tax haven, due to politics, Britain which operates a spider’s web kind of tax haven doesn’t want to be identified as such.
For decades, American banks reincorporated off shore corporate structures in London to do the kind of things they wouldn’t legally do in America. They used London as an escape route from particular financial regulations. This has particularly been going on since the 1970s.
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Most African dictators who have acquired wealth through “primitive accumulation” are looking for secrecy in tax havens. Switzerland is their best destination. In recent years, it has improved, but it’s still a tax haven.
It might also come as a surprise, but the United States is also a tax haven in a certain sense. Lots of corrupt dictators are putting their money into the United States. Some create shell companies like Delaware corporations – either c-corps or s-corps types to launder money. Others use U.S banking laws to hide money from their home countries.
Weaker countries find it hard to get information from these tax havens. However, if it’s a stronger country looking for information of its citizens putting their money in a weaker country, that information could be acquired. If officials of a country like Tanzania go to Switzerland to acquire information they will embarrassingly chase them away. It’s a power play.
For Uganda, researchers found that money hidden in havens by Ugandans grew by 2.4% per quarter when the World Bank released money for the country. This is higher than the quarterly growth in the country’s economy at just an average of 1.6%. The amounts hidden in these countries had reached Shs 267 billion by 2009.
Uganda receives annually up to 3.3% of its GDP in aid from the World Bank, the paper’s analysts found. The countries where they hide money include Switzerland, Luxembourg, Cayman Islands, Bahamas, Hong Kong and Singapore.
There are corporate tax heavens which include Switzerland, Luxembourg, Netherlands, Ireland, Hong Kong and Singapore. These places essentially have tax loopholes. A company could set up a subsidiary in Netherlands and achieve all sorts of things.
Remember, Uganda has a double taxation treaty with Netherlands. These tax havens are pathways through the international tax system. For instance, if a multinational company from the U.K wants to invest in Uganda, it can route its corporate structure through a tax haven or two, in order to carefully escape the places where it has to pay tax.
Here is my advice to Ugandan oligarchs hiding taxpayers’ money in these off shore entities: the geo-political landscape especially in countries where you are hiding this money is changing. Your secret hideaways of money won’t remain secret in about 7 years from now. The populism sweeping across Europe with BREXIT and the Trump election will make these secrecy laws in these tax havens change very soon.
Until the 2008 financial crisis,10 years ago, western governments were doing very little about secrecy tax haven laws. However, after the 2008 crisis, western governments are witnessing unprecedented public anger over bankers getting away with financial crime and wealth inequality.
They are now looking for new sources of tax revenues, and cracking down on tax havens is now a solution on the table with the leaks of confidential documents we saw in the ‘panama papers’ in 2014 and ‘paradise papers’ in 2016.
As a result, the OECD countries have set up an information sharing mechanism on illicit financial flows. Interestingly, even the world’s most important tax havens have joined this information sharing mechanism. This system is called The common reporting standard. Much as the system still has loopholes, some progress is being registered. News coming in is that the European Union is preparing to sanction Mauritius, a tax haven, over money laundering and terror financing.
The reason Uganda doesn’t have a law that limits how much money can be transferred out of this economy is that these ruling elite keep wanting to take money out the economy. There is no political will to pass such a law.
Unlike countries like Egypt, south Africa, Ethiopia, China and the United states, in Uganda it is very easy, for say, MTN to make 7 billion today from Uganda and by night that entire amount is wired to a bank in Johannesburg. If you are a salary earner in South Africa and your money is wired to Stanbic bank, or ABSA even when you travel to Kampala, for a trip, there is a limit on how much money you can withdraw.
For instance, if you have $100,000 dollars of money earned from South Africa you can only withdraw half of it to be used out of South Africa. But given the philosophy of the extractive nature of our ruling elite such a law will never pass.
In the middle of this pandemic, it’s very possible that unprecedented political will in the western world might speed up the process of cracking down on these tax havens exposing information about primitive accumulation of wealth by African kleptocrats.
Just recently in April 2020, the United States and the British dependency of Jersey, a tax haven, agreed with Nigeria to repatriate more than $300 million in funds stolen by former military ruler General Sani Abacha in the 1990s.
Throughout his life, Sani Abacha was never charged with corruption and Nigeria has been fighting for years to recover the money. Interestingly, Companies linked to the Abacha family have gone to court to prevent repatriation, alleging infringement of their rights to a fair trial. The courts did not buy that argument.
Subsequently, the governments of Nigeria, Jersey and the United States have entered into an asset recovery agreement to repatriate forfeited assets to Nigeria. The funds were laundered through the U.S. banking system and then held in bank accounts in Jersey in the name of Doraville Properties Corporation, a British Virgin Islands company, and in the name of the son of the ex-military ruler
Interestingly, Ugandan oligarchs might use the names of people not close to their families but this doesn’t save them, either way, it’s a matter of time before the veil is lifted. Even when they start laundering money through cryptocurrencies.