Africa: Secrecy Savannah - Is Kenya Being Shaped Into Africa's Flagship Tax
Haven?
By Martin Kirk and Blessol Gathoni, 7 June 2013
Analysis
$21-32 trillion has been siphoned off into tax havens, and now there is
evidence to suggest the City of London is trying to make Kenya the world's
next tax avoidance hub.
If anyone doubted the sheer scale of corporate power and the importance of
tax havens to it, they had the unedifying spectacle of Tim Cook, CEO of
Apple, to enlighten them last month.
In already
<
http://www.businessinsider.com/how-apple-reduces-what-it-pays-in-taxes-2013
-5> infamous evidence to a US Senate Committee, Cook demonstrated that the
international tax system is broken and big corporations are the last people
to fix it. He said outright that he won't consider repatriating the
staggering $100 billion they have hoarded offshore if it means paying
standard US corporation tax.
This is just businesses doing what businesses do.
Apple are not going to voluntarily take on extra costs, regardless of moral
argument, when they do not have to and their competitors are not. The
problem is structural, not individual.
This is why, if the tax-avoiding instincts of companies like Apple - along
with Glencore, Google, Starbucks, and in fact most large multinationals -
are to be neutralised, the only thing to do is tackle the system of tax
havens that makes every individual example of avoidance possible.
The imperative is overwhelming. Tax havens exist for one purpose only: to
provide a way for the rich to get around the taxes that pay for the
infrastructure and services on which we - and they - rely.
Tax havens have become, over the last 30 years, a key driver of vast
inequalities around the world. The system has grown so big that it is now an
arterial drain on public budgets everywhere.
According to James Henry, ex-Chief Economist of McKinsey, somewhere between
<
http://www.taxjustice.net/cms/upload/pdf/Price_of_Offshore_Revisited_120722
.pdf> $21 and 32 trillion has been siphoned away from the mainstream economy
through these means.
Kenya: a future tax secrecy savannah?
The global tax haven system is a network with many parts, and the more
parts, the more extensive and powerful the network. 30 years ago, there were
a handful of relatively small tax havens, serving a small elite. Today,
there are more than 80, and they are a parasite on the mainstream, public
economy.
There is now mounting evidence that elite financial interests are planning
to create a new tax haven - to add another node to the global spider web.
This time it is on the African continent, which already gives far more to
than it receives from the world economy.
According to a recent report from the African Development Bank and Global
Financial Integrity, Africa has already lost in the region of
<
http://www.trust.org/item/20130529021653-prubc> $1.4 trillion in illicit
financial flows between 1980 and 2009.
If successful, this hub will be a key mechanism to extract even more wealth
from some of the world's poorest countries.
Until now, there hasn't been a major tax haven in mainland Africa. Attempts
have been made in the past to create one - always at the behest of huge,
Western financial institutions, be that Barclays'
<
http://www.guardian.co.uk/business/2009/may/03/barclay-tax-avoidance-ghana>
efforts in Ghana or the bungled attempts in
<
http://www.mmegi.bw/index.php?sid=4&aid=331&dir=2012/March/Friday9>
Botswana - but we may now be looking at the most serious attempt to date.
Kenya, it seems, may be in the sights of the tax haven capital of the world:
The City of London.
This time, the Corporation of the City of London is trying to expand its
shadow economy into Kenya. The City of London and its 'independent' lobbying
arm, <
http://www.thecityuk.com/> CityUK, have been conducting high-level
negotiations to help the country develop as an
<
http://www.standardmedia.co.ke/m/story.php?id=2000076574&pageNo=1>
'International Financial Centre'.
This may sound like a benign and even worthwhile activity. Kenya, after all,
must develop, and being an International Financial Centre sounds like a good
way of going about it. But what does being an "International Financial
Centre" actually mean?
When speaking to business insiders, the Kenyan authorities are clear. Alex
Owino, a project manager at Kenya's Finance Ministry,
<
http://www.bloomberg.com/news/2011-03-01/kenya-aims-to-build-financial-cent
er-compete-with-south-africa.html> told a meeting in the City of London in
2011 that they plan for Nairobi to become a regional 'offshore' financial
services hub, modelled on Ireland.
Nick Shaxson, author of <
http://treasureislands.org/> Treasure Islands:
<
http://treasureislands.org/> Tax Havens and the Men who Stole the World,
has no doubts. "Make no mistake. This is a tax haven they want to set up.
International Financial Centre is a euphemism", he says.
Commenting on their inspiration, he continues, "Ireland is a swamp of
regulatory laxity, which is how they have attracted so much money. This is
the business model of a tax haven: secrecy, financial regulatory laxity, tax
loopholes. What is Kenya's offering going to be?"
The City of London's long arms
Being the midwife of new tax havens is increasingly a feature of the City of
London's offering to the world.
For a start, there is the public record of what the City of London
Corporation and CityUK do as a matter of course. They regularly lobby at
high levels around the world for
<
http://www.cityoflondon.gov.uk/business/support-promotion-and-advice/promot
ing-the-city-internationally/india/Pages/Research-publications.aspx>
financial liberalisation, including promoting low tax zones.
They do this as part of their objectives to promote UK financial services,
presumably because UK financial services benefit from more low and no tax
zones by virtue of their role as "the world's biggest financial centre".
In other words, financial liberalisation and tax havens are good for the
UK's finance-driven businesses.
Then there's what insiders have said about the intent of the bankers in the
City of London. In
<
http://www.publications.parliament.uk/pa/jt201213/jtselect/jtpcbs/c881-v/c8
8101.htm> evidence to a British Parliamentary inquiry earlier this year, two
very senior former bankers said this:
Witness 2: The UK does not have [withholding tax]. Hence it is mainly
arbitrage on other people's tax systems. I am not saying that this is a good
thing, I am just saying it is not in the UK. [emphasis added]
Witness 1: That's an important point. What you are seeing, and what is left
is, exporting the avoidance. They may be sitting in London, but they are
exploiting other countries' tax regimes.
>From the UK's point of view, you might see that things have gone fairly
quiet. Whether or not that will be the case, the key is that while these
people are very creative, and the good tax structures are still there, the
business always has the capability to come back. [emphasis added]
They gave their testimony anonymously, for reasons we can surely guess, but
we do know that Witness 1 is a former employee in Structured Capital Markets
at Barclays, and Witness 2 was Head of Debt Structuring Group at "Bank A".
And finally there's the high level attention the City of London has been
paying Kenya recently. Successive Lord Mayors of London - the Lobbyists in
Chief of the City's financial interests - have been in and out of the
country rather a lot.
Despite Kenya being just one of 43 countries in one of 50 Market Advisory
Groups run by the City, it has received personal visits from Lord Mayors in
<
http://ukinkenya.fco.gov.uk/en/news/?view=News&id=652576382> 2011,
<
http://www.statehousekenya.go.ke/news/august2012/2012010801.htm> 2012, and
<
http://www.standardmedia.co.ke/?articleID=2000076574&story_title=plans-to-t
urn-nairobi-into-international-financial-hub-heat-up> 2013.
This should be a source of intense embarrassment to UK Prime Minister David
Cameron as he uses his
<
http://www.independent.co.uk/news/uk/politics/wake-up-and-smell-the-coffee-
g8-must-tackle-tax-evasion-says-david-cameron-8464977.html> G8 pulpit this
month to present the rich world's prescription for tackling tax evasion.
Can people in the developing world have much faith in the man who not only
presides over the tax haven capital of the world, but who
<
http://www.telegraph.co.uk/news/worldnews/europe/eu/8854542/David-Cameron-L
ondon-is-under-constant-attack-from-Europe.html> goes to fight for the City
of London on matters of taxation far more than he has ever challenged it?
Some people in Kenya are alert to the dangers. Activist groups including
ours, <
http://www.therules.org/> /The Rules, are running a
<
http://bit.ly/168nJ6U> campaign right now to try to stop the imposition of
a staggering 16% tax increase on staple foods such as milk, maize and other
basic necessities.
They rightly object to high tax increases on the poorest while corporate tax
exemptions and theft are costing the country
<
http://www.gfintegrity.org/index.php?option=com_content&task=view&id=149&It
emid=70%20and%20IMF%20%282006%29:%20%E2%80%98Kenya,%20Uganda%20and%20the%20U
nited%20Republic%20of%20Tanzania:%20Selected%20Issues%E2%80%99,%201,%20p.11>
$1.1 billion a year.
They see this as a portentous step along the path to reorienting Kenya's tax
regime - a path they have good reason to believe is leading inexorably to
Kenya becoming Africa's flagship tax haven.
If they're right, even more power, and Kenya's future prosperity, will rest
in the hands of the global financial elite - the very same elite who caused
the global financial crisis and have proven at every turn that their
interests are at odds with those of the majority.
Martin Kirk was reporting from New York, Blessol Gathani from Nairobi.
Martin is the Global Campaigns Director at /The Rules and has worked
extensively across private, public and NGO sector on government relations
and engaging the public on global issues.
Blessol Gathoni is a freelance journalist based in Kenya.
Received on Fri Jun 07 2013 - 12:31:07 EDT