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United Kingdom, Nigeria and Money Laundering- part 2
The Observer of May 3, 2009 reported that Barclays bank is playing a lead role in the establishment of a tax haven in Ghana. The paper says the British lender has for the last four years worked closely with the Ghanaian government to start an International Financial Services Centre offering low taxes and minimal financial disclosure.
The establishment of a fully operating tax haven so close to oil- and mineral-rich countries such as Nigeria, Sierra Leone and Equatorial Guinea will encourage a rapid increase in tax and capital flight. That could see huge mineral wealth in West Africa vanish into it from poverty-stricken countries' coffers.
There is also concern that cocaine barons, increasingly using West Africa as a trafficking route into Europe, could launder drug money through Ghana. There are already concerns ‘regarding President Atta-Mills' apparently smug attitude towards the massive and unprecedented use of Ghanaian territory to illegally smuggle narcotic drugs into both Western Europe and the United States’.
Recently, according to reports, two Ghanaian drug couriers, carrying substantially commercial amounts of contrabands, have been arrested at airports located dangerously close to the American seat of governance. Then in-between the aforesaid arrests, a huge consignment of illegal drugs, allegedly transhipped from Ghana into Germany, and was widely reported by the international media to have been intercepted.
The process of establishing a Ghanaian tax haven has been under way since 2005 and Barclays was instrumental from the start when it signed a memorandum of understanding with the country.
Ghanaian banking laws have been reformed to allow Barclays to operate as an offshore bank. So far it is the only bank offering offshore tax services. But others are set to join when later this year a law is expected to be passed in Ghana that will allow for the establishment of trusts and company registration.
The Observer quoted Vince Cable, Liberal Democrat Treasury spokesman, as saying: "Barclays seems to be the market leader in tax avoidance schemes and Ghana is a new name to add to the list. Unfortunately this is a very cynical way of doing business and I trust this will be noted by the government if ever they need to ask for cash."
In the same Observer, Wilson Prichard, a member of the governance team at the Sussex University-based Institute of Development Studies, whose report on Ghana's tax and development is due to be published later this month, said: "Oil-producing nations are plagued by corruption and drug trafficking and the creation of this international financial services centre will make this worse - not better."
But Barclays claims that the creation of a tax haven in Ghana will be a source of high quality jobs and will encourage tourism and economic activity. The company said: "We adhere to the highest and most stringent levels of international regulation, rules and industry guidance for the financial services sector."
It almost goes without saying that it would be criminally remiss for Africa and Nigeria in particular to look away while things of patently horrifying and outright criminal nature is being, literally, allowed to get out of hand in Ghana; firstly to allow the illegal-drug menace to fester into a major hub of illegal-drug transhipment, and secondly, to create a financial haven where the proceeds from such crime and political corruption would be freely laundered.
Ten years ago the United Nations Convention Against Illicit Traffic in Narcotic Drugs and Psychotropic Substances placed the issue of the proceeds of crime on the world agenda.
Among the Convention’s most important and innovative provisions were those that sought to overcome banking and financial secrecy laws where they presented impediments to criminal investigations.
As I pointed out in Part 1, The issues of banking secrecy and financial havens in the context of the fight against money-laundering worldwide have been focused upon with a view to giving effect to the anti-money-laundering provisions of the Convention. While there has been a general trend towards enacting money-laundering laws that provide for the lifting of financial secrecy in appropriate cases, such secrecy remains a barrier in many jurisdictions, especially some of those that have come to be known as "financial havens".
The proliferation of jurisdictions offering Safe havens, bank secrecy and confidentiality has done irreparable damage to Africa. The international scene has created a near perfect environment for the growth of money laundering and created obstacles for law enforcement agencies in their effort to tackle the menace.
Apart from the globalization of the world economy and the development of high tech communication gadgets that make electronic movement of money across national boundaries easier, there are many other obstacles to the effort to trace, freeze, seize and confiscate the proceeds of corruption and other crimes. Such obstacles had been entrenched by London.
British Off-shore facilities and tax havens provide a number of services that make money laundering attractive. Such services as International business corporations that provides a most attractive means for obtaining privacy in financial matters; they provide an effective cover with the ability to trade, own, buy and sell property and direct any possible liability away from the owner.
In this illicit trade that have made it easy for rapacious leaders to squander the wealth of Nigeria, London is a disgusting culprit. Phillip Thorpe, the FSA managing director was quoted by the BBC as saying in 2001; "The City of London has traditionally regarded itself as one of the cleanest financial centres, but the extent of the weaknesses identified is frankly disappointing."
The present essay aims to stimulate discussion on exporting bank secrecy and financial havens to Africa through Ghana for make no mistake, the western Banks, these vultures would not stop at Ghana. They have tried it in Liberia, but it appears the instability in Liberia did not allow the menace to take root.
Today, enterprise criminals of every sort, from corrupt politicians to drug traffickers to stock fraudsters to corporate embezzlers and commodity smugglers, must launder the money flowing from their crimes for two reasons.
Firstly, the money trail itself can become evidence against the perpetrators of the offence; the second is that the money per se can be the target of investigation and seizure. Regardless of who actually puts the apparatus of money-laundering to use, the operational principles are essentially the same.
According to Financial Havens, Banking Secrecy and Money Laundering: Double issue 34 and 35 of the Crime Prevention and Criminal Justice Newsletter, Issue 8 of the UNDCP Technical Series, Money-laundering should be construed as a dynamic three-stage process that requires: firstly, moving the funds from direct association with the crime; secondly, disguising the trail to foil pursuit; and, thirdly, making the money available to the criminal once again with its occupational and geographic origins hidden from view.
Criminal money is frequently moved abroad and then cycled through the international payments system to obscure the audit trail. The launderer often calls on one of the many jurisdictions that offer an instant-corporation manufacturing business. Many sell "offshore" corporations, which are licensed to conduct business only outside the country of incorporation, are free of tax or regulation and are protected by corporate secrecy laws.
Once the corporation is set up in the offshore jurisdiction, a bank deposit is made in the haven country in the name of that offshore company, particularly one whose owner’s identity is protected by corporate secrecy laws.
Thus, between the law enforcement authorities and the launderer, there is one level of bank secrecy, one level of corporate secrecy and possibly the additional protection of lawyer-client privilege if counsel in the corporate secrecy haven has been designated to establish and run the company.
In addition, money laundering schemes involve a third layer of cover, that of the offshore trust, which is usually protected by secrecy laws and may have an additional level of insulation in the form of a "flee clause" that permits, indeed compels, the trustee to shift the domicile of the trust whenever the trust is threatened.
There have been a number of developments in the international financial system during recent decades that have made finding, freezing and forfeiting of criminally derived income and assets very difficult and one of them is the proliferation of financial secrecy havens.
The world of offshore financial centres and bank secrecy jurisdictions is a key part of this but can also be understood as a system with distinct but complementary and reinforcing components, many of which are readily amenable to manipulation by criminals.
Offshore financial centres and bank secrecy jurisdictions can be understood as a tool kit that can be used not only to launder the proceeds of drug trafficking and other crimes but also an easy avenue for Politicians to launder and hide their ill-gotten wealth.
Serious efforts have been, and continue to be, made to create greater transparency in financial matters, but the offshore financial world remains for a large part a "Bermuda triangle" for financial investigations.
An investigation of varying money laundering schemes would reveal how professional launderers are able to exploit off-shore financial centres and tax havens to perpetrate their act and misuse a States’ sovereignty to provide safe havens for criminal proceeds. Is that what Ghana want to become?
Money launderers use international business corporations (IBCs), which are routinely used in money-laundering schemes because they provide an impenetrable layer of protection around the ownership of assets. They have few commercial or financial justifications, except to conceal the origin and destination of goods in international commerce, to circumvent arms control laws and to evade taxes by moving profits and assets out of the reach of the tax collector.
The abuse of offshore trusts, the role played by some professionals protected by legal privileges and the effect of the "dollarization" of the global market; the quasi-absence of regulation of offshore banking, and excessive bank secrecy protection, that sometimes even block regulators in a country from effectively supervising branches of their home country’s financial institutions branches located in those centres have all fuelled the money laundering trade.
The common denominator in money-laundering and a variety of financial crimes is the enabling machinery that has been created in the financial havens and offshore centres. The effectiveness of these centres in helping people and companies to hide assets is not the result of any single device.
Tax havens in different jurisdictions have created a tool kit composed of new corporate instruments, foundations, trusts, trust companies, banks and bank accounts. The tools are mixed and matched with jurisdictions that have made a point of non-cooperation with the rest of the international community in criminal and tax investigations.
What started as a business to service the needs of a privileged few has become an enormous hole in the international legal and fiscal system. If the international community is to develop a rule of law to match the globalization of trade and the global movement of people, the questions raised by this hole in the system will have to be addressed. in the part three, I will further explore the relationship between tax havens and money laundering that the dangers to Ghanaian economy of allowing the establishment of a tax haven in their country.
See also United Kingdom, Nigeria and Money Laundering- part 1
Daniel Elombah
Partner, Simphil International
Multi-Disciplinary Consultants on Corporate Governance and Money Laundering
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