Offshore Accounts
By The African Exponent
Opening accounts in these banks is as easy as breathing in and out
Each and every year, Africa loses billions and billions of dollars through offshore banking in tax havens, almost a perennial reality. Governments, whose politicians are mostly complicit in such illicit deals, lose billions of tax revenue that must be channeled towards the provision of basic social services such as schools, hospitals, public transport, water, housing, roads, among others. All this happens through the lens of the “offshore” as money is stolen from Africa (as well other parts of the world) by wealthy individuals and corporates through offshore accounts in tax havens such as Mauritius, Panama, Cayman Islands, British Virgin Islands, Switzerland, the Netherlands, among others.
Offshore banking, which is largely responsible for the artificial poverty in Africa, is a phenomenon in which lawyers, accountants, businessmen, and politicians conspire to steal money through legal and financial veils – the desired “banking secrecy.” The clandestine nature of illicit financial flows makes it difficult for authorities to trace the movement of money – global private capital – and because of this, much of these illicit flows happen right under the noses of authorities. This is of course worsened by endemic levels of corruption that are commonplace all over the world.
The reason why these wealthy individuals exploit tax havens that host offshore accounts is that they cannot undertake such financial operations in their countries (“onshore”) because of stringent banking/financial regulations. Tax havens or offshore financial centers are commonly known as “secrecy jurisdictions.” It is safe to point out a tax haven as a territory with “low or no corporate taxes” making it smooth for outsiders to establish their businesses there. Paying taxes on personal income is also little/non-existent in some tax-havens. Tax havens are conspicuously characterized by high levels of financial/banking secrecy.
Most tax havens typically offer low taxation rates for foreign investors as well as high levels of secrecy, although this is not the case with every tax haven. A certain tax haven may offer low taxation but without secrecy, while another may offer both low taxes and high secrecy.
The most notable tax havens in the world include Panama, Seychelles, Mauritius, Cayman Islands, British Virgin Islands, Bermuda, Vanuatu, Dubai, Switzerland, the Netherlands, Luxembourg, and the U.S. state of Delaware. These territories are places where illicit wealth circulates ad infimum, moving the wheels of global neoliberal capitalism in the process.
Offshore banking and the attendant offshore accounts – the mechanisms used to hide ill-gotten wealth – are used by “shell companies” or “letterbox companies” to hide undeclared incomes. The banks in these offshore financial centers for such activities are called offshore banks, and the accounts are called offshore accounts. Opening accounts in these banks is as easy as breathing in and out – through a phone call an account can be set up in a tax haven and at cheap prices ranging between $350-$3,000. The account holders comprise culprits that include companies, trusts, and foundations, or agents.
A shell company or letterbox company (a fake company that only exists on paper) is a legal entity birthed in a tax haven – it has corporate body status, giving it a juristic personality that separates it from the shareholders/investors [what is known in law as the corporate veil].
A shell company does not have any employees nor does it have any office (a single office building in a tax haven can be home to thousands of shell companies because they are simply on paper). The alluring factor with shell companies is that the actual owners of the shell companies – the people behind the corporate veil – are not named in incorporation documents as they mostly use the terms “shell company” and “offshore company” interchangeably. Identities are concealed, making it easy to move money and other assets via such shell companies.
Shell companies are the lifeblood of illicit flows of global capital – because of their juristic personality, they can hold “money, luxury homes, intellectual property, businesses, and other assets.” They are legal on paper but can be both legal and illegal in their existence and operations. Wealthy people – businesspeople, celebrities, drug lords/ladies, bank robbers, mafia kingpins, arms traffickers, and politicians – use shell companies to hide money and other assets as shell companies do not disclose the actual owners behind the corporation.
Coupled with the little to non-existent levels of taxation as well as high levels of banking secrecy where such banks are prohibited from disclosing anything, it is tempting for the mega-rich of this planet to utilize shell companies to hide ill-gotten wealth and facilitate the global movement of illicit money. All this does is create more and more poverty.
Investments made via shell companies in tax havens are insanely lucrative because there is effectively no tax being paid. Such companies enjoy out-of-this-world tax savings. Essentially, public wealth is divested into private bank accounts. Shell companies have zero economic activity and are used to benefit from tax savings they would not enjoy in their “true home jurisdictions.” Big global commercial giants may also establish shell companies to protect their obscene profits from high taxes in their home countries. These capitalist behemoths may create subsidiaries [shell companies] in tax havens to avoid paying taxes on their investments and profits. Companies such as Apple, Johnson, and Johnson, and Skype are infamous for avoiding taxes through offshore financial centers.
Despite a plethora of attempts from the global north countries to curb the menace of offshore banking, such a phenomenon will continue to thrive because most tax havens are countries without large industrialization, hence, they do not require the “enforcement of a large tax base.”
They rely on “minimum formalities to attract foreign investment,” but this has been labeled a pretext and a myth [foreign direct investment in tax haven jurisdictions]. This of course goes along with the false neoliberal mantra of how such investment automatically creates a “trickle-down effect” to the masses in terms of employment and real incomes.
The epoch of globalization, which demands the unbridled flow of private capital across the globe to maximize profits, has perpetuated income inequalities because the wealthy steal money from the public and hide it in offshore accounts. And in most cases, they get away with it. There is little accountability to this effect.
When groundbreaking investigations by journalists are undertaken to uncover such illicit flows via offshore accounts (investigations such as Panama Papers, Mauritius Leaks, Paradise Papers, among others), African people must ponder on the meaning of offshore banking profoundly.
There should be plenty of awareness campaigns to the public in African countries – educating people on what offshore accounts are and how they are used to siphon money from the continent through illegal financial flows much to the detriment of the majority poor. Offshore accounts were pivotal during the struggle for liberation for many African countries, but contexts have changed now. Where solidarity mattered in offshore banking, it has been supplanted by the greed, individualism, materialism, and narcissism of this neoliberal era.
In Africa, the leaders have close connections to global capital (as they are linked to the globally rich and powerful) and as such we ought to scrutinize their levels of accountability in ensuring that Africa does not have a “hemorrhage” of money. A lot of Africa’s elites are avoiding paying taxes as they move the money to private offshore accounts via shell companies made by law/accounting firms in the global north countries. The global financial system continues to work against Africa, and people must be made aware of that fact to create a counter-hegemonies in addressing this vice.