Mar 12 Avr 2011 16:26
NGOs report mining giants Glencore and Quantum alleging fisc
Having gained access to the confidential report, several groups including Mining Watch, the French NGO SHERPA, the Zambian Center for Trade Policy and Development, the Switzerland-based Berne Declaration and Canadian l’Entraide Missionaire have now filed a complaint against mining giants Glencore International and First Quantum Minerals Ltd. before the Swiss and Canadian National Contact points for violating the OECD guidelines for multinational enterprises.
Mopani was acquired by Glencore in 2000. It employs 7600 miners, controls four underground mines, a concentrator and a cobalt plant in the town of Kitwe and an underground mine, a concentrator smelter and a refinery in the town of Mufulira. Mopani has been a prominent corporate player – in fact the second largest mining company in Zambia – since Glencore acquired it in 2000.
After over a year of research, the auditors seemed certain: they published a preliminary report last November. Mopani was found guilty of violating numerous laws and OECD guidelines by manipulating its balance statements in regards to productivity and production costs. It was also found to have falsely stated the true selling price of copper in order to avoid paying tax on its profits (thereby not complying with the arm’s length principle of transfer pricing). It emerged that, in some instances, Mopani was ‘selling’ copper to its parent company Glencore at 25% of the official price at the London Metal Exchange, meaning that the company avoided some 75% of its tax obligations for copper sold under that particular contract.
When the minister for finance and economic development, Dr Situmbeko Musokotwane, was handed the report, he failed to react. In fact, what should have been outrage on the government’s part was reduced to little more than empty silence. As far back as this February, an official from ZICA told a Bloomberg reporter that Mopani’s “practising licenses could be suspended,” but in fact no discernable action has yet been taken and the report was in fact kept a secret, with no one from the state-owned press reporting on the company’s misdemeanour. A number of bloggers have claimed to have received threats after writing on this issue in their personal blog. According to Gershom Ndhlovu of Global Voices Online, a blogger named Chola Mukanga “was forced to pull out the full report from his blog, apparently because he received threats from people connected to the government.”
Now that this issue has been unearthed, it can’t be just as easily swept under the carpet. Since it gained independence, Zambia’s economy has heavily relied on the copper-mining industry. According to the Central Bank of Zambia, the country earns 70% of its foreign currency from copper exports – despite the fact that the mining industry only contributes 10-15% to all fiscal revenues in the country. According to the audit report, most of the taxes for these revenues are effectively paid by the miners themselves. The corporations actually pay less taxes than the workforce, adding up to a mere 4%.
These revelations become even more striking when considering that on February 2005 Mopani received a €48 million grant from the European Investment Bank to develop its activities and contribute further to the development of the region. Since then, the Zambian government had been incredibly generous, nesting what is tantamount to a fiscal paradise for the mining industry. During the financial crisis when the country was plagued by a dramatic fall in copper prices, the government decided to eliminate the windfall tax. Despite prices recovering, the windfall tax has not been re-introduced. Given the benevolence of the Zambian government, it may come as a surprise that their management of revenues has come under attack from none other than Mopani’s CEO, Emmanual Mutati. In what looks like a pre-emptive move to stifle attacks once the audit report was leaked to the press at the beginning of the year, Mutati spoke out against the lack of welfare systems and public infrastructure in the impoverished state, implying that the Zambian government was not using its revenues wisely. He is reported to have said: “It is imperative for government to share the burden with mining companies to improve the livelihood of people.”
In layman’s terms, Mopani has been using derivatives trades to shift profits out of Zambia. The result was that its income was lowered by several hundreds of millions of dollars for the 2003-2008 period, the report suggests.
The NGO coalition is now asking for the Swiss and Canadian National Contact points to acknowledge the activity as a breach of OECD Guidelines and ensure that both mining giants, Glencore and First Quantum refund the tax bill owed to the Zambian fiscal authority.
Glencore & First Quantum Minerals: A marriage made in tax haven
As the world’s largest commodities trader, Glencore is perhaps accustomed to operating in a climate of complete impunity. It has been involved in a number of scandals including illegal arms dealing with Iran, Sadam Hussein’s Iraq ‘oil for food scandal’, the USSR, South Africa’s Apartheid regime, and finally civil-war-torn Angola. The company – which has a 73% interest in Mopani – can boast winning the 2008 “Public Eye Award” for worst company in Switzerland. It used to be operated by Marc Rich, a man well accustomed to tax evasion, having been already convicted in the USA. He is a recognisable face thanks being on the Justice Department’s 10 most wanted list due to trading with embargoed states and tax evasion (In a controversial move, Marc Rich was later pardoned by President Clinton).
The Zambian government is well-acquainted with the company’s bullish behaviour, inflated by its knowledge of the firm grasp it holds on the country’s faltering economy. Two years ago the company threatened the Zambian government to cease operations in two mines if copper prices were not raised at its chosen figure, $5500 per tonne.
You may remember First Quantum from its role in the ongoing conflict in Eastern Congo.
Tax evasion is a global problem
In the past years it has become increasingly clear that it is tax evasion and not corruption or criminality that is responsible for underdevelopment and debt load of so-called developing countries.
Global Financial Integrity has reported that in the past decade multinationals’ tax evasions amounts to a global net loss of $400 to 440 billion for southern economies.