Phantom firms hurt real people.
Jess Hall explains how phantom firms based in the British Overseas Territories are hurting real people in Sierra Leone.
A few years ago, my best friend Rachael had complications during childbirth. Understandably she was very distressed. Fortunately she was in the care of some brilliant midwives and a surgeon was on hand to perform an emergency C-section. My friend has a beautiful and thriving daughter, Morgan, thanks to the excellent medical care she received.
Twenty year old Lillian Moijeuh (pictured above)is from Malama Sierra Leone. In 2014 her sister was also expecting a baby but she wasn’t as fortunate as my friend Rachael. In the midst of the Ebola crisis, after the loss of their mother to the virus, her older sister died of complications during her pregnancy.
Lillian, an Ebola survivor herself said
‘She didn’t make it, she was bleeding too much’.
Sierra Leone’s fragile healthcare system exacerbated the spread of the Ebola virus[1] which infected over 13,500 people and claimed the lives of almost 4000[2] . The crisis exposed the country’s inability to provide medical assistance for those with existing healthcare needs like Lillian’s sister.
There is only 1 doctor for every 50,000 people in Sierra Leone in comparison to the UK where we have 1 doctor for every 357 people[3] .
So what has all this got to do with tax?
Here in the UK our taxes pay for our healthcare system, and although it’s not perfect, the majority of us can see a doctor when we need one and have our medical needs met. The taxes we pay help to fund services like the NHS, ensuring the health and wellbeing of the nation.
Despite Sierra Leone’s mineral wealth, over half the population live on less than $1.25 a day[4] ] — they are simply too poor to pay income tax. This makes it essential to gather taxes elsewhere, in particular from the multi-national corporations that are mining the country’s natural resources.
But there’s a problem.
Sierra Leone isn’t getting the tax revenues they are owed by multi-national companies operating in their country. This is directly impacting on the country’s ability to provide essential infrastructure and services for the population, including healthcare. There are two reasons for this:
1. The Sierra Leone government, under pressure, has negotiated lower tax rates, or incentives, for mining companies.
2. Multinational companies are using secretive tax havens — often in British Overseas Territories such as Bermuda and the British Virgin Islands — to avoid paying the taxes they owe.
We believe this is immoral, unjust and puts lives at risk.
Our partner the Budget Advocacy Network (BAN) based in Sierra Leone is exposing the huge revenue losses resulting from tax incentives offered to multinational mining companies and how they are impacting the people of Sierra Leone. BAN recently revealed how these losses crippled Sierra Leone’s ability to deal with the Ebola epidemic.
To complement BAN’s campaigning, we want to make it harder for multinational companies operating in Sierra Leone (and in other developing countries) to hide their profits in British Overseas Territories. The power to make this happen lies in the hands of our politicians here in the UK.
How secrecy in Britain’s Overseas Territories affects countries like Sierra Leone
Many multi-national companies take advantage of the secrecy of British tax havens including Overseas Territories like Cayman and British Virgin Islands to shift their profits, dodge taxes and potentially even cover up corruption. This doesn’t just affect Sierra Leone, it affects many countries around the world. The United Nations estimates that companies using tax havens in their corporate structures cost developing countries $100bn a year[5] .
One way in which wealthy companies and individuals are able to dodge taxes is by keeping their money in a complex web or network of phantom firms hiding in the secrecy of British tax havens. These firms are companies with
‘no assets or employees and usually exist on paper only. Their only recorded “directors” are nominees such as the lawyers or accountants who set them up on behalf of clients who remain anonymous’[6].
Phantom firms can hide their true ownership, one company within another, within another. From the outside they look like autonomous corporations, paying what they owe, when in fact they could be owned by a multinational company buying and selling to itself, thereby dodging taxes on its profits.
Danish investigative journalists Dan Watch have reported that the top five mining corporations operating in Sierra Leone are using tax havens, particularly British Virgin Islands, excessively[7] . The veiled secrecy of tax havens means that it is impossible for the Sierra Leone tax authorities to track down which companies are dodging taxes.
The British Virgin Islands offer a prime example of this morally questionable practice. Take a look at the companies registered on the islands and you’ll find 15 companies for every person living there! The population is either burgeoning with entrepreneurial spirit or tax dodging is being allowed to thrive (we think it’s the latter!).
Getting our house in order
The good news is that we can do something about the problem of tax dodging and support partners like BAN in Sierra Leone in the process.
We want all British Overseas Territories with a financial centre to adopt a ‘public register of beneficial ownership’. This would reveal who truly owns which companies and for whose benefit they own it. If this information is accessible to all, developing country tax authorities including Sierra Leone’s would be able to uncover who is dodging tax and hold them to account. Recovered money could then be used to tackle poverty.
In 2015, thanks to pressure from Christian Aid supporters, the UK adopted public registers of beneficial ownership, writing it into law. This will help massively in tackling tax dodging. However, for it to work properly, the UK’s Overseas Territories also need to play ball. Otherwise, companies can just turn to them for secrecy.
We’ve started to get our own house in order but we need to go further. The Overseas Territories have already been asked by the UK Government to adopt such registers but they’ve been stalling for over two years. David Cameron has the power to ensure this happens.
This coming November the Overseas Territories will meet for a conference in London where they’ll be asked about the adoption of registers of beneficial ownership. This is our opportunity to act!
Take action today
Join us in calling on David Cameron to step up and ensure that all seven [8] British Overseas Territories with financial centres adopt public registers of beneficial ownership.
Together we can be part of ensuring a brighter and healthier future for people like Lillian in Sierra Leone along with millions of others who could be released from poverty if taxes are paid where they are owed.
Click HERE to take action today.
[1] World Health Organisation Ebola Situation Report http://apps.who.int/iris/bitstream/10665/184271/1/ebolasitrep_9Sept2015_eng.pdf?ua=1
[2] Budget Advocacy Network — Lessons from Ebola 2015 http://www.bansl.org/pub2015/POLICY%20BRIEF%20ON%20LESSONS%20FROM%20EBOLA.pdf
[3] CIA World Fact Book 0.02 doctors per 1000 people in Sierra Leone 2010, 2.8 doctors per 1000 people 2013 https://www.cia.gov/library/publications/the-world-factbook/fields/2226.html
[4] World Bank 20011 World Development Indicators Poverty headcount ratio at $1.25 a day (PPP) % of population and GNI per capita, Atlas method current US$
[5] UNCTAD World Investment Report 2015 Chapter 5 & Annexes http://unctad.org/en/pages/PublicationWebflyer.aspx?publicationid=1245
[6] Christian Aid report, Invested interests: the UK’s Overseas Territories’ hidden role in developing countries.
[7] Dan Watch: Not sharing the loot: an investigation of tax payments and corporate structure in the mining industry in Sierra Leone, 2011
[8] Bermuda, British Virgin Islands, Cayman Islands, Gibraltar, Anguilla, Turks & Caicos, Montserrat
