MAC: Mines and Communities

Glencore is accused of tax evasion in Zambia

Published by MAC on 2011-04-18
Source: Statement (2011-04-12)

But world's premier metals' trader goes for a London Launch

Last week Switzerland-based Glencore - the world's biggest minerals' trader - announced it would seek a listing on the London and Hong Kong Stock exchanges in mid-May .

Amid the issues being raised about the firm's transparency and recent record,  its transgressions in Zambia deserve an intensive pre-launch investigation.

Will the UK and Chinese regulatory authorities carry one out?

This may be strongly doubted.

Tax evasion in Zambia

Five NGOs file a complaint against Glencore International AG and First Quantum Minerals for violation of OECD guidelines

MiningWatch Canada Release

12 April 2011

Lausanne/Zurich/Paris/Lusaka - SHERPA (France), the Center for Trade Policy and Development (Zambia), the Berne Declaration (Switzerland), l'Entraide Missionnaire (Canada) and MiningWatch (Canada) have filed a complaint today against Glencore International AG and First Quantum Minerals Ltd before the Swiss and Canadian National Contact Points (NCP) for violating the OECD Guidelines for Multinational Enterprises.

The cause for the complaint lies in the financial and accounting manipulations performed by the two companies' subsidiary, Mopani Copper Mines PLC (MCM), in order to evade taxation in Zambia.

Those allegations are based on the results of a 2009 audit performed at the request of the Zambian authorities, with support from Norwegian government, by international accountants Grant Thornton and Econ Pöyry. Among the anomalies revealed by the report, an unexplained increase in operating costs in 2007 (+$380 million), stunningly low reported volumes of extracted cobalt when compared to similar mining companies operating in the region, and manipulations of copper selling prices in favor of Glencore which constitute a violation of OECD's "arm's length" principle. The result of those various processes was to lower by several hundreds of millions dollars MCM's net income for the 2003-2008 period, hereby substantially lightening the company's tax burden.

Those actions are all the more deplorable when one considers that the Mopani consortium operates in an already attractive fiscal environment, one highly favorable to foreign investment, and that Mopani also enjoys the effects of a 2000 development agreement with Zambia that provides massive financial and tax exemptions.

According to Global Financial Integrity, multinational corporations' tax evasion, when averaged per year over the last ten years, amounts to a global net loss of $400 to $440 billion for developing countries.

Canada now has two government-initiated non-judicial grievance mechanisms by which foreign nationals can file complaints against Canadian multinational enterprises: the National Contact Point (NCP), established in 2000, and the Corporate Social Responsibility (CSR) Counsellor for Extractive Industry, created in March 2009 as part of the Government of Canada's new CSR policy called "Building the Canadian Advantage: A Corporate Social Responsibility (CSR) Strategy for the Canadian International Extractive Sector."

These two mechanisms share key characteristics: they are both voluntary and neither office will investigate complaints. While some European NCPs do commission independent field assessments of complaints, they cannot impose sanctions should a complaint be found to be justified. Canada's CSR Counsellor will only review cases that are not too serious, she will not make a determination that CSR guidelines have been breached, and her reporting is reviewed by more than one government department. The OECD Guidelines are reviewed periodically (the current review will be completed in June 2011) by a committee of OECD governments, multinational enterprises and international workers unions. Furthermore, the performance of each country's NCP can be compared during an annual meeting. Finally, when a specific instance complaint is accepted, most NCP's will issue a final report on their findings.

Both the Canadian NCP and the CSR Counsellor fall well short of the measures proposed by a private member's Bill C-300, which was defeated last October. This Bill would have permitted complaints to be brought to the Department of Foreign Affairs and International Trade. If the complaint were accepted the Ministers would investigate the complaint and make a determination of fact in the case. In cases of breaches of the proposed standards, government financial and political support could be withheld from an extractive company found to be at fault.

The situation revealed by the experts' audit concerning the Mopani Copper Mine PLC is a real scandal!

The five associations expect the NCPs to:

1) formally recognize the violations of the OECD Guidelines committed by corporations Glencore International AG and First Quantum Minerals Ltd.;
2) ensure by all necessary means that the above-mentioned corporations refund the tax money the Mopani consortium should have owed to the Zambian Revenue Authority had the companies' communication been lawfully conducted, and had transfer pricing not been manipulated;
3) require the above-mentioned corporations to commit themselves to comply scrupulously with the OECD guidelines and with Zambian laws and regulations.

Contacts:

SHERPA - Maud Perdriel-Vaissière + 33 (0)6 83 87 97 34
The Berne Declaration - Olivier Longchamp - + 41 (0)21 620 03 09
CTPD - Savior Mwambwa - + 260 977 875404
MiningWatch - Catherine Coumans - + 1 (613) 569 3439
L'Entraide missionnaire - Denis Tougas - + 1 (514) 270 6089


Zambia: We need greater transparency over tax payments

Savior Mwambwa

The Guardian (UK) Blog

15 April 2011

A complaint over tax payments by a Glencore subsidiary could prompt the Zambian government to undertake an audit of all mining companies to assess how much tax they owe

Mining firm under fire over tax payments in Zambia

A Glencore subsidiary in Zambia is under fire over tax payments. NGOs want governments to compel companies to reveal more about their finances.

The contrast between the poverty of most people in Zambia and the natural riches of our country was highlighted this week in an incident that is highly embarrassing for one of the companies profiting from our mineral wealth.

The company - Swiss commodities giant Glencore - has just announced its intention to launch itself on to the London Stock Exchange.

So it will have been less than happy about the timing of the formal complaint which my organisation, the Centre for Trade Policy and Development, and four others filed on Tuesday with the Organisation for Economic Co-operation and Development (OECD).

The complaint is about the behaviour of a mining company, Mopani Copper Mines (MCM), which is largely owned by a Glencore subsidiary and which operates in Zambia's copperbelt, near our northern border with the Democratic Republic of the Congo.

Put simply, our concern is that Mopani may be selling Zambia's copper to Glencore at prices which favour Glencore and which reduce the amount of tax the company pays in Zambia - a desperately poor country, where life expectancy is 46.

Specifically, our complaint alleges that Mopani is violating the OECD's guidelines for multinational companies, which require trade between subsidiary and parent companies to follow the "arm's length" rule. In other words, related firms must buy and sell with each other at open market prices.

The basis of our concern is a leaked auditors' report that highlighted a series of "problems" in Mopani's figures for costs and revenues, including a failure by the company to show that its copper sales were done on an arm's length basis. The report was commissioned by the Zambia Revenue Authority.

Glencore, for its part, has strongly disputed the auditors' findings, saying the report contains factual errors and is based on flawed analysis and assumptions.

For me, the leaked report lends some support to Zambian civil society organisations' claims that mining companies are depriving us of social and economic benefits which are rightly ours, through tax evasion and avoidance.

I hope that the leaked report - and now our complaint to the OECD - will prompt the Zambian government to do a financial audit of all mining companies, so that the Zambian Revenue Authority can update its assessments of the tax they owe. Donor countries such as the UK - which gave Zambia almost £50m in aid last year - should support our government in such an exercise.

I also hope that our complaint to the OECD will draw attention to the existence of a much bigger problem - tax dodging by multinational companies - which stretches far beyond the copperbelt and indeed Zambia itself.

According to Christian Aid - one of my organisation's UK partners - developing countries lose some $160bn a year in tax revenue to the manipulations of multinationals. That is considerably more than they receive in aid each year.

A major part of the solution to this global curse is for governments to require companies to reveal more about their finances, with details, such as profits made and taxes paid, published for every country in which they operate.

This sort of information would help tax authorities - including Zambia's - to identify suspicious cases where companies appear to be artificially shifting their profits out of poor countries and into tax havens. It would not transform the balance of power between tax collectors and a company's army of tax accountants and lawyers, but it would help.

The EU is looking into just such a country-by-country reporting standard for all companies listed in member states. If this resulted in the disclosure of payments to governments, it would help civil society to hold governments to account when they are misusing money.

But to shine a light on cases where companies are flouting the OECD's critically important arm's length rule, we need underlying financial information.

If Europe were to require this kinds of disclosure, then here, in Lusaka, we would applaud.

• Savior Mwambwa is executive director of the Centre for Trade Policy and Development, Zambia

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