MAC: Mines and Communities

South Africa: Lonmin, the Marikana Massacre and the Bermuda Connection

Published by MAC on 2014-09-22
Source: Press statement (2014-09-22)

Lonmin, the Marikana Massacre and the Bermuda Connection

AIDC press statement

18 September 2014

On June 2 AIDC issued a press statement in which we raised the concern of the Platinum Cartel's possible involvement in transfer pricing in respect of under-selling their metals.

Our concerns regarding Lonmin's involvement in possible transfer pricing is greater than ever. Tuesday hearings of the Marikana Commission showed that Lonmin needs to clarify the role and relationship of several of its subsidiaries, not least Lonmin PLC (the parent company), Western Platinum Ltd, Eastern Platinum Ltd, Lonmin Management Services (PTY) Ltd and Western Metals Sales Limited, located in the tax haven of Bermuda.

Contradictory answers have been provided both to the Marikana Commission and to journalists in relation to revelations made.

In sum, Lonmin, just for the years 2008 to 2012 transferred in commission fees $160 million (R1,231 billion) to a Lonmin subsidiary, Western Metals Sales Limited based in Bermuda, a well known tax haven. A further $155 million (R1,170 billion) was paid in management fees to Lonmin Management Services.

These amounts were shifted from Lonmin's South African operations and effectively put out of reach of possible wage demands, meetings of its social labour plan commitments and beyond what would have been "taxable income". It is necessary to ask is if this a case of the so-called "illicit financial flows" that has so worried African heads of state and prompted the Economic Commission for Africa (ECA) and the African Union (AU) to establish the High Level Panel on Illicit Financial Flows.

Lonmin's Bermuda connection is one piece in a complex inter-company labyrinth and picture of excessive dividend payments before the 2008 crash, exorbitant executive salaries as well as yearly management fees to head offices.

This is an important part of the background to the August 16 Marikana massacre and shaped Lonmin's response to the wage demands of rock drill operators and other workers at its operations.

That Lonmin has something to hide became clear in the last days of evidence at the Marikana Commission of Inquiry. When questioned on these transfers and the relations between Lonmin, its South African subsidiaries and its overseas subsidiaries, its Executive Director, Mr M Seedat seemed to suffer from severe memory loss and could only provide general information that was contradictory. Nevertheless, he was forced to admit in reference to the Lonmin subsidiary in Bermuda, Western Metal Sales Limited, that "A structure like this is normally set up to be optimal from a tax perspective."

Further to this, Mr Seedat told the Commission that the "Bermuda operation" was closed in 2008, yet financial reports audited by the international firm KPMG, records the flow of money to Bermuda up until 2012. A decision was made by Lonmin to rewrite its business history in June 2012 in relation to these payments and retrospectively decree (in June 2012) the closure of Western Metals Sales Limited in 2008.

A research report on the issue of Lonmin's affordability will soon be lodged at the Marikana Commission.

Perhaps it is legal to rewrite a company's financial history without a comment in the audited books, however, AIDC calls on SARS and the South African government to urgently establish a major and detailed investigation into Lonmin's financial operations and more generally into other mining transnational corporations and the problem of transfer pricing, illicit financial flows that also may be contributing to South Africa's worsening capital account deficit and balance of payment problems.

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For further information, contact Dick Forslund (+ 27 828 957 947), senior economist at the Alternative Information and Development Centre (AIDC), Brian Ashley (+27 820857088), Director at AIDC, MP Giyose (+27 823500361), Chair of the AIDC board.


Lonmin denies evading tax

SAPA

22 September 2014

SAPA - Reports that Lonmin was evading tax were denied by a spokeswoman on Monday, after calls that the company should be investigated.

"It is completely false, we are busy preparing a statement," spokeswoman Sue Vey said.

Vey said she was not sure when the statement would be released.

Earlier, Sars spokesman Adrian Lackay said he would not comment.

"By law, we are not allowed to make public statements on the affairs of taxpayers," he said.

"There is a legal obligation on us not to say anything."

On Thursday, the Alternative Information and Development Centre (AIDC) said that the transfer of over R2.3 billion in fees from Lonmin to two of its subsidiaries, with one located in a tax haven, should be investigated.

"Lonmin, just for the years 2008 to 2012 transferred in commission fees US160 million (R1.2 billion) to a subsidiary, Western Metals Sales Limited based in Bermuda," senior economist Dick Forslund said in a statement.

Bermuda is a well-known tax haven.

"A further US155m (R1.2bn) was paid in management fees to Lonmin Management Services."

The AIDC called on the SA Revenue Service (Sars) and government to investigate Lonmin's financial operations, other transnational mining corporations, transfer pricing, and illicit financial flows.

On Friday last week, the Economic Freedom Fighters echoed the AIDC's call, calling on Sars to probe Lonmin for alleged tax evasion.

Forslund said the amounts were shifted from Lonmin's South African operations so as not to be used for meeting wage demands, social labour commitments, or be included in taxable income.

Forslund was reacting to testimony at Tuesday's hearing of the Farlam Commission of Inquiry, which is investigating the deaths of 44 people during a strike at Lonmin's Marikana mine in August 2012.

"Lonmin needs to clarify the role and relationship of several of its subsidiaries, not least Lonmin PLC (the parent company), Western Platinum Ltd, Eastern Platinum Ltd, Lonmin Management Services (Pty) Ltd and Western Metals Sales Limited," he said.

"Contradictory answers have been provided both to the Marikana commission and to journalists in relation to revelations made."

Forslund said Lonmin's Bermuda connection was one piece in a complex inter-company labyrinth and picture of "excessive dividend payments" prior to the 2008 economic downturn, exorbitant executive salaries, and yearly management fees to head offices.

"This is an important part of the background to the August 16 Marikana massacre and shaped Lonmin's response to the wage demands of rock drill operators and other workers at its operations."

At the Farlam commission on Tuesday, former Lonmin chief operating officer Mahomed Ismail Seedat was questioned about the transfers and the relationship between the different companies.

Seedat could only provide general information that was contradictory, Forslund said.

"Nevertheless, he was forced to admit in reference to the Lonmin subsidiary in Bermuda, Western Metal Sales Limited, that 'a structure like this is normally set up to be optimal from a tax perspective'."

According to Forslund, Seedat told the commission the Bermuda operation was closed in 2008. However, financial reports audited by firm KPMG recorded flows of money to Bermuda until 2012.

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