EITI & The Panama Papers

In recent days, the headlines of the foreign and local mainstream and social media got a reprieve from terrorist attacks by the breaking news of ‘the Panama Papers’ that overnight turned the Panamanian law firm ‘Mossack Fonseca’ into a household name. Approximately 11.5 million documents were leaked that revealed that the firm had registered annually nearly 20,000 shell companies on behalf of persons in influential positions to hide their identity and conceal their true wealth. Some persons used those companies to make legitimate investments and others to facilitate corrupt payments, launder money and evade the payment of taxes. Through those companies, large sums of money were diverted from their home countries, money that could have been used to improve social infrastructure and public services. Instead, the money was deposited into secret accounts belonging to, among others, royalty, Presidents and Prime Ministers and other high-ranking politicians and celebrities. Thus far, the disclosures have implicated twelve current or former Heads of State. The name of at least one national of Trinidad and Tobago has been mentioned and many suspect that there may be more to come.

There is a general feeling that the Panama Papers revelations are only the tip of the iceberg. The International Monetary Fund (IMF) reports that ‘every year US$200 billion of untaxed income is taken out of poor countries by international corporations operating in those countries which represents around 50 per cent more than the total they receive in aid from rich countries. Tax abuse by multinational corporations increases the tax burden on other taxpayers, violates the corporations’ civic obligations, robs developed and developing countries of critical resources to fight poverty and fund public services, exacerbates income inequality, and increases developing country reliance on foreign assistance.” This is evidence that the rich and powerful are making a killing in developing countries and that those being killed by these cozy deals revealed by the Panama Papers are the world’s poor.

What is the link between the Panama Papers and the Extractive Industries Transparency Initiative (EITI)? During the last year, or more, you will have heard or read that the TTEITI Steering Committee was proposing that a necessary next step in bringing greater transparency and accountability to the management of the revenues derived from the country’s extractive sectors was to go beyond the mere reconciling of payment made by companies to government with the receipts declared by government. Since 2013, long before the revelations of the Panama Papers, the EITI Board began advocating the need for EITI implementing countries to identify and publish the names of the beneficial owners of extractive companies. The TTEITI Steering Committee proposes to publish T&T’s first Beneficial Ownership Register very shortly and so avoid some of the practices revealed by the Panama Papers on the use of hidden ownerships to mask corruption, a clear benefit that T&T will enjoy from such public disclosures. The publication will be a major disincentive to corruption and will ensure that the Treasury collects its just dues in taxes payable to the state.

In 2013, the EITI International Board approved the launch of a Beneficial Ownership Pilot Project, to which twelve countries (including T&T) signed up and agreed to make publicly available online a register that lists the names of those who benefit financially from the ownership of major extractive companies. In February 2016, EITI Members meeting at the 7th EITI Global Conference in Lima, Peru, attended by a T&T 5-person delegation, approved the EITI Standard 2016 making Beneficial Ownership reporting mandatory for all EITI implementing countries by 2020. During the plenary session on beneficial ownership, the Minister of Mines of the Democratic Republic of Congo revealed that, because of their participation in the Beneficial Ownership Pilot, it was discovered that some companies were declaring non-existing persons as owners of mining companies.

In those cases, the mining contracts were either annulled or made void by the government. In another instance, the beneficial ownership declarations revealed that a Member of Parliament elected in 2011 owned 100 % of a mining company.
The need for this degree of transparency was clearly demonstrated by one of the many stories coming out from the Panama Papers revelations. In Uganda, a country in which most of its citizens live on less than US$1.45 a day, an oil company (not operating in T&T) based in Jersey, a British crown dependency, used Mossack Fonseka services to move its business registration and assets from Bahamas to Mauritius in an attempt to avoid paying US$400 million in capital gains tax to the government in 2010 after it sold its 50% share in certain Uganda’s oilfields for US$1.5 billion.

It is important to note that EITI Beneficial Ownership reporting mandates the disclosure of not only the names of ‘the natural person(s) who, directly or indirectly, ultimately own(s) or control(s) a corporate entity, a license or other property’, but also the identity of Politically Exposed Persons (PEPs) which the TTEITI Steering Committee defines as, “an individual who is or has been entrusted with a prominent political function. These include foreign and local political figures and extend to their immediate family members and close associates.”

In the current era of falling energy prices, greater transparency will contribute towards the development and enhancement of a sound business climate that encourages increased local and foreign direct investment and helps in building trust between government, companies, civil society and the general public, which is needed in this period of austerity. The TTEITI Steering Committee publication of the country’s first Beneficial Ownership Registry on its website will be a major step in promoting transparency, accountability and good corporate governance by disclosing the real owners of companies that exploit the country’s extractive natural resources (oil, gas and mining) which belong to all citizens.

The lesson to be learnt from the Panama Papers by those engaged in EITI implementation is that there is no such thing as too much transparency and that, whereas transparency is not an end in itself, it is the best means of protecting the people’s patrimony. Whenever and wherever high profile persons are implicated in wrongful acts, such as those revealed by the Panama Papers, they must be held accountable for their actions and appropriate consequences meted out to them according the country’s laws.

Victor Hart, Chair, TTEITI Steering Committee and Member of EITI International Board and Vanita Redoy, Policy Analyst, TTEITI Secretariat