Good afternoon, I’m John Reynolds, and I work as a freelance business journalist for the Sunday Independent newspaper in Ireland and a consulting journalist and mentor with the Thomson Reuters Foundation’s Wealth of Nations Programme.
This is a small selection of headlines from investigative business and political stories of mine over the past seven years.
Firstly I’m going to talk about investigating company accounts, and give several examples of the key things to look for when investigating illicit finance and tax abuse.
I will then say a few words about some of the challenges my mentees have faced in their investigative work in a number of African countries.
The examples we’re going to look at relate to three multinational companies: Tullow Oil, Modec, and Associated British Foods’ subsidiary Zambia Sugar.
Firstly, let’s take a look at Ireland-headquartered, London-listed Tullow Oil. Following some initial research by one of my mentees in Ghana, she wanted to look more closely at its operations and tax arrangements there.
It’s an example which, like many investigations didn’t produce any solid results – as we all know in the real world, there are many of these - but it’s still one that we can learn from - and just to qualify it further in case anyone tweets about this, I’m not alleging any wrongdoing by them in relation to tax.
Taking the annual report as a starting point, listed companies have to include a list of all their registered subsidiaries in their annual report. The highlighted one is Tullow Oil in Ghana, which unfortunately turns out to be registered in Jersey in the Channel Islands.
This brings us to a dead end as far as that company goes, because Jersey registered companies don’t have to file accounts.
Paying £4 to the Jersey Company Registry gets you a useless ‘Annual Return’ document comprising of two pages like this.
Returning to the list of Tullow Oil subsidiaries, the highlighted ones relate to UK and Netherlands registered subsidiaries that may be of interest, and where accounts may yield more information.
In this case, unfortunately they did not shed any further light on if or how the company might be avoiding tax in Ghana.
Since neither I nor my mentee could find any further leads or get any further information, the sources she was talking to in Ghana suggested looking into the tax arrangements of Modec, a Japanese-headquartered company that was doing some work for Tullow Oil related to its oil exploration there and supplying them with a large ship used in that work.
The accounts for this company, though it is publicly listed in Japan, proved more difficult to find, so it took a Google search specifically for PDFs in order to access them.
Again, the area of interest was deep down in the document, in the ‘Related Party Transactions’ section.
Here we see details of a Dutch registered subsidiary related to one of Tullow Oil’s oil fields in Ghana, and some of its loan arrangements.
We will look more closely at how inter-company loans are used to minimise tax in later slides.
Now that we know the name of the Dutch subsidiary we want to look at, that is Jubilee MV21, named after a Ghanaian oilfield, from the Modec accounts, the Dutch company information website leads us to the accounts for these companies.
It’s important to download the original documents, which in this case were filed in English, to get the most detail.
The payment of management fees and dividends by subsidiaries to their parent companies or other entities ensures that taxable profits are minimised, and we will see a further example of this shortly.
In the accounts for 3 of the relevant years related to this Modec project, management expenses totalling at least $66 million were paid to the parent company. This is the relevant section for 2012, relating to $29.9 million of those fees.
The payments were included in the liabilities section under trade creditors and further detail was provided further down in the Notes To The Accounts.
On initial examination, it appeared that 15% withholding tax – which would have amounted to $9.9 million - that would be due to Ghana was being avoided here.
However, further research identified that since the work Modec was doing for its client Tullow Oil was actually taking place in Singapore, the payments were of a genuine nature.
Now, for a brief pause and light relief before we tackle the third and final company’ here’s a little Dilbert cartoon and a tip about getting an accountant – or better still, perhaps two – to check your interpretation.
Before we move on to the third and final company, another example you might like to take a look at is the beer brewer SAB Miller.
This was an investigation by Action Aid which was subsequently published in The Guardian newspaper in 2010.
They found royalty payments for its brands paid by two African subsidiaries to a Dutch one. They also found payments to a subsidiary which coincided with a dramatic fall in one of the African subsidiary’s profits.
To give some idea of the complex web of companies involved, this diagram shows the web of 29 global companies.
Finally, we are going to look at another investigation by Action Aid from 2013, this time into Zambia Sugar, a subsidiary of UK listed company Associated British Foods.
I’ve picked this example because of the diagrams that Action Aid helpfully included in its report that illustrate what is happening with inter-company loans, interest and dividend payments between various related companies.
This diagram illustrates how the London branches of a US bank and a South African bank routed a loan to Zambia Sugar through an Irish subsidiary, generating interest payments that avoided a 15% withholding tax that would have been due to Zambia, had it not been for an Ireland-Zambia tax treaty.
In this final example, the diagram illustrates how Zambia Sugar minimises the tax on profits, paid in the form of dividends, through a Dutch subsidiary, to parent holding companies that are registered in Jersey and Mauritius, where companies do not have to file accounts.
The company again availed of a tax treaty, this time between Zambia and the Netherlands, likely minimising the tax payable to between 0% and 3% in various years, and avoiding Zambia’s higher 15% withholding tax.
Here’s a summary of what we’ve just covered.
I’d like to finish by talking about several of the key challenges that my mentees have faced in carrying out their investigations in Africa.
I currently mentor four journalists in Zimbabwe, Uganda, Malawi and Rwanda, and previously mentored one in Ghana.
The first challenge is pretty straightforward. Occasionally they’ve been asked for bribes while trying to access what is supposed to be public information about companies. Obviously, and in keeping with Thomson Reuters Foundation policy, they have never done this.
Thankfully as yet this has not seriously impeded their work.
The second and final one is the nature of record-keeping and accessibility of company information itself.
One of my mentees in Ghana found that the companies registry more or less had a pile of unindexed files containing paper records.
As many of you will know, this contrasts greatly with how many European countries can easily access company accounts online in minutes.
Perhaps there is a role here for a public project supported by one of the technology giants, to help Africa get its publicly accessible records online.
Finally, thanks for listening, good luck with all your investigations, and I hope this has proved helpful.
“Zambia’s share of the taxes levied on profits sent back to
Zambia Sugar’s foreign parent, and on interest paid to
foreign banks financing the company’s expansion, is
being avoided by routing those overseas payments
through a maze of tax haven sister companies”
Inter-company loans, interest and dividend
payments to offshore subsidiaries
Summary: What To Look For
• Offshore company subsidiaries: Try to build a
picture of the corporate structure
• Related party transactions – eg. Loans
• Interest payments related to inter-company loans
• Management fee payments
• Payments for royalties or IP
• Dividend payments
• Focus on profits and anything that reduces them.
Challenges of investigations in Africa
• Occasional requests for bribes
• Lack of public information about companies /
Thanks for listening