Affidavit of Lindsay Maasdorp in support of the criminal charges against President Cyril Ramaphosa of corruption, bribery, fraud, money laundering, and tax evasion
l, the undersigned, Lindsay Maasdorp, do hereby make oath and say that —
1. I am an adult male and National Spokesperson of Black First Land First (BLF). and I am duly authorized to lay charges against President Cyril Ramaphosa and to this end depose to this founding affidavit, on behalf of BLF.
2. The Complainant is BLF. It is a Black Consciousness, Pan Afrikanist movement which embraces a Sankarist leadership ethos. BLF is registered with the Independent Electoral Commission as a political party and it is situated at situated at 0514 Klampton Towers, 5th floor, cnr of Commissioner & Von Wielligh Street, Johannesburg.
3. I am laying criminal charges at the South African Police Services (SAPS) against the President of the Republic of South Africa, Cyril Ramaphosa, whose registered office and principal place of business is Parliament Street, Cape Town.
4. The content of this affidavit is, unless the context indicates otherwise, within my personal knowledge and to the best of my knowledge both true and correct. The submissions of law that I make are based on the advice given to me by my legal team.
5. The purpose of this affidavit is to provide evidence to the SAPS in support of the charges against Cyril Ramaphosa of:
a. contravention of Section 34 of the Prevention and Combating of Corrupt Activities Act, 2004 (Act No. 12 of 2004);
d. money laundering; and
e. tax evasion
Ramaphosa used VBS Mutual Bank looting to strike deals with voting delegates that they will be protected once he is in office’ instead of acting against corruption
6. News reports suggest that a VBS Mutual Bank shareholder who is unnamed had met with, Cyril Ramaphosa, when he was Deputy President and warned him of the over 2 billion rands of looting of the VBS Mutual Bank. To this end ‘News24 reported that Ramaphosa was informed of the report (of looting) early (in) 2017’.
This indicates that President Cyril Ramaphosa had prior knowledge in that he had received a warning in advance regarding the illegal activities that constitute looting at VBS Mutual Bank.
7. Ramaphosa is accused of having:
a. ‘kept the report hidden from cabinet and the ANC’s national executive committee’;
b. ‘bartered a deal with the voting delegates of Limpopo province to elect him as president of the ANC in exchange for his silence’;
c. sat on the report and notreported it to the SAPS ‘even after his inauguration as president’; and
d. ‘had an “arrangement” with some voting delegates that they will be protected once he is in office’ (this accusation comes from a ‘group in the ANC in Limpopo’).
8. Accountants Delloite has said:
“It’s impossible that former minister of finance Nhlanhla Nene and Ramaphosa knew nothing about the report. What is strange is why it only came out a days after Nhlanhla Nene’s resignation”.
9. Delloite, being chartered accountants, must be questioned as an expert witness by the SAPS as to why it makes the above conclusions.
10. BLF is hereby laying criminal charges against President Cyril Ramaphosa based on news reports which suggest that he had prior knowledge of the looting of over 2 billion rands at the VBS Mutual Bank but had chose to make deals rather than act against corruption.
11. President Cyril Ramaphosa, while he was the Deputy President of the Republic of South Africa at the relevant time, had contravened Section 34 of the Prevention and Combating of Corrupt Activities Act, 2004 (Act No. 12 of 2004) regarding his failure to report criminal activity that was reported to him.
12. In terms of section 34 of the said Prevention and Combating of Corrupt Activities Act, any person holding a position of authority and “who knows of or ought reasonably to have known or suspected that any other person has committed an offence” is obliged to “report such knowledge or suspicion to any police official”. To this end, any “person who holds a position of authority” has this “this duty to report”. This “person” is defined in the Act as someone holding a public or a quasi public office.
13. Cyril Ramaphosa accordingly had the Statutory duty under section 34 of the Prevention and Combating of Corrupt Activities Act 12 of 2004, to report the alleged offence reported to him.
14. Furthermore, Ramaphosa had committed the offence of bribery in that he made arrangements or deals ‘with some voting delegates that they will be protected once he is in office’ instead of acting against corruption.
15. The SAPS is urged to investigate this matter, to prosecute Cyril Ramaphosa to the full extent of the law and to do all that may be necessary to ensure that true justice is obtained. Regarding any other offence committed by the President, that relates to the particulars of the complaint herein, which has not been mentioned here – Ramaphosa must also be prosecuted for it.
Sources – Ramaphosa used VBS Mutual Bank looting to strike deals with voting delegates
i. ‘Cyril denies having any prior knowledge of looting at VBS Mutual Bank’ by Andre Funteriano, issued 2 months ago. See link, https://briefly.co.za/17991-cyril-denies-prior-knowledge-looting-vbs-mutual-bank.html#17991
ii. ‘Ramaphosa received VBS report 2017, used it to negotiate for Nasrec win’ by Hloni Mashigo published on October 16, 2018. See link, https://www.africanews24-7.co.za/index.php/exclusive/ramaphosa-received-vbs-report-2017-used-it-to-negotiate-for-nasrec-win/
Ramaphosa’s corrupt relationship with Bosasa and Bidvest and Tony Leon’s
allegations of state capture
16. President Cyril Ramaphosa has publicly admitted to benefitting from the illegal receipt of R500 000 from Bosasa, the facilities management company, for his presidential candidacy in the African National Congress (ANC) and to this end the president of South Africa (SA).
17. Evidently, Ramaphosa had via his son, Andile Ramphosa, colluded with Gavin Watson the CEO of Bosasa which is currently known as African Global Operations.
18. This was intended to ensure (as it did) that Ramaphosa would win the ANC presidency at the 54th national elective conference – which was held at the Nasrec Expo Centre in Soweto (Nasrec conference) from 16 to 20 December 2017. This in turn would assist white monopoly capital in removing President Jacob Zuma as the President of SA.
19. On 18 November 2018 ‘the former CR17 campaign management team … said they would audit money raised for his candidacy and return R500000 made on behalf of Bosasa’s Gavin Watson.’
20. On 16 November 2018, President Cyril Ramaphosa changed his version he previously gave in the NA in response to a question. To this end 10 days earlier on 6 November 2018 the DA leader, Mmusi Maimane, asked President Ramaphosa in the National Assembly ‘about his knowledge on the R500 000 deposited into his son’s account’. His previous version was that the amount of R500 000 that was deposited by Bosasa into Andile’s (his son’s) bank account was for a service rendered by his son’s business.
21. Ramaphosa now (16 November 2018) admitted that the money from Bosasa was for his ANC presidential election campaign in 2017. To this end he indicated that the payment was made by Andile without his knowledge. This is suggestive of Ramaphosa having corrupt dealings with Bosasa.
22. In an affidavit deposed to by Petrus Stephanus Venter (former Bosasa official), which was produced by Maimane, Venter indicates that he was forced by Gavin Watson the CEO of Bosasa to pay the money into the trust account of Andile.
23. Ramaphosa said that his son Andile Ramaphosa was doing business with and to this end was a consultant for Bosasa. Correcting his previous version on his son’s business dealings with Bosasa, Ramaphosa stated as follows in a letter to the Speaker of the NA, Baleka Mbete:
“Since my reply in the National Assembly, I have sought to get more information regarding this matter. I have been subsequently informed that the payment referred to in the supplementary question by the leader of the opposition does not relate to that contract”.
24. He stated further:
“I have been told that the payment to which the leader of the opposition referred was made on behalf of Mr Gavin Woods into a trust account that was used to raise funds for a campaign established to support my candidature for the presidency of the ANC.”
25. So Ramaphosa initially stated that the amount of R500,000 that was paid into an account that was linked to his son was in fact a legitimate business transaction. A few days later he contradicted himself when he stated that the payment was a donation in respect of his 2017 ANC presidential election campaign.
26. Ramaphosa has stated that his response to a question by the leader of the DA was false. He said that he had no knowledge that the Bosasa donation was not a business deal with Andile, his son.
27. Clearly Ramaphosa has broken his oath of office and lied before parliament when he denied receiving the R500 000 for his campaign.
28. Ramaphosa only admitted that the money was for his ANC presidential election campaign in 2017 because the evidence against him as suggested in the affidavit of Venter was clear and overwhelming. The SAPS must obtain this affidavit from Mr Maimane.
29. The SAPS mustinvestigations the relationship between Ramaphosa’s family with Bosasa and African Global Operations. All payments made from Bosasa and African Global Operations to every member of the Ramaphosa family and extended family should be investigated including Ramaphosa. This includes the relationship between Ramaphosa’s son Andile with Bosasa. Furthermore all funds paid for his campaign must be investigated.
30. Ramaphosa asked for the funds from Bosasa. This is why it was deposited by Bosasa into a trust account that was used to raise funds for his ANC presidential election campaign. It follows that the contracts awarded to Bosasa was to reward it for its support for Ramaphosa and his family.
‘#Bosasa, Ramaphosa and the R500 000 campaign donation’ by Siyabonga Mkhwanazi. See link, https://www.iol.co.za/news/politics/bosasa-ramaphosa-and-the-r500-000-campaign-donation-18157381
31. The funding from Bosasa is suggestive of Bosasa’s influence on the ANC and the government. To this end Ramaphosa lied to and misled the NA when he answered the question about the R500000 payment.
‘Ramaphosa taking heat over R500 000 Bosasa donation’ by Mayibongwe Maqhina. See link: https://www.iol.co.za/news/politics/ramaphosa-taking-heat-over-r500-000-bosasa-donation-18174867
32. Andile Ramaphosa also denied and lied when asked if he received R500 000 illegally for his fathers campaign.
33. Ramaphosa’s presidency is accordingly an illegal appointment by white monopoly capital.
34. Tony Leon openly admitted that a racist land thief who opposes land expropriation without compensation donated R30 million to Ramaphosa’s presidency campaign. Evidently this is to ensure that there shall be no land expropriation without compensation. This must be further investigated by the SAPS. To this end Tony Leon must be questioned.
35. Bidvest also openly funded the capturing of delegates. To this end KZN ANC leader, Sihle Zikalala, stated on ANN7 in the weekend of 17 December 2017 that Bidvest had booked rooms at the Montecasino hotel for Cyril Ramaphosa’s supporters. This is a serious conflict of interest, and would mean that Cyril is using his political power unlawfully.
36. Cyril Ramaphosa’s election campaign was run on the ticket of fighting corruption. He also campaigned against Jacob Zuma using the same ticket. Zuma was seen to be problematic to white capital who preferred Ramaphosa as President. Zuma was also seen as too close to BRICS and the Guptas. The Guptas were accused of capturing the state. There was also the collaboration of the global anti BRICS process with the anti Gupta local white capital campaign to get rid of Zuma via a Brazilian like coup.
Bosasa has benefited hugely from government contracts
37. In response to questions raised by the DA in the NA it emerged that Bosasa has received an amount of at least R2.8billion from government for services rendered in the past decade to two public entities and two government departments. In this regard:
a. Siyabonga Cwele, the Home Affairs Minister, said his department had paid an amount of R1371007561.75 to the subsidiary of Bosasa, being Leading Prospects Trading which in turn “provides the department with the Lindela Holding Facility where detained illegal immigrants are kept prior to deportation”.
b. Michael Masutha, the Justice and Correctional Services Minister, stated that his department awarded Bosasa a contract which was in force from January 2011 to September 2013 for “security guarding and special services to the department”. To this end the department had paid an amount of R535330659.
c. Minister of Transport Blade Nzimande indicated that Bosasa had numerous contracts with the Airports Company South Africa (Acsa) to provide security services between 2015 and 2018 at a number of airports.
d. The contracts in this regard amount to R900 308 592 in value. The OR Tambo International Airport contract awarded in April 2014, will be in operation until March 2023.
38. Bosasa has accordingly benefitted immensely from government contracts and funded Ramaphosa’s election campaigns with R500000 to ensure that it continues to benefit in this regard.
‘R2.8bn in 10 years: How Bosasa is cashing in on government contracts’ by
Mayibongwe Maqhina. See link, https://www.iol.co.za/news/politics/r28bn-in-10-years-how-bosasa-is-cashing-in-on-government-contracts-18924272
39. Section 96 of the Constitution addresses the ‘Conduct of Cabinet members and Deputy Ministers’.
40. Cyril Ramaphosa has contravened Section 96 (1) of the Constitution which provides that:
‘Members of the Cabinet and Deputy Ministers must act in accordance with a code of ethics prescribed by national legislation’
41. Ramaphosa has further breached his obligations under section 96(2)(b) and (c) of the Constitution which provides as follows:
‘(2) Members of the Cabinet and Deputy Ministers may not—
(b) act in any way that is inconsistent with their office, or expose themselves to any situation involving the risk of a conflict between their official responsibilities and private interests; or
(c) use their position or any information entrusted to them, to enrich themselves or improperly benefit any other person’.
42. BLF asks for a forensic audit to be instituted in relation to the donors and donations (at least 200) raised for Ramaphosa’s election campaigns. In this regard, tax evasion, money laundering, corruption and fraud needs to be investigated.
43. The funds were paid into a charitable trust in terms of which the donors received a tax break which they would not have received had they made the donation to the campaign. This amounts to tax evasion.
44. The DA has stated that a firm of attorneys administered Ramaphosa’s ‘slush fund’ that was used to raise funds for his 2017 election campaign.
45. Ramaphosa has admitted that the R500,000 from Bosasa was paid to a trust fund for his 2017 ANC presidential election campaign. To this end Jeffrey Afriat had administered the funds used to raise the money for the said election campaign.
‘DA: ‘Administrator of Ramaphosa election slush fund served as Trillian director’ by Gia Nicolaides. See link, https://ewn.co.za/2018/11/27/da-administrator-of-ramaphosa-election-slush-fund-a-trillian-director
46. It is alleged that Jeffrey Afriat’s ‘trust account was used to launder donations by paying monies donated directly to suppliers of goods and services’.
‘Ramaphosa’s Bosasa scandal: Don’t hold your breath for accountability’ by Paul Hoffman. See link, https://www.dailymaverick.co.za/opinionista/2018-11-19-ramaphosas-bosasa-scandal-dont-hold-your-breath-for-accountability/
48. The HAWKS must investigate the evidence of crimes in this regard.
49. The evidence against Ramaphosa suggests corruption in service of state capture by white monopoly capital including by Bosasa and the entity referred to by Tony Leon who opposes land expropriation without compensation and donated R30 million to Ramaphosa’s presidency campaign.
50. Money of white monopoly capital was used to buy the ANC Nasrec Conference. All this is proof of the influence of white monopoly capital in the corrupt conduct of Ramaphosa during his presidential campaign. He is accordingly an illegitimate President.
51. BLF will also report this matter to the Judicial Commission of Inquiry into State Capture (Zondo Commission) to inquire into all the issues raised herein regarding Ramaphosa’s conduct and role in service of state capture by white monopoly capital.
Lonmin’s illicit profit shifting amounts to wage evasion, tax evasion and fraud
51. Ramaphosa was non-executive director of Lonmin,
52. It must further be pointed out that the illicit shifting of capital by Lonmin into offshore tax havens and secrecy jurisdictions (elaborated below) was in the main to evade the payment of wages as indicated hereunder in white monopoly capital interests. It accordingly makes sense, as the overwhelming evidence suggests in the wage evasion dimension of the profit shifting saga of Lonmin, why it (Lonmin) ensured that:
a. Cyril Ramaphosa and Albert Jamieson of Lonmin had discouraged negotiation with the striking miners of Marikana;
b. Ramaphosa prevented Susan Shabangu from describing the conflict as requiring it be addressed by the unions and management;
c. the North West police commissioner, Lt-General Zukiswa Mbombo, (influenced by Ramaphosa via Shabangu) pressurized Lonmin to not undermine NUM by negotiating with the strikers who were associated AMCU; and
d. There was no intention on the part of Lonmin via Ramaphosa and Jamieson to find a meaningful resolution to the workers demand of a living wage of R12 500.00.
53. On 2 June 2015 the Alternative Information and Development Centre (AIDC) launched its report titled ‘The Bermuda Connection: Profit shifting, inequality and unaffordability at Lonmin 1999-2012’ by Dick Forslund/Alternative Information and Development Centre (AIDC 2015 report) which reveals Lonmin’s conduct of ‘wage evasion’. It shows that if Lonmin had not shifted huge amounts of profits to overseas tax havens, the demand of the Marikana rock drill operators for R12 500 per month in 2012 could certainly have been met.
54. The said report further indicates the dishonorable manner in which Lonmin had contributed to the problem of illegally shifting capital from South Africa (SA) which amounted to over R300 billion in 2012. In this context the actual ‘cost of the profit shifting arrangements to workers, to mining communities, to Bee shareholders in the subsidiaries and to South african society at large, is estimated to be well over R400 million per year.’ (AIDC 2015 report)
55. Evidence suggests that Lonmin could very well have complied with its obligations in terms of the Mining Charter of constructing 5500 houses for the mineworkers over a period of five years. Instead Lonmin built only 3 houses which were actually show houses. (AIDC 2015 report)
56. Furthermore, the transfer of funds in the form of “sales commissions” and “management fees (to overseas) tax havens and head offices is an established practice of multinational mining entities. (AIDC 2015 report)
57. This serves the interests of the relevant white monopoly capital corporate entities at the expense of black interests. To this end the role of auditing firms in rendering the demand of the workers for a living wage ‘unaffordable’; and non compliance by the said corporate entities with its economic transformation obligations, including its social responsibility commitments in terms of the Mining Charter, are key factors. The said factors in turn serve to maintain the architecture of white monopoly capital that enables it to act with impunity and to this perpetuate wage theft and and the starvation wage regime.
Salient points of the findings of the AIDC 2015 report
58. The report inquires into inter alia the ‘consequences for affordability of two transfer pricing arrangements’.
59. The first arrangement pertains to allegations relating to a subsidiary based in Bermuda, which concluded a sale (for a commission) of Lonmin’s Platinum Group Metals (PGM). The next arrangement relates to a service agreement with Lonmin Management Service (LMS), being the branch of the United Kingdom based Lonmin Plc in SA, which rendered various services in terms of which Western Platinum Ltd (WPL) paid management fees. To this end ‘the commissions and the fees were (both) based on a percentage share’ of WPL’s revenue. (AIDC 2015 report)
60. Fees and commissions from 2006 were significantly more than the two percent (2%) and the one point nine (1.9%) of the revenue of WPL as indicated in the ‘inter-company agreement’. (AIDC 2015 report)
61. To this end evidence suggests that LMS ‘paid “management fees” of between 20% and 37% of its revenue to Lonmin Plc in UK to the amount of R429mn between 2007-2010.’ (AIDC 2015 report)
62. The ‘inter-company exchange of actual services should be examined in transfer pricing arrangements’. Moreover, the question of whether payment is made for actual service(s) rendered (or not); or whether the cost of the service(s)
rendered is reasonable, needs thorough scrutiny. (AIDC 2015 report)
63. The fact that putting an end to the illicit profit shifting arrangement could have made an amount of R3 500 to R4 000 more available monthly for the wage of a rock drill operator is very significant in the consideration of the affordability of the workers demands for a wage increase. (AIDC 2015 report)
64. The corporate tax rate is currently 28%. This means that for each R100 million illegally shifted out of the country the South African Revenue Service (SARS) is robbed of R28 million in revenue income and the balance of R72 million constitutes a loss in wages and investments (eg for social responsibility commitments in mining communities). The illegal outflows of capital into offshore tax havens and secrecy jurisdictions are instrumental in maintaining the low wage regime that is prevalent in SA. (AIDC 2015 report)
65. Ending the profit shifting arrangement and reducing fees to LMS (to that which is reasonable) would have made it possible for the subsidiaries of Lonmin – being the direct employers of the workers of Lonmin – to comply with the demands of the rock drill operators in 2012 for a living wage of R12 500 per month. This living wage of R12500.00 would be the net amount after tax deductions and ‘even after allocating 28% of resources to meet their (Social Labour Plan) commitments.’ Moreover, ‘[t]his would have been possible if pension costs and other “knock-on effects” like medical benefits hadn’t been added in full to the increase, mimicking the platinum strike agreement of June 2014, in which a part of the wage increase was agreed to be “non-pensionable”.’ (AIDC 2015 report)
66. Also, cutting back on the ‘huge extra incomes given to managers in the form of share based payments, (which cost) the key subsidiary WPL R100 million per annum (for) 2010-2012 or R2000 per rock drill operator’ would have contributed significantly towards meeting the demand for a basic wage of R12 500 (after tax deductions) of the rock drill operators in 2012. (AIDC 2015 report)
67. In 2006 a ‘once-off transfer of R758 million (occurred) when one SA Lonmin subsidiary (WPL) bought all shares in Messina Ltd and the Messina Platinum mine from Lonmin Plc after taking out a loan.’ From the perspective of ‘corporate power’ this internal company acquisition had no significance as Lonmin Plc controls WPL. The importance of the acquisition howver is located in the tax planning arena. To this end ‘[b]etween 2008-2012, WPL every year gave a loan to Messina and then declared the loan impaired ([t]o impair a loan is to declare it as valueless, assuming that it will never be paid back) in the same financial year, and then reduce(d) WPL’s taxable profit by that amount in its books.’ (AIDC 2015 report)
68. The following two insights must be considered:
a. A study of profit shifting – which begins ‘at the domestic level’ – should of necessity be approached from the perspective of ‘stakeholders in subsidiaries.’ In this regard the following is instructive:
i. ‘The subsidiaries of transnational mining companies hire and pay
workers and pay tax on profits’;
ii. These subsidiaries ‘hold the mining licenses as well as the SLP obligations’;
iii. ‘It is also in the subsidiaries that Bee partners hold shares from which they receive dividends’;
iv. ‘It is the subsidiaries’ funds that are depleted by exaggerated intercompany invoicing in the first link of a chain of transactions’;
v. ‘To combat such abuse, full disclosure of these domestic finances to the public is imperative’; and
vi. ‘Transfer pricing is not only a cross border arrangement.’
(AIDC 2015 report)
b. When the company shifts profits from subsidiaries to oversees tax havens, the following is of significance:
i. ‘the effect on wages is bigger than the effect on tax revenues’;
ii. ‘if the corporate income tax is 28%, a company has to move R100mn to a tax haven in order to avoid R28mn in taxation. In this way, R100mn is effectively moved from the stakeholder table in SA’;
iii. Evidence suggests that ‘[t]he cost of the profit shifting arrangements to workers, to mining communities, to Bee shareholders in the subsidiaries and to South african society at large, is estimated to be well over R400 million per year’;
iv. This situation is characterized by ‘wage evasion and wage avoidance … (where) “evasion” refers to illegal arrangements and “avoidance” to legal (arrangements)’;
v. An estimation of only the extent of the tax expenses that an entity evades deliberately gives the wrong impression. In this regard critically examining the entire amount that is annually shifted out of access to local stakeholders via for example transfer pricing is most instructive.
(AIDC 2015 report)
69. Lonmin had a choice to comply with the Marikana workers R12500.00 wage demand. It chose to shift capital illegally via transfer pricing and thereby deny the wages demanded. Accordingly Lonmin’s ‘affordability of wage demands and (its) social obligations under the mining charter was about a choice of what to afford’. Moreover, ‘Lonmin chose not to afford these obligations.’ In this context, ‘affordability is a matter of choice.’ (AIDC 2015 report)
70. The Paradise Papers, like its forerunner the Panama papers, gives us insight into the parallel universe of white monopoly capital that acts in cahoots with western imperialism. It reveals how huge capital is shifted out of the country into secrecy and tax havens. This shifting of capital goes beyond the evasion of tax. It relates primarily to ‘wage evasion’ as well as securing and perpetuating starvation wages. The Paradise Papers clarify how legal firms such as Appelby, play a complimentary role with auditing entities like PWC and KPMG, in configuring this ‘parallel universe’. ‘Wage & Tax Evasion Made in Paradise: The Role Of Appleby’ by Brian Ashley and Dick Forslund | Alternative Information & Development Centre (Wage & Tax Evasion Made in Paradise AIDC) dated 14 November 2017, via the link, http://aidc.org.za/wage-tax-evasion-made-paradise-role-appleby
71. Evidence clearly indicates in the Paradise Papers that wage evasion is the main reason behind the illicit shifting of huge sums of money out of the country to Western Metal Sales (WMS) which is a Bermudan company. In this regard the law firm Appelby was employed by Lonmin to enable it. (AIDC 2015 report)
72. It is accordingly important to critically understand ‘the wage dimension in the use of tax and secrecy havens.’ To this end the Lonmin situation that led to the Marikana massacre is important. (Wage & Tax Evasion Made in Paradise AIDC)
73. The AIDC 2015 report started as a research project of the Marikana Commission. In this regard ‘[t]he Commission gave AIDC authority to have ‘access to the financial statements of Lonmin’s subsidiaries in South Africa … (which in turn) are lodged in the archives of the Commercial and Intellectual Property Commission (CIPC).’ (Wage & Tax Evasion Made in Paradise AIDC)
74. The Marikana Commission was informed that:
‘the annual reports of Lonmin’s main subsidiary in SA, Western Platinum Ltd, (which was audited by KPMG) revealed transfers of about R250 million per year in “sales commissions” to Bermuda, which continued until 2012. This occurred despite nobody sitting on the paradise island selling anything. Alone, this off-shore payment would have allowed for a R3500 per month wage increase for 4000 rock drill operators who started to strike in August 2012.’ (Wage & Tax Evasion Made in Paradise AIDC)
75. In terms of the statements lodged with the CIPC the shifting of the funds did not terminate in 2008 as indicated by Lonmin in its media alert on 23 September 2014. Evidence indicates that the ‘off-shore specialist law firm Appleby Services (had) facilitated Lonmin’s “Bermuda Connection”.’ The Companies’ Registry in Bermuda suggests that ‘the address of Lonmin’s letter box company ever since 2003 has been 22 Victoria Street, Hamilton, Bermuda, which also is the address of Appleby Services.’ (Wage & Tax Evasion Made in Paradise AIDC)
76. The revelation in the ‘Paradise Papers’ by the International Consortium of Investigative Journalism (ICIJ) shows that Appleby Services (Appleby) were employed to organize ‘the avoidance measures of companies and wealthy individuals from all over the world, including the Queen of England.’ In this regard Appleby facilitated ‘arrangements’ that were in contravention of the anti evasion laws of the various countries. Evidence indicates in this regard that the above ‘address of Lonmin’s letter box company’ is undoubtedly ‘also the address of hundreds of other empty “companies”, subsidiaries of transnational enterprises that use Appleby Services to stash away hundreds of millions of dollars.’ (Wage & Tax Evasion Made in Paradise AIDC)
77. Appleby’s response to the revelation of ICIJ was a bare denial in that there was no evidence to this effect. In its media statement of 23 September 2014, Lonmin admitted ‘that there were no commercial reasons for paying bills of hundreds of million rand to Bermuda’. Lonmin further gave the assurance that ‘payments to (its Bermudan company) ‘Western Metal Sales’ had been phased out long ago’. It explained that ‘[t]he move was based on cost concerns (having a company registered in Bermuda and operating out of London was expensive) and resulted in marketing personnel being based closer to Lonmin’s operations’. (Wage & Tax Evasion Made in Paradise AIDC)
78. However evidence also suggests that no service was ever rendered from Bermuda. The following evidence relating to the correspondence between AmaBhungane’s Craig McKune and Lonmin; as well as Mail & Guardian and Lonmin is instructive in this regard:
‘One month earlier – in August 2014 – before the affair exploded, Lonmin didn’t even talk about “London”. It affirmed – in an email exchange with Craig McKune from AmaBhungane – that all sales were made from Western Platinum Ltd in South Africa, just as could be expected: “Lonmin’s metal is sold directly by Lonmin’s operating subsidiary (WPL) direct to third parties at prices which are market prices” or “WPL negotiates prices with customers as all commercial entities do”. The Mail & Guardian also quoted an email from Lonmin saying: “The fact is that all of Lonmin’s metal is sold directly by Lonmin’s operating subsidiary (WPL) direct to third parties.”’
(Wage & Tax Evasion Made in Paradise AIDC)
79. Lonmin in its publication (on its website) of its interaction with McKune contradicts itself by saying that ‘since 2008 it was Lonmin’s head office company, LMS, that was doing the selling of Lonmin’s metal and not WPL.’ (Wage & Tax Evasion Made in Paradise AIDC)
80. Appleby assists transnational companies ‘to avoid all obligations or stakeholder claims’ that would cut into their profits – especially wages. However ‘[t]he media and many commendable campaigns continue to focus on “tax avoidance”’ This serves to distract from the main problem which is ‘wage evasion’. (Wage & Tax Evasion Made in Paradise AIDC)
81. The fact that the greatest loss suffered by the country from illicit shifting of funds to overseas tax and secrecy havens, is not in respect of tax income but is in relation to wages can be seen in the following illustration:
‘… with a corporate tax rate of 28%, for every R100mn taken illicitly out of the country, the tax authority loses R28mn while, the remainder, R72mn is lost for wages and investments (eg mining communities). The illicit outflows to tax havens are instrumental to keep the low wage regime in place. The second biggest effect is on the minority shareholders who hold shares in the subsidiaries which are getting their funds depleted by fake invoicing from Dubai, Mauritius, Malta, Bermuda, BVI, Netherlands, Cayman Islands, etc … (who) get screwed well before the Revenue Services.’
(Wage & Tax Evasion Made in Paradise AIDC)
82. The offshore tax and secrecy havens are not limited to reducing the taxes of white monopoly capital. They serve as a mechanism to realize the neoliberal agenda and to this end mainly to avoid wages.They absolve white monopoly capital of any responsibility towards the black majority that it exploits to make super profits.
83. White monopoly capital (WMC) companies like Lonmin, engage in profit shifting practices to declare less profits and evade wage demands thus perpetuating the ‘low-wage regime’. This practice is systemic and is what led to the Marikana massacre of August 16, 2012. In fact the Paradise Papers, actually proves how transnational corporations including Lonmin evade taxes and wages through illicit profit shifting.
84. This theft of wages via illicit profit shifting by WMC must be stopped. The public has a right and a direct interest in knowing where WMC companies, including the subsidiaries of transnational companies, are shifting profits to.
85. The state must be urged to put legislative and other measures in place to make legal, auditing and accounting firms accountable for wage and tax evasions and to bring the perpetrators of wrongdoings to book.
86. The government’s response to the theft of tax revenue has been to increase the taxes on wages (like via VAT) and on consumables. So blacks pay for the corporate greed of WMC when it illegally shifts money into offshore accounts.
87. We need to pierce the corporate veil, inquire into the architecture of white monopoly capital that enables it to act with impunity and put an end to wage theft via radical economic transformation (RET).
88. The Lonmin mineworkers were told that their demands were unaffordable but the financial records of Lonmin show the opposite. Unions have since the Marikana massacre not taken heed of this lesson – a living wage of R12500.00 updated to its current value, is possible.
89. The international ‘Common Reporting Standard (CRS), (of which South Africa is a signatory to) developed in response to the G20 request and approved by the OECD Council on 15 July 2014, calls on jurisdictions to obtain information from their financial institutions and automatically exchange that information with other jurisdictions on an annual basis’. It further indicates ‘the financial account information to be exchanged, the financial institutions required to report, the different types of accounts and taxpayers covered, as well as common due diligence procedures to be followed by financial institutions’. (‘What is the CRS?’, by OECD)
90. The CRS also compels states to observe ‘tax transparency’ – and by extension wage evasion. (G20: Pressure rising on tax haven USA by Tax Justice Network)
91. SA was rated in September 2017 to be compliant in the first round of reviews. (‘Brief on the State of Play on the international tax transparency standards September 2017 by OECD)
92. As the CRS requires countries to report on tax payments which in turn should clarify ‘where companies make their profits and where they are taxed’, this international standard operating procedure can be utilized to get disclosure of WMC corporate financial records. This information should reflect the extent of tax evasions and by extension the extent of wage evasion of transnational companies like Lonmin. However the CRS does not meaningfully address the challenges of tax abuse and avoidance and by extension wage evasion by multinational corporations.
93. In this respect, the declaration of the Independent Commission for the Reform of International Corporate Taxation (ICRICT), which was launched on 2 June 2015, goes further than previous reform efforts. It seeks to respond to the infectiveness of the current system via mechanisms that tend to prevent abuse of tax by multinational corporations. There is no indication that SA has adopted the ICRICT declaration.
94. In this regard some of the ‘key points are:
. 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 lpublic services, exacerbates income inequality, and increases developing country reliance on foreign assistance.
. The current reform efforts of the G20/OECD Base Erosion and Profit Shifting (BEPS) initiative is a step in the right direction but fundamentally inadequate because in this context the decision-making power is not globally representative.
. The challenges of tax abuse demand global tax solutions that cannot be created outside of an inclusive global tax body with all nations at the table.
. The primary enabler of international corporate tax abuse is the separate entity principle—a legal fiction that enables the flow of vast amounts of taxable income away from the underlying business operations’. (ICRICT declaration on PSI website)
95. Moreover, ‘[t]he declaration recommends that all countries:
. Tax multinationals as single firms with developed countries imposing a minimum corporate income tax rate during the transition
. Curb tax competition to prevent a race to the bottom
. Increase public transparency of taxes paid by multinationals
. Build inclusivity into international tax cooperation by establishing an intergovernmental tax body within the United Nations and begin drafting a UN convention to combat abusive tax practices’. (ICRICT declaration on PSI website)
96. Multinational corporations or Multinational enterprises (MNEs) have been willfully avoiding and abusing the payment of taxes legitimately owed to their respective countries. This ‘[w]ilful avoidance of taxes or tax abuse by MNEs’ effected via the transference by the said MNEs of ‘their profits to affiliates located in tax havens’ is a very prevalent practice. To this end the developed countries … are robbed of the much needed resources for spending on physical infrastructure and human development and anti-poverty interventions.’ Moreover, ‘[t]he low capacity of tax administrations in developing countries and asymmetric power and resources between the MNEs and tax authorities makes it an unequal game.’ (‘How to make multinationals pay taxes honestly’ by Professor NIPFP)
97 . The current situation indicates how a network of ‘complex subsidiaries’ are created and located in tax havens and secret jurisdictions to facilitate tax evasion and abuse and to this end profits are allocated to these entities. In terms of the current framework, which is used to tax each entity separately, transactions are executed within the affiliates so as to minimize the payment of tax. The ICRICT submits that ‘[a]lthough the “arm’s length pricing rules” (have) been recommended, many of the MNEs … command prices as oligopolies and most developing countries do not have sufficient number of potential comparable transactions to determine the prices objectively.’ Furthermore, ‘intangibles like trade names, goodwill, and brand recognition and intellectual property rights (patents, copyrights, brands and trademarks) are used for manipulation.’ In this regard, ‘applying the arm’s length principle in valuing the transactions between related parties is meaningless.’ (‘How to make multinationals pay taxes honestly’ by Professor NIPFP)
98. Also, ‘MNEs act as intermediaries in product distribution and sales, advance loans … charge interest payments to one another and charge fees for activities such as management services, treasury services and investment services (so as) to reduce the tax liability.’ (‘How to make multinationals pay taxes honestly’ by Professor NIPFP) Done
99. In this context of harmful practices the OECD was tasked by the G-20 countries to establish an ‘action plan to minimise base erosion and profit shifting (BEPS)’. To this end the OECD has devised for articulation ‘15 action plans’ to be followed by countries in its ‘various reports’. However, certain material shortcomings are evident in these proposals. In this regard, ‘there is considerable unease among the developing countries about the OECD proposals due to (i) the discussion in OECD is dominated by developed countries and the representatives of MNEs and (ii) Interests of developed and developing counties’ oppose each each other. (‘How to make multinationals pay taxes honestly’ by Professor NIPFP)
100. The ICRICT’s review of the international tax situation found that the MNEs, ‘are essentially unified firms organised to maximise profits across jurisdictions’. To this end, ‘treating them as independent entities and applying the arm’s length principle for transfer pricing is meaningless’. Also ‘[l]arge MNEs are oligopolies and there are no comparable local firms that can serve as benchmarks.’ Furthermore, ‘the OECD proposals fail to deal with the problem of shifting profits through the exploitation of intangible assets (indicated above). (‘How to make multinationals pay taxes honestly’ by Professor NIPFP)
101. The ICRICT declaration calls for a ‘paradigm shift’. It indicated that to end BEPS the myth that a MNE consists of separate independent entities must be exploded. It clarifies that the MNE and its subsidiaries are one firm and should be regarded as such. To this end the ICRICT recommends that the MNE’s worldwide profits be allocated ‘to individual countries according to an agreed formula’ and that ‘factors such as employment, sales, … resources used and fixed costs’ be taken into account. While MNEs ‘are listed in the stock market and would not understate their worldwide profits … formulary allocation can result in tax competition by individual countries to attract investments to their jurisdictions.’ To address this ‘race to the bottom’, reaching a agreement ‘on a minimum tax rate’ is recommended by the ICRICT. (‘How to make multinationals pay taxes honestly’ by Professor NIPFP)
102. Since the ‘interest of the countries are not single peaked’, MNE’s exploit differences by playing ‘one country against other’. Accordingly ‘interim approaches’ to the MNE as a single entity ‘with formula apportionment’ is the central to the reform suggested by the ICRICT. In terms of the ‘“profit-split” method, the combined profits of MNEs are allocated according to the “allocation keys” which reflect each entity’s contribution to the generation of profit at a transaction-level rather than at an entity-level.’ Currently, the situation that obtains is that ‘the “allocation keys” are ad hoc chosen by MNEs and hence subject to manipulation.’ The ICRICT’s 2nd suggestion is to ‘adopt the “net margin” method’. In terms of this ‘the net profit rate is ascribed to (the) MNE’s local affiliates as an appropriate fraction of the global net profit rate of the corporate group.’ To this end ‘[a]s the profit rate would be applied to earnings before interest, the tax base would not be eroded by means of intragroup loans.’ (‘How to make multinationals pay taxes honestly’ by Professor NIPFP)
103. MNEs must be compelled ‘to pay legitimate taxes particularly to developing countries’. The way ahead as suggested by the ICRICT ‘is to treat the affiliates of MNEs not as different entities but (to) consolidate their profits and allocate them based on a formula.’ This requires a radical paradigm shift in the international tax governance system so as ‘to ensure universal membership and open and democratic structure’. (‘How to make multinationals pay taxes honestly’ by Professor NIPFP)
104. The SA government does not have the political will to address, in a meaningful way, the abuse and criminality of MNEs in relation to tax evasion and avoidance as well as wage evasion. It must be at the very least compelled to adopt and implement the recommendations of the ICRICT declaration so that MNEs like Lonmin can be brought to book in the interests of the impoverished majority.
105. The state on its part has done nothing to criminalize the secrecy that is protecting the illicit outflows of the finances of transitional corporations like Lonmin. It is doing nothing to criminalize wage evasion and to bring the perpetrators to book. The state is therefore serving the interests of Lonmin and by extension white monopoly capital and to this extent is captured.
106. The Hawks must investigate all moneys illegally shifted from the country into offshore tax havens and secrecy jurisdictions so as to evade the payment of the living wage of R12500.00. as well as tax evasion. Ramaphosa must be charged with fraud and tax evasion in this regard. The monies must be recovered and all those affected must be paid appropriately.
Sources – Lonmin’s illicit profit shifting amounts to wage evasion, tax evasion and fraud
i. ‘The Bermuda Connection: Profit shifting, inequality and unaffordability at Lonmin 1999-2012’ by Dick Forslund/Alternative Information and Development Centre. See link: http://aidc.org.za/download/Illicit-capital-flows/BermudaLonmin04low.pdf
ii. ‘Wage & Tax Evasion Made in Paradise: The Role Of Appleby’ by Brian Ashley and Dick Forslund | Alternative Information & Development Centre dated 14 November 2017. See link: http://aidc.org.za/wage-tax-evasion-made-paradise-role-appleby
iii. ‘G20: Pressure rising on tax haven USA by Tax Justice Network’ dated 10/07/2017. See link: http://aidc.org.za/g20-pressure-rising-tax-haven-usa/
iv. ‘Brief on the State of Play on the international tax transparency standards September 2017’ by OECD. See link: https://www.oecd.org/tax/transparency/brief-and-FAQ-on-progress-on-tax-transparency.pdf
v. ‘The Marikana Massacre: wages as the blind spot in the tax evasion debate’
by Dick Forslund dated 4 June 2018. See link: http://aidc.org.za/marikana-massacre-wages-blind-spot-tax-evasion-debate/
vi. ‘What is the CRS?’, by OECD. See link: http://www.oecd.org/tax/automatic-exchange/common-reporting-standard/
vii. ‘How to make multinationals pay taxes honestly’ by Professor NIPFP. See link: https://www.icrict.com/icrict-in-thenews/2018/4/24/httpswwwicrictcomicrict-upcomig-events
viii. ICRICT declaration on PSI website. See link: http://www.world-psi.org/en/icrict-declaration