Famous US philosopher Benjamin Franklin whose portrait appears on the $100 bank notes coined the saying that only two things are certain: death and taxes. Though his popular quote still makes sense, a number of crafty prominent personalities and corporations have found ways for tax evasion and avoidance.
They mostly do this through tax havens located in overseas countries. According to investopedia, a tax haven is defined as a country that offers foreigners low or zero tax liability for their bank deposits. Additionally, these countries offer tight financial secrecy that make it impossible for tax authorities from other countries to investigate people who have overseas accounts.
Have you ever asked yourself why Mauritius is among the top African countries with the highest GDP per capita yet it doesn’t have much of natural resources? Well in Africa, thousands of influential people and multi-state corporations have lately preferred Mauritius as a tax haven for their money. In this island country, there is almost a guaranteed utopia for investors due to suitable financial laws. For example, there are no laws requiring maintenance of public registers for foundation and trusts owners. Moreover, there is no maintenance of company ownership details. Another big advantage is the low corporate tax charged in Mauritius. Additionally, foreigners are offered tax credits and a stable political environment.
Keen on keeping their financial information under tight wraps, individuals and companies register shell companies. A shell company is simply an entity whose incorporation is done in a tax haven and may use anonymous individuals in a bid to conceal the real owners. Shell companies may be operating in other countries but deposit huge sums of money in the country of incorporation.
Even though the concept on tax havens is not illegal, economists argue that it is immoral and deprives various countries of the needed funds to roll out projects. For example, in a developing countries like Kenya, people with overseas accounts starve the economy of money required for vital sectors like healthcare, education, infrastructure and agriculture.
It is also a loophole for money laundering and widens the gap for income inequality. On the same matter, former Kenya Power CEO Samuel Gichuru who served as between 1984 and 2003 was implicated in money laundering by use of Jersey Island tax haven.
Reports indicate that during his tenure, Gichuru used a company known as Windward Trading Limited to receive money especially from tenders involving international companies that did business with Kenya Power.
Windward Trading was found guilty of money laundering and a colossal amount of Ksh 478 million was frozen. By end of 2021, reports indicated that Gichuru was to be extradited in order to face the said charges.
In another mind-blowing incident, it is alleged that leading shareholders of troubled Chase Bank siphoned money and deposited it in offshore accounts in Mauritius.
Billionaire Zafrulah Khan who served as a chairperson of the entity is said to have diverted at least Ksh 1.6 Bn by use of a company known as Orchid Capital. It was later established that Orchid Capital, incorporated in Port Louis, the capital of Mauritius had an identical physical address to some shareholders of the bank.
Kenyans who had deposited with Chase Bank were faced with hard times in 2016 after it emerged that the lender was being put under receivership. This is after it lost the ability to operate prompting the Central Bank of Kenya and Kenya Deposit Insurance Corporation (KDIC) to swing into action.
Kenyatta family: Panama & British Virgin Islands
Recently, the release of ‘Pandoras Papers’ leak implicated a dozen of powerful heads of states to owning offshore accounts. The leak which involved combing through over 11.9 million documents adversely mentioned Kenya’s first family, which was linked to over $ 30 million of stocks and bonds in offshore investments in Panama and British Virgin Islands.
In response, President Uhuru Kenyatta ironically said the Pandora’s Papers leak would enhance ‘transparency’ as he welcomed an audit of the secret accounts in a sentiment which appeared to revisit the elusive lifestyle audit.
“The movement of illicit funds, proceeds of crime and corruption thrive in an environment of secrecy and darkness, the Pandora Papers and subsequent follow-up audits will lift that veil of secrecy and darkness for those who cannot explain their assets or wealth,” said Kenyatta.