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May
27

Thursday’s News Digest

Clark Gascoigne

Ribadu Advocates International Corruption Court
This Day, May 27, 2010

Uruguay faces uproar over new taxation law
UPI, May 27, 2010

87% lured by tax dodgers’ discount
The Press Association, May 27, 2010

Germany hands over to India names of 50 tax evaders
DNA (India), May 27, 2010

Maintain raiders on radar
Herald Sun (Australia), May 27, 2010

Nigeria: Corruption – Time for General Amnesty?
Daily Independent (Lagos), May 26, 2010

Administration wants drug aid to Mexico refocused on corruption, not military hardware
Associated Press, May 26, 2010

Bank Indonesia officials grilled over alleged money printing bribery
Jakarta Post, May 27, 2010

CIA to help Bulgaria fight crime, corruption
AFP, May 27, 2010

Afghan president’s half-brother denies corruption
BBC News, May 27, 2010

Former Zambian finance minister jailed for corruption
BBC News, May 26, 2010

Arrest warrants issued to bust an alleged int’l money-laundering ring
Montreal Gazette, May 26, 2010

Mayor of Cancun, Mexico, charged with drug trafficking, money laundering
Washington Post, May 27, 2010

Experts try to untangle money-laundering web
Irish Independent, May 27, 2010

The secret trial of Arcadi Gaydamak
Haaretz, May 27, 2010

Court adjourns money laundering trial
Next (Nigeria), May 27, 2010

Jamaica violence ‘linked to US drug market’
BBC News, May 27, 2010

Treasury Official Acknowledges Chilling Effect on Giving of Counterterrorism Policies
The Chronicle of Philanthropy, May 26, 2010

Tax deal with Cayman Islands OK’d
Kyodo News, May 27, 2010

Supreme Court rejects tax office’s appeal against KPC
The Jakarta Post, May 27, 2010

Continue Reading »

May
27

Jersey and the Isle of Man tax regimes to be reviewed by Europe in September – so what will the Tories do?

Richard Murphy

News reaches me of a meeting of the EU’s Tax Code of Conduct Group, held last week.

This Group was established to monitor compliance with the EU Code of Conduct on Business Taxation – established in 1997.

Aficionados of this blog will know that in the wake of publication of this Code – with which the UK’s Crown Dependencies are obliged to comply since they are part of the UK for these purposes – The Isle of Man, Jersey and Guernsey (in that order) announced plans to create what were described as zero/ten corporate tax systems.

Suffice to say, I was one of the leading critics of this move and when an adviser to a committee of the States of Jersey in 2005 exposed Jersey’s plans as hopelessly non-compliant with the Code. It followed that the Isle of Man’s and Guernsey’s were too. The reason was simple: the proposed arrangements kept in place the ring fence that the EU Code was meant to abolish: it just claimed to move it from company tax law to personal tax law. So, as a result local companies remained taxable and those owned by all other people – even if trading in Jersey, Guernsey or the Isle of Man were not. This was blatantly abusive under the EU Code and last year the UK told the Crown Dependencies this was the case (at long last, and after a lot of publicity on the issue from the likes of me).

Each island has now to come up with new tax laws.

Guernsey has said it will do a 10% flat tax rate, irrespective of ownership.

Jersey and the Isle of Man have not announced plans yet.

So, last week the EU’s Tax Code of Conduct Group met and considered their responses.

Guernsey they decided is off the hook for now: a 10% across the board tax will keep the EU happy.

As for Jersey and the Isle of Man: no news to the EU was not good news for them. Their tax arrangements are to assessed formally in September. I gather Spain and the UK  are gunning for Jersey and the Isle of Man and are putting on tons of pressure for rejection of the current arrangement.

Expect a lot of lobbying of Tory and Lib Dem politicians from the Crown Dependencies before September then.

This one is vital: when imposing cuts on everyone else will the Con Dems stand up to the tax havens or not?

There’s one to watch out for – and the fireworks will surely fly if they let the Crown Dependencies off the hook.?

Continue Reading »

May
26

Wednesday’s Top News Stories Digest

Clark Gascoigne

Shadow system erodes Africa’s growth
Business Report, May 26, 2010

$how Me the Money
Harvard Business School Alumni Bulletin, June 2010

Did more African aid deliver fewer coups?
BBC News, May 25, 2010

Editorial: A timely reminder on Africa
Financial Times, May 26, 2010

Greek ministry cracks down on tax evasion by staff
Reuters, May 25, 2010

Switzerland wins backing for ‘foreign’ tax proposal
AFP, May 26, 2010

ANALYSIS-Global rich want trusts, Swiss banks stay wary
Reuters, May 26, 2010

Italian tax police probe $6.9bn in HSBC list
Financial Times, May 26, 2010

Italy announces austerity measures
CNN, May 26, 2010

Government plans taxing overseas assets of residents in Uruguay
MercoPress, May 26, 2010

Opinion: Black money finds tax haven abroad
The Financial Express (Bangladesh), May 26, 2010

Mexico to Issue New Dollar Deposit Rules Next Week (Update2)
Bloomberg, May 26, 2010

Quebec police make money-laundering arrests
CBC News, May 26, 2010

Latvia shuts bank where U.S. saw money laundering-UPDATE 1
Reuters, May 26, 2010

Jamaican police intensify search for drugs suspect
Financial Times, May 26, 2010

Mexico arrest Cancun mayor on drug charges
Associated Press, May 26, 2010

FCPA Debarment Bill Introduced in House
Main Justice, May 25, 2010

Citibank, Swiss official have admitted Zardari had dollar accounts
The News International (Pakistan), May 26, 2010

OPINION: The world’s biggest threat is corruption, not nuclear weapons
Washington Post, May 26, 2010

Russia May Begin Seizing Corrupt Officials’ Ill-Gotten Assets
Bloomberg, May 26, 2010

European banks settle Madoff cases, Swiss hold out
Reuters, May 25, 2010

Christian Aid wants FTSE 100 to endorse transparency drive
Accountancy Age, May 26, 2010

OPINION: Transfer Pricing — What Will Tomorrow Bring?
The Moscow Times, May 26, 2010

OPINION: Exchange of information on tax matters
Business Mirror, May 27, 2010

Continue Reading »

May
26

New briefing sheet – who are the users of accounts?

Richard Murphy

A new briefing sheet on who might be considered the users of accounts has been published by Tax Research LLP today. It’s available here.

The briefing is, of course, produced in response to the International Accounting Standards Board claim that only capital providers can be considered proper uses of financial statements – all other users having to make do with the information capital providers need, as decided upon by the IASB.

The paper argues that the IASB is wrong – and goes on to show that their claim is in conflict with their own constitution and long held views by accounting standards setters.

There’s no doubt the IASB is going to have change its position on his issue or its whole project will come to an end as legislators realise that the IASB is refusing to act in the public interest. In which case the time for change is soon.

Continue Reading »

May
25

Tuesday’s News Round-up

Clark Gascoigne

Why G20 Should Go the Whole Hog at June Summit
IDN-InDepth NewsAnalysis, May 19, 2010

Financial institutions admit global recession has “brought poverty reduction to a halt” in Africa
ActionAid Press Release, May 25, 2010

IBM, Business Groups Oppose Jobs Bill Over Tax Increase Plans
BusinessWeek, May 25, 2010

Australia Signs Tax Agreements With Isle of Man, Jersey And British Virgin Islands
Government of Australia Press Release, May 25, 2010

Italy to Ban Cash Transactions Over 5,000 Euros, Lawmaker Says
BusinessWeek, May 25, 2010

Offshore tax evaders fined
JoongAng Daily (S. Korea), May 25, 2010

Megayacht Seized for Tax Evasion
The Wealth Report Blog, Wall Street Journal, May 25, 2010

The World Cup, football, tax and climate change
Times of London, Articles of Faith Blog, May 24, 2010

UBS Deal Looks Set For Parliamentary Approval
Tax-News.com, May 25, 2010

“Banking sector should put its house in order”
swissinfo.ch, May 25, 2010

India Presses Mauritius To Renegotiate Treaty
Tax-News.com, May 25, 2010

HK, Austria Sign Pact To Avoid Double Taxation, Tax Evasion
Dow Jones, May 25, 2010

New laws tighten noose around the necks of transnational criminals
Business Daily (Kenya), May 25, 2010

Police arrest 32 across Europe in Irish gang crackdown
Reuters, May 25, 2010

Mexico shaken by apparent abduction of powerful politician Fernandez
Washington Post, May 25, 2010

Experts: Accused Jamaican drug lord akin to Robin Hood, Pablo Escobar
CNN, May 24, 2010

Court cases shed light on money-transferring system
Los Angeles Times, May 24, 2010

Authorities raid major brokerage firm in Venezuela
Associated Press, May 24, 2010

Chávez expects arrest warrant
Miami Herald, May 22, 2010

SC orders govt to write letter to Swiss authorities
Express Tribune (Pakistan), May 25, 2010

Police recommend indicting FM over receiving secret file from ambassador
Haaretz, May 25, 2010

Israeli police question ex-PM Olmert on bribe case
Associated Press, May 25, 2010

Pakistan says ‘no evidence’ president took Swiss kickbacks
BBC News, May 25, 2010

Are bribe firms escaping justice?
BBC News, May 25, 2010

Plot thickens in Australian bribery probe
The Times of London, May 25, 2010

Taiwan’s dirty French connection
Vancouver Sun, May 25, 2010

Incoming Philippine President banks on transparency to combat corruption, poverty
Xinhua, May 25, 2010

EFCC Quizzes PDP Deputy Chair Over Siemens Scandal
The Daily Trust (Nigeria), May 25, 2010

Taskforce identifies corruption ‘loopholes’
Jakarta Post, May 25, 2010

Holder to Visit OECD in Paris on Memorial Day
Main Justice, May 24, 2010

Financial Advisers Don’t Know Sanctions Rules, U.K. FSA Says
BusinessWeek, May 24, 2010

China crisis: Soccer rocked by corruption scandals
CNN, May 24, 2010

Niger’s Military Government Opens Fight Against Corruption
VOA News, May 25, 2010

Continue Reading »

May
25

The IASB needs to embrace country-by-country reporting

Richard Murphy

I’m in Oslo this morning to talk about the International Accounting Standards Board proposals for accounting for the extractive industries, and those relating to the demand for country-by-country reporting in this sector in particular.

The slides I’ll be using are here.

I’ll be publishing much more on this issue soon. Suffice to say, that as I note in the slides there are four fundamental problems with the IASB response:

  • Their refusal to consider the needs of civil society
  • Failure to define materiality appropriately
  • Technical incoherence of the response
  • The voluntary opt out from disclosure built into the IASB proposal

In combination these failures mean:

  • The IASB are not fulfilling their public duty to require preparation of accounts for the public benefit
  • The IASB are not fulfilling their duty to make special consideration of the needs of developing countries
  • The IASB are imposing artificial criteria to ensure civil societies needs for accounting information are not properly appraised or met
  • The IASB have offered a technically inadequate response to the request for country-by-country reporting
  • They have ensured that even if the proposal was adopted it would be entirely voluntary disclosure – which negates the

whole purpose.

The result is that

  • Demand must now be made that the IASB change its approach to this issue, and that to the use of accounts for social purposes by civil society and others who do not provide capital to companies

Governments, civil society, individuals who never intend to invest or trade with a  company, regulators and many more besides need particular accounting data to meet their needs.

The International Accounting Standards Board denies this and refuses to supply it.

For a body supposedly working in the public interest that is extraordinary.

Continue Reading »

May
24

Monday’s Top News

Clark Gascoigne

Indonesia finance minister promises reforms, swift start
Reuters, May 23, 2010

Police chief wants major effort in fight against tax evasion
Angola Press Agency, May 23, 2010

Ireland worse than Greece, faces financial ruin, say two leading economists
Irish Central, May 23, 2010

Editorial: A collision with the coalition?
Cayman Net News, May 23, 2010

Swiss banks remain confident over disclosure rules
Financial News, May 24, 2010

Islands focus on international relations
HedgeWeek, May 24, 2010

LETTER: Corruption in Gabon
New York Times, May 23, 2010

Turkey’s opposition party elects new leader
Associated Press, May 22, 2010

How Jonathan can tame the monster
The Punch (Nigeria), May 24, 2010

Kremlin Seeks to Ban Gifts for Bureaucrats
The Moscow Times, May 24, 2010

‘Better image for MACC’: Proposal to give anti-graft body more autonomy
New Straits Times, May 24, 2010

Georgian Opposition Accuses Government Of Bribery
RFE/RL, May 23, 2010

Duchess’s Scandal Is a Royal Pain in U.K.
Wall Street Journal, May 24, 2010

Securency May Have Bribed to Win Orders, Age Says (Update1)
BusinessWeek, May 24, 2010

Corruption,irregularities in implementation of NREGA
PTI, May 23, 2010

Ireland to crack down on white-collar crime
Irish Central, May 22, 2010

How Will Greece Get Off the Dole?
New York Times, May 23, 2010

Direct Taxes Code: A wild goose chase taxing offshore transactions?
Business Standard, May 24, 2010

Continue Reading »

May
24

The Foundations of Tax Justice

Richard Murphy

Introduction

I am often asked what I mean by “’tax justice’. As a result, and as a contribution to the Briefing Sheet series I am developing, I have written the following summary of what I think tax justice is. It is also available as a briefing sheet.

Tax justice

Tax justice is a broadly based concept. It relates to individuals and all taxable entities. But it also relates to tax systems as a whole.

Tax compliance – the duty of the taxpayer

For the individual taxpayer tax justice is about tax compliance. This happens when the individual seeks to pay the right amount of tax (but no more) in the right place at the right time where right means that the economic substance of the transactions they undertake coincides with the place and form in which they report them for taxation purposes.

Tax and society

But tax justice is about much more than the individual: tax justice is also about the existence of tax systems that promote social well being within and between societies. It is about the creation of environments in which all people can prosper. That necessarily means that the state institutions and businesses that meet the needs of people can also prosper. But it means yet more than that: it means that those who fail to prosper are protected from misfortune until such time as they can prosper again.

That means tax justice is about four things above and beyond the duty of the individual to be tax compliant. First it is about understanding why we tax. Second it is about defining the attributes of a good tax system. Third it is about defining the process that delivers tax justice and finally it is about understanding transparency – without which tax justice is not possible.

The 5 Rs for taxing

There are five reasons for taxation. Tax is used to:

  1. Raise revenue;
  2. Reprice goods and services considered to be incorrectly priced by the market such as tobacco, alcohol, carbon emissions etc. and by providing tax reliefs e.g. for childcare;
  3. Redistribute income and wealth;
  4. Raise representation within the democratic process because it has been found that only when an electorate and a government are bound by the common interest of tax does democratic accountability really work; and finally to facilitate:
  5. Reorganisation of the economy through fiscal policy.

If tax justice is to prevail taxes must be set taking all these considerations into account.

The 10 Cs of a good tax system

An efficient taxation system has nine attributes with one over-riding characteristic to which they all contribute. An efficient tax system is:

  1. Comprehensive – in other words, it is broad based;
  2. Complete – with as few loopholes as possible;
  3. Comprehensible – it is as certain as is reasonably possible;
  4. Compassionate – it takes into account the capacity to pay;
  5. Compact – it is written as straightforwardly as possible;
  6. Compliant with human rights;
  7. Compensatory – it is perceived as fair and redistributes income and wealth as necessary to achieve this aim;
  8. Complementary to social objectives;
  9. Computable – the liability can be calculated with reasonable accuracy;

    All of which facilitate the chance that it will be:
  10. Competently managed.

In combination these are key attributes of a good tax system.

The 6 steps to tax justice

Tax justice can be defined as a six stage process:

  1. Define the tax base. This is the first essential step in creating progressive taxation and in promoting the better use of resources within society.
  2. Find what is to be taxed. If the tax base cannot be accurately located then there is no point trying to tax it.
  3. Count the tax base. Unless the tax base can be quantified it cannot be taxed.
  4. Tax the tax base at the right rates of tax. In the process making sure the inter-relationship between the various tax bases is properly managed to ensure that the essential revenue raising, repricing and redistributive qualities of a just tax system is vital.
  5. Allocate the resulting revenues efficiently and to best social effect
  6. Report – governments must be accountable for what they do with tax revenues or the democratic principle fails.

The 11 steps to financial transparency

Tax justice cannot happen by chance. To achieve it information is needed. That means all potentially taxable people, whether they are human beings or legal entities created under law, must be transparent about what they do, are and have done.

Financial transparency exists when the following information is readily available to all who might need it to appraise transactions they or others might undertake or have undertaken with another natural or legal person:

  1. Who that other person is;
  2. Where the person is;
  3. What right the person has to enter into a transaction;
  4. What capacity the person has to enter into a transaction;

    And with regard to entities that are not natural persons:
  5. What the nature of the entity is;
  6. On whose behalf the entity is managed;
  7. Who manages the entity;
  8. What transactions the entity has entered into;
  9. Where it has entered into those transactions;
  10. Who has actually benefited from the transactions;
  11. Whether all obligations arising from the transactions have been properly fulfilled.

Creating tax justice

Tax justice is not simple, as is already apparent. That, however, is not a problem: a great deal of what humans do is not simple, and yet it is achieved none the less. Tax justice is possible: that is what is important.

These five criteria, tax compliance on the part of taxpayers and the four sets of attributes on which just tax systems are built, are the foundations of tax justice. Together they create a world in which social justice can prevail for all.

That is what tax justice seeks to achieve.

Continue Reading »

May
24

Deepwater Horizon: Grassley letter to BP

Tax Justice Network

Following our blogs about BP’s damaged oil rig being offshore in more ways than one, we are intrigued to see this letter sent by Senator Grassley to the chair of BP.

It contains the following questions:

  • “The Deepwater Horizon rig is operating under the flag of the Marshall Islands. I would like to understand if this shelters BP from rigorous oversight.”
  • Please explain the benefits/drawbacks of having an oil rig off the coast of the United States flying under the flag of a foreign country. Specifically, how does this affect safety inspections, taxes, and royalty payments?
  • Please provide a list of all BP oil rigs operating in the Gulf of Mexico and flying under the flag of a foreign country. Please provide the name of the oil rig, its distance from the United States coast, and the name of the country under which the rig operates.

And these two:

  • Please provide an accounting of all tax breaks and/or subsidies that BP received from the Federal Government for the Deepwater Horizon rig in the Gulf of Mexico. The time span of this request covers January 2005 to the present.
  • Please provide an accounting of royalty relief that BP has received for offshore oil drilling in the Gulf of Mexico. The time span of this request covers January2005 to the present.

Transocean, which owns the rig, received a similar letter.

Interesting . . .

(Hat tip: ataxingmatter )

Continue Reading »

May
21

Global Witness welcomes new government’s promises of reform on corruption, aid, the environment and civil liberties

Clark Gascoigne

From Global Witness:

The programme for government published today by the UK’s new coalition includes commitments and pledges in several of Global Witness key campaign areas. “Having lobbied hard for change on illegal logging, libel reform, aid transparency and white collar crime during the last parliament, we welcome these promises and anticipate swift and meaningful action on each count,” said Global Witness Director Charmian Gooch.

Libel reform:

The policy statement promises a “review of libel laws to protect freedom of speech”. As a key member of the Libel Reform Campaign, Global Witness has long called for such measures. England’s outdated libel and privacy laws often work to protect the dubious interests of a wealthy minority over those of the public. This campaign secured a major victory at the end of the last parliament, with a review panel convened by Justice Secretary Jack Straw recommending sweeping reforms including measures to counter libel tourism, recognition of the need to better define and protect ‘public interest’ reporting, and a commitment to a ‘single publication rule’.

“We’re pleased that the new government has signalled its commitment to libel reform and we look forward to seeing the detail of their proposals. England’s libel laws have long been a national disgrace. The coalition should implement the sensible recommendations in the expert panel’s report,” said Gooch.

“We also need to see the new government re-table proposals to limit the success fees that libel lawyers can charge, which were blocked at the end of the last parliament. These arrangements are currently exploited by lawyers working on a ‘no-win-no-fee’ basis and act as a disincentive to public interest campaigners who self-censor rather than run the risk of facing ruinous legal costs.”

Illegal logging:

The document also pledges to introduce “measures to make the import or possession of illegal timber a criminal offence.” Importantly, this clarifies the UK position ahead of June’s meeting of the EU Council of Agriculture Ministers at which EU legislation to control illegal timber imports will be discussed. The new government should advocate strongly for improved EU legislation at this meeting.

“Without strong measures in importing countries like the UK, we may lose the fight to end deforestation in developing countries, and ultimately the battle to reverse climate change,” said Dr. Rosalind Reeve of Global Witness. “The new government’s commitment to criminalise import and possession of illegal timber shows much-needed leadership on this issue in the EU.”

Illegal logging is one of the major drivers behind the destruction of tropical forests, and a globally significant source of greenhouse gas emissions. Up to 20% of all such emissions are estimated to come from deforestation and forest degradation and illegal logging costs developing countries an estimated US$15 billion per annum.

“To be effective, new legislation on illegal timber must make UK companies responsible for proving that they are not buying and selling illegally harvested timber and wood products.  We need swift and decisive action now”, said Dr Reeve. “The UK is one of six countries that has committed up to US$3.5 billion to help developing countries reduce emissions from deforestation and forest degradation. This money will be wasted if we fail to clean up international markets.”

White Collar Crime:

The new government has stated its commitment to tackling white collar crime. This is a positive step in the fight to end global corruption. The measures needed include firm action against British financial institutions that hold money for corrupt officials from the developing world.

“Corruption and state looting – facilitated by UK banks – entrench poverty, hinder development and undermine the UK’s aid to poor countries. The coalition must also ensure that the UK’s Overseas Territories take action against those who provide financial secrecy services such as front companies and bank accounts to corrupt officials,” said Global Witness campaigner Anthea Lawson.

Aid Transparency:

Finally, the policy statement makes sweeping commitments to improving transparency in the UK’s international aid donations. Such measures are important, but will not be sufficient to prevent corruption and achieve development goals.

“In countries where government institutions have been captured by corrupt rulers, transparency on the part of external donors does little to prevent the looting of these countries’ own revenues by recipient governments. Measures to support improved governance will be necessary to ensure that British taxpayers’ generosity achieves the good ends for which it is intended, and that recipient countries can ultimately move towards less dependence on aid,” said Eleanor Nichol, Global Witness campaigner.

/ Ends

Contact: Oliver Courtney +44 7815 731 889 ocourtney@globalwitness.org

Continue Reading »

May
21

Friday’s Daily News Round-Up

Clark Gascoigne

Senate approves sweeping Wall Street reform bill
Reuters, May 21, 2010

Focus on This: Merkley-Levin Did Not Get a Vote
Huffington Post, May 21, 2010

Senate Passes Financial Regulatory Bill — With Whisteblower Bounty
Main Justice, May 21, 2010

Jobs Bill Funded by Higher Buyout Tax Faces Friction on Deficit
Bloomberg, May 21, 2010

U.K. Plan to Merge SFO, FSA, OFT May Create ‘UFO’ (Update2)
Bloomberg, May 21, 2010

Tax evasion becomes extreme sport in Greece
Reuters Blog, May 21, 2010

Swiss Lawmakers Keep UBS Deal Alive
The New York Times, May 21, 2010

Mauritius: Round-Trips and Hot Money
AllAfrica.com, May 21, 2010

Switzerland to share data on black money if…
PTI, May 21, 2010

Seeking Clues, Paris Examines Security After Art Theft
The New York Times, May 21, 2010

`Immediate’ US aid in drug war slow to help Mexico
Associated Press, May 21, 2010

Justice official to compare notes with Italians on organized crime
Washington Post, May 21, 2010

Kenya: Mystery of Sh164 Billion Smuggled into Country
Daily Nation (Kenya), May 20, 2010

San Francisco FCPA Team to Focus on Silicon Valley
Main Justice, May 21, 2010

Jonathan Blames Financial Crisis On Corruption
Daily Champion (Nigeria), May 21, 2010

How to Clean Up Bulgaria
Time Magazine, May 31, 2010

Czechs tire of sleaze, embrace new parties
Reuters, May 21, 2010

Op-Ed: Breaking the Cycle
International Herald Tribune, May 21, 2010

Fifa investigating Lord Triesman’s allegations of bribery against Spain and Russia
Daily Telegraph, May 21, 2010

Incoming ICC corruption czar vows crackdown
AFP, May 20, 2010

Youth should awaken and work for a corruption free govt: Abdul Kalam
PTI, May 21, 2010

Minister confirms government’s lack of will to fight corruption – PL
Times of Malta, May 21, 2010

Put this in your pipe and smoke it
San Francisco Chronicle Blog, May 21, 2010

Continue Reading »

May
20

Goldman Sachs backs Angolan oil deal despite corruption risks

Clark Gascoigne

Global Witness:

The investment bank Goldman Sachs is backing an oil deal in Angola by U.S. firm Cobalt International Energy, despite a risk that local partners in the deal could expose Cobalt to prosecution for corruption in the United States, Global Witness revealed today.

Goldman Sachs is a major shareholder in Cobalt and two of its executives sit on Cobalt’s board. Agreements with the Angolan state oil company, Sonangol, give Cobalt shares in two Angolan oil exploration blocks and assign it two local partners, Alper Oil Limitada and Nazaki Oil and Gáz S.A [1]

Alper and Nazaki are obscure companies with no visible industry track record. This is a serious concern as Angola is a poor country afflicted by severe corruption: many observers believe that small and little-known companies are used as fronts by top Angolan officials to enrich themselves privately.[2]

Cobalt has gone ahead with the deal, which was executed at the end of February, even though it warned in its own U.S. regulatory filings: “We have not worked with either of these companies in the past, and, therefore, our familiarity with these companies is limited. Violations of the FCPA [Foreign Corrupt Practices Act] may result in severe criminal or civil sanctions, and we may be subject to other liabilities, which could negatively affect our business, operating results and financial condition.”[3]

“It seems extraordinary that Goldman Sachs would back this kind of deal in Angola, a notoriously corrupt country, at a time when the bank’s own business ethics in the United States are under heavy fire,” said Diarmid O’Sullivan of Global Witness. Last month, Goldman Sachs was charged with fraud by U.S. authorities in relation to its dealings with mortgage-backed securities in the United States.[4] The Wall Street bank has denied any wrongdoing.

Cobalt will operate the two blocks, meaning it will be in charge of drilling for oil, with Sonangol, Nazaki Oil and Gáz and Alper Oil as its minority partners. Sonangol declined to explain to Global Witness why it chose these two companies. Alper Oil’s website provides little detailed information about its activities, not even a contact phone number. Nazaki Oil and Gáz does not have a website.

Nazaki Oil and Gáz is covering its own costs but Alper Oil’s upfront costs are being paid by Cobalt, which aims to recoup them out of future revenues. So Alper Oil could make huge profits if oil is found, without investing any capital upfront or taking any risks, and loses nothing if no oil is found.

Transparent management of the oil sector is crucial to the economic future of Angola, a country so poor that the average life expectancy is a mere 46.5 years.[5] But Sonangol’s actions raise serious concerns about whether it is acting in the public interest or the interests of the ruling elite.

In March 2010, Global Witness revealed that Sonangol nominated a son-in-law of President dos Santos of Angola to the board of a key investment vehicle. In August 2009 we revealed that a private company, pre-qualified by Sonangol to bid for oil rights, had shareholders with the same names as top officials, including Sonangol’s chairman.[6] Sonangol declined to comment on these cases.

Cobalt replied to written questions from Global Witness on its own behalf and that of its shareholders, including Goldman Sachs. Cobalt’s letter said: “Please be assured that we have devoted considerable resources towards mitigating the specific risks identified in the statements that you have included in your letter”. Cobalt’s letter also said that the company had retained two law firms for the “specific purpose” of addressing these risks and continued to work closely with them.

However Cobalt declined to answer specific questions about the deal, including a request to identify the ultimate beneficial owners of Alper Oil and Nazaki Oil and Gáz, on the grounds that this would “involve selective disclosure of non-public company information and, in some cases, to do so would also be a breach of the confidentiality provisions of agreements by which [Cobalt] are bound.”[7]

So it is not clear whether or not Cobalt and its investors know who the ultimate beneficial owners of these companies are. “In the highly corrupt and predatory environment of Angola, the public is being asked to take it on trust that deals with opaque partners are ethical. After the sharp practices of the credit crunch and the fraud charges levelled against Goldman Sachs in the United States, this is a tall order,” said O’Sullivan of Global Witness.

He added: “There is an urgent need for the United States and other major jurisdictions to impose tougher regulations on overseas oil investment. The Energy Security through Transparency Act, currently under consideration in the US Senate, would help satisfy this need.”

/ Ends

Global Witness, a member organization of the Task Force, investigates and campaigns to end natural resource-related conflict and corruption and associated environmental and human rights abuses. See www.globalwitness.org

For further information on this briefing, please contact:

Diarmid O’Sullivan on +44 207 492 5863 or +44 7872 620 955

Graham Lee on +44 207 492 5862 or +44 7790 965 397

Notes

1. Cobalt International Energy. 10-K filing to the Securities and Exchange Commission for 2009. Page 5. 424B1 Prospectus. Page 106. Both accessed at www.sec.gov

2. Global Witness confidential interviews with foreign and domestic observers of the Angolan oil industry. See also United States Department of State, Angola human rights report for 2009, Section 4. Official Corruption and Government Transparency. Accessed at www.state.gov

3. Cobalt International Energy. 10-K filing for 2009. Page 51.

4. Securities and Exchange Commission. SEC Charges Goldman Sachs With Fraud in Structuring and Marketing of CDO Tied to Subprime Mortgages. Press release. 16th April 2010. Accessed at www.sec.gov

5. United Nations Development Programme. Human Development Report 2009. Country Fact Sheet Angola. Accessed at www.undp.org

6. Global Witness. Link between Angolan president’s son-in-law and state oil company raises questions about transparency. 15th March 2010. Private oil firm’s shareholders have same names as top government officials. 4th August 2009. Accessible at www.globalwitness.org

7. Letter to Global Witness from Cobalt International Energy. 18th May 2010.

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