Bank Corruption

The Swiss branch of HSBC bank cost Tanzania, Senegal and the Ivory Coast over 30% of their national health budgets, EurActiv France reports. 

Between 2006 and 2007, 100,000 clients and 20,000 offshore companies secretly channeled over €180 billion through HSBC accounts. This extensive fraud, actively encouraged by the bank, had a devastating effect on the budgets of developing countries, particularly in Africa.

According to information collected by the NGO One, the losses incurred by Ivory Coast correspond to 0.58% of the country's gross national product (GNP), or €169 million. This loss of capital is equivalent to 39% of the national health budget, or 14% of the education budget. In Senegal, the Swiss Leaks documents revealed a loss of 0.90% of GNP, equal to 38% of the health budget or 18% of the education budget. Tanzania's loss of 0.48% of GNP would cover 17% of health, and 10% of education spending.

Despite being legally obliged since 1998 to make special checks on high-risk customers, the bank provided accounts for clients implicated in six notorious scandals in Africa, including Kenya’s biggest corruption case, blood diamond trading and several corrupt military sales.

One of the cases detailed in the leaked Swiss files involves Kenyan businessmen Deepak Kamani and Anura Perera, whose accounts were kept open by HSBC despite them being named in a highly publicised anti-corruption report in 2006. Investigator John Githongo, who later fled Kenya after ministers failed to support him, alleged the two men were the beneficiaries of contracts signed off by Kenyan politicians. The HSBC files detail payments to their offshore entities, called First Mercantile Securities Corporation, Midland Finance & Securities Ltd, and Infotalent Ltd. Notes on Perera’s HSBC records discuss a quarterly payment of “1mio” from the Kenyan government into his account, apparently delayed because of a shortage of state funds. Separately, Kamani’s notes show the bank kept his account open despite the allegations: “We spent some time discussing the ‘compliance’ issue facing this account. The clients again reiterated that there was no substance to the press reports that have been appearing in the press over the past nine months. They mentioned that only UBS and HSBC had raised the compliance issue in any meaningful way. “UBS have now closed the accounts for the client and the clients seemed pretty upset with this development. We explained to the clients that while we had discussed with compliance the issue, we continue to operate the account as has been normal over the past three years.” Swiss and Kenyan investigators are still probing the deals.

In another African corruption case, HSBC handled £20m in accounts controlled by Jeffrey Tesler, a small-scale London lawyer. Tesler, who was eventually jailed in the US, was fronting for the then president of Nigeria, General Sani Abacha, and other local politicians in a corrupt gas plant deal. Tesler’s HSBC account for Tristar Investments Ltd had an obscure address in the Seychelles. He was publicly named as a bribery suspect in 2004. But in 2007, HSBC was still operating Tristar and Tesler family accounts.

The files show the bank provided services to a circle of African diamond traders who broke the law. They included Emmanuel Shallop, jailed for six years by an Antwerp court for importing illicit Angolan conflict diamonds in 2001-02. Shallop, also alleged to have dealt with Sierra Leone rebels, hid almost £2m in an HSBC account. Shallop had been named in connection with illicit diamond trading activities as early as 2001, in a UN report on conflict diamonds discussing his receiving payments “through a bank in Geneva”. When he visited Geneva to switch cash into a Dubai-registered entity in 2005, HSBC openly noted: “The customer is currently being very careful, because he is under pressure from the Belgian fiscal authorities investigating his activities in the field of diamond tax evasion.” HSBC also provided general accounts for directors of Omega Diamonds, a Belgian firm named in the same 2001 UN report. Two directors’ accounts contained at least £860,000 and £1.75m respectively. A third Omega shareholder was linked to general accounts with values totalling £47m. The company paid $195m (£126m) to Belgian tax authorities in March 2013 after being found to have shifted profits from the import of mis-valued diamonds from Congolese mines and Angola into Dubai.

Fana Hlongwane – close to South Africa’s ANC government – was named in 2008 by the Serious Fraud Office as a confidential BAE agent. The SFO said in published statements sent to South African prosecutors that Hlongwane received BAE money through disguised offshore intermediaries to promote arms deals. The South African government decided not to pursue the case. HSBC is now revealed to have operated Swiss accounts for Hlongwane as an agent for three other US multinational companies. They contained more than $10m in 2006.

In a separate arms case an Italian businessman of Syrian origin, Fouzi Hadj, was accused in 2003 by the UN and Human Rights Watch of gun-running for Liberian rebels. His Guinean company, Katex Mines, had an HSBC account in which assets of more than $7m were hidden. The account was not blocked until May 2005 and closed in 2006. Fouzi was arrested in 2011 and sentenced to six years in Italy for a separate fraud. 

http://www.theguardian.com/news/2015/feb/12/hsbc-files-swiss-bank-hid-money-for-suspected-criminals

More Somali Woes

 Somali remittances are a lifeline. The United Nations estimates Somalis in the diaspora send home $1.6bn annually, significantly more than foreign aid. According to a UN study, more than 40% of Somalis receive remittances, the bulk of which are used for basic needs, including food, clothes, medicine and education. Total annual remittances to Somalia are estimated at $1.6bn (£1bn). There is no functioning banking system in Somalia, so remittances are the only way people outside the country can support those at home. They play a crucial role during the frequent droughts as international aid agencies use them in cash for food programmes.

Somalia has criticised a move by a US bank to close accounts of money transfer companies. Merchants Bank of California handles about 80% of money transfers - remittances - from the US to Somalia, worth about $200m (£131m) annually. But it announced on Thursday that it had to withdraw its services due to new money-laundering regulations. The Office of the Comptroller of the Currency (OCC), a federal regulator, told the US bank last year that it found its anti-money laundering procedures inadequate. In the US, bank directors are responsible for ensuring all the funds they handle are used for legitimate purposes. In a similar move in 2013, UK banking giant Barclays also sought to cut ties with Somalia by closing the account of leading Somali money-transfer operator Dahabshiil. Barclays, which said the move was part of a crackdown on money laundering, eventually agreed to keep the account open so that Dahabshiil could find a replacement bank.

"They are the lifeblood... for many, many Somalis, so from a humanitarian perspective it is clearly worrying if there is a complete stop in remittances," said Nicholas Kay, the United Nations special representative for Somalia, said the remittances were a survival mechanism for Somali families.

Promises ...always promises

Soaring economic growth in many African countries is coming at the expense of the poor, according to a new report, ‘Africa Rising?’ Despite a decade of high growth across the continent, the wealth created is not being equally shared and so progress in human development in Africa has been disappointingly limited, according to the report by Christian Aid and Tax Justice Network-Africa.

But the growing gap between rich and poor is not simply the result of the rich getting richer, the authors say. They also point to money escaping offshore in illicit flows as well as tax systems that are failing to redistribute wealth and in some cases even disadvantaging the poor.

“Inequality has been exacerbated by the growth model in many countries which has seen a concentration of income,” said Alvin Mosioma at Tax Justice Network-Africa. “It also reflects the inability of governments to tax the proceeds of growth, either because so much is given away in corporate tax breaks, or has escaped offshore into tax havens. Until tax dodging is tackled effectively, nationally and internationally, and illicit finance flows from the continent halted, economic inequality will continue to rise.”

Standard Chartered said that the 16 percent annual increase in African revenue in the past five years is “sustainable.” Viswanathan Shankar, chief executive officer for Europe, the Middle East, Africa and the Americas  of the London-based bank explained “There is huge interest in Africa; it is a continent of hope and of rising world interest,” Shankar said. “If you look at World Bank data 7 of the top 10 fastest-growing economies over the next 10 years are projected to be in Africa.”

Standard Chartered was the biggest arranger of syndicated loans in sub-Saharan Africa in 2013, its deals included raising $3.25 billion in a seven-year term-loan for Nigerian billionaire Aliko Dangote’s Dangote Industries Ltd. and $1.99 billion in three- and five-year financing for Aspen Global Inc., a Mauritius-based company with interests in medical products. Standard Chartered’s operating profit from Africa grew 9.8 percent in the first half of 2013 to $357 million, while revenue climbed 16 percent to $853 million, making up 8.7% percent of overall income. Growth in Africa will be led by Nigeria, Ghana, which has a history of good economic and political governance, Kenya and Angola and the increasing use of financial products like bonds, loans and mortgages.

Meantime while the financial sector boasts of promising profits in the future a lack of electricity continues to be a major problem in parts of Africa. According to the Washington Post, only 14 percent of people get any electricity at all in Tanzania, and across sub-Saharan Africa, nearly 590 million people lack access to power. This problem has had severe effects. Indoor air pollution from wood stoves kills 3.5 million people per year, more than AIDS and malaria combined.

The legacy of Belgium’s empire left just a few dozen Congolese university graduates and an economy built chiefly to supply Belgium with raw materials. Even today, there is just 2,000 km (1,250 miles) of paved road in a nation the size of Western Europe. Millions of Congolese are estimated to have died and the country was decimated between 1885 and 1908 after King Leopold II declared Congo his personal property. The king's troops were ordered to collect the hands of victims, often shot for resisting slave labour, to prove they had not wasted bullets. Leopold even imported Congolese for a human zoo to show life in the country he never visited.
Adam Hochschild, author of "King Leopold's Ghost" describes Leopold's unrestrained plunder of Congo, told Reuters he has been surprised at many Belgians' ignorance of what happened in colonial times. Belgium may not be the power it once was, but its people are among the richest Europeans. Much of that prosperity can be traced to the colonial past, when the country stood among the globe's most successful trading economies. Over the first six decades of the 20th century, ivory, rubber, copper and diamonds all flowed from Africa to Belgium. The royal family's wealth is reflected in its sprawling palace, extended by Leopold and modeled on Versailles.
In the more than half-century that Belgium ran Congo from 1908 to 1960, hundreds of thousands of Belgians worked there in everything from business to colonial administration yet exports from Congo were little more than 280 million euros last year.

Promises turn into lies if they are not kept. It is too easy to come up with an impressive list of things to do, knowing too well that it's just a pipe dream that will fizzle out. For far too long citizens have fallen for those with the rhetoric and have paid dearly. The time has come to interrogate what they say to us. It does not help democracy or our future if we allow politicians to continue making promises they won't honour. We have been told how millions of our people will be employed and how corruption will be squashed, but all the talk is short on detail. In the global world in which we live, it is imperative that we look beyond our borders.

Micro-debt slavery

Lending by microfinance organisations is pushing the poor deeper into the poverty, a new study says.

Hailed as the saviour to the poor, the microfinance model works in simple way – it gathers many low-income earners, gets them to form a group, and then loans them small amounts of money payable over flexible periods. It supposedly works for the poor in that it does away with the need for the collateral needed to secure normal commercial loans. The small loans are meant to help them set up income-generating projects to enable them to earn and pull themselves out of poverty. Acceptance by a group is said to deter entry to those deep in poverty. The oft-cited loan repayment rates of about 90 to 100 per cent – much higher than repayment rates at commercial banks – hide the blood, sweat and tears of microfinance borrowers. And the fact that they are unregulated means the microfinance institutions operate under their own rules, and some border on being shylocks.

The study by the University of Nairobi economics lecturer Joy Kiiru in collaboration with similar research done in Uganda by Flavian Zeija dismisses the notion that lending small amounts normally co-secured by a group is “a positive poverty eradication tool and potentially powerful engine of growth for the economy.” Instead, they say, the practice may be condemning millions to abject poverty.

The problem, the studies say, is lack of understanding by borrowers on what the loan contract entails and exploitation by microfinance of this ignorance.

“In fact, many clients only ask where to sign because they urgently need the money. Even those who can read and write do not bother to read the documents. They never question anything,” a Uganda microfinance credit officer is quoted saying in the report. Multiple borrowing pushing the repayment beyond the borrower’s ability to repay has also been cited as major problem. Multiple borrowing kicks in when a borrower has difficulty repaying a loan and borrows to avoid default. The loan then balloons, and by the time the credit bubble bursts, the borrower will have nothing left when the group decides to sell the property for default. In some instances, borrowers are forced to sell their household goods to repay loans, and as it recently happened in Makueni, others are forced to surrender their children to the group as a form of blackmail to bring in relatives to help repay the loan.

“Peers in a group will not allow very poor people to join them because the poor are likely to use their loans for consumption and therefore risk default,” said Ms Kiiru. This is so because unlike the normal commercial loan given to an individual, a microfinance loan given to a group is jointly guaranteed by all members, and default by one member has consequences for the entire group. “This finding implies that microfinance may be useful for the better-off poor, but it is simply not an option to the poorest,” she said.

The other problem cited is that the funds really poor people borrow are usually diverted to purposes other than what they were meant for. The money is used to meet domestic needs like food, clothing, rent, and school fees with very little left over to invest in their small businesses. Then there is the question of insufficient loans, either because the borrower underestimated the money needed or simply that the lender declined to lend the amount requested. The intended project ends up failing, and the borrower has to turn to the little she had to repay for failed business.

Only 17 per cent were able to repay their loans from their business returns. The majority, 62 per cent of borrowers, repaid their loans under duress – repayment due to excessive peer pressure. Another 17 per cent had to sell their pre-existing assets, while four per cent had their property confiscated by their peers.