Tax avoidance, tax evasion, tax heavens, illicit financial flows and global tax governance are real buzzwords that have come to dominate current international political and financial domains. Tax avoidance, understood as the use of the so-called ‘loopholes’ in the tax legislation to reduce one’s tax payments increasingly tops news charts. The recent Pandora Papers, EU’s blacklist of 17 tax havens, Paradise Papers and the Panama Papers are among the starkest examples. Recent waves of tax dodging scandals including those of tax evasion – the use of unlawful means to escape paying tax – pushed many governments globally towards implementing various structural changes to taxation systems. Moreover, there is a growing call towards making the ‘fight’ against the exploitation of tax regulations ‘a global effort’ and the Organisation for Economic Co-operation and Development’s (OECD), Tax Inspectors Without Borders and the Declaration on Automatic Exchange of Information are amongst the most prominent measures of this kind.

In a recent study that explored anti-fraud initiatives in nine countries on the African continent, measures to address the drainage of revenue featured strongly. What is particularly interesting is the fact that many actors, private, governmental and supranational, including those in the West, seem to be especially active in encouraging change and acting as ‘advisories’ to governments and business on the African continent. This article will use the findings of the study to outline some of the interventions, paying particular attention to the actors involved. The article will then look closer at the OECD’s initiative, and close with some questions and thoughts regarding the findings and the North-South dynamic that prevails.

According to one estimate, US$240bn is lost in tax revenue every year due to various forms of tax avoidance and evasion, with the majority of losses in low- and lower middle-income countries. As shortages in funding of developmental projects persist and countries struggle to meet the financial requirements needed to achieve Sustainable Development Goals (currently the investment gap in developing countries is around US$2.5 trillion), experts worldwide highlight that the tax loses are unjustifiable and if addressed, can be used to facilitate the delivery of the SDGs. In recent years, many initiatives emerged across the Global South to raise awareness of the problem, involving governments, supranational organisations such as EU, UNDP and OECD to name a few, businesses, and rights advocacy groups such as Tax Justice Network and others. Several countries in the Global South have been applauded for their efforts to keep up with the tax reform that prevails in parts of the Northern hemisphere.

Having looked at anti-fraud initiatives in South Africa, Ghana, Botswana, Nigeria, Tanzania, Kenya, Malawi, Rwanda and Zambia several trends emerge, some of which were outlined in previous blogs on roape.net. One trend that has not been discussed is the nature of the initiatives aimed at tackling various forms of tax evasion and avoidance and importantly the actors that are driving these measures. The types of initiatives aimed at addressing tax loss, range, amongst others, from education-led awareness raising campaigns on the importance of tax contributions and the harm that tax evasion and avoidance has on the health of the economy, the use of automation and digital technologies to increase tax collections and to facilitate the transfer of information on local, national and global levels, amendments in the legislation, and intercountry cooperation. The actors involved include domestic and foreign governments, businesses (consultancies and banks in particular), supranational organisations, development agencies, and advocacy and civil society groups. To explore these measures further, a number of examples will be given below, paying special attention to the actors driving and implementing such initiatives.

Who is pushing for crackdowns on tax fraud?

Private businesses, especially consultancies and banks, are active advocates for lawful taxation contributions across the studied countries. For instance, Deloitte Consulting launched the Tip-Offs Anonymous Hotline both in Botswana and Malawi aimed at deterring financial fraud, including tax evasion and tax avoidance. According to the Managing Director of the Botswana Development Corporation, ‘Tip-Offs Anonymous line is put in place as a deterrent to fraud and promotes a culture of zero tolerance towards these crimes.’  In another initiative, Tallinn-based multinational company Nortal is assisting Botswana in creating a ‘new tax management solution’ which will replace the existing system entirely. Costing around €8 million, it will provide new risk management solutions and ‘should boost overall economic growth in Botswana, reduce the tax gap and increase transparency while reducing costs.’ PricewaterhouseCoopers Ghana while commenting on the Ghana’s new 2018 budget has advised the government to implement changes to strengthen revenue collection, including, among others, the use of mobile payment technology, targeting debt management, minimising the fiscal gap, and ‘increased investment in agriculture value chains and in growth enhancing infrastructure including radical structural transformation to ensure export diversification.’

Moreover, businesses are particularly active in initiating measures to address counterfeiting and substandard produce. It is important to note that counterfeiting, tax evasion and avoidance are closely interlinked. It is more difficult to obtain the legislated amount of tax from counterfeited and unlicensed products, and in addition it has a negative impact on those brands whose products are being replicated. International firms such as Southern Graphics Systems (SGS) operating in Kenya, Sproxil in Tanzania and Bureau Veritas in all of the studied countries, offer services to business and individuals, and cooperate with governmental agencies on strengthening quality checks and identify counterfeited produce. Technology is often adopted in these measures. An interesting example is that of collaboration between the Human Development Innovation Fund, UK’s Department for International Development and the firm Sproxil. The initiative involves the introduction of Mobile Product Authentication technology to help verify counterfeit produce in pharmaceuticals and educate individuals on health risks associated with such products.

National governments have featured strongly as those pushing for strengthening of the tax regulation, so all the nine studied countries contained a government-led initiative related to taxation. To highlight the variety and scale of these initiatives a few examples provides powerful illustration: declarations of crackdowns on tax misconduct by the country’s presidents in the case of Tanzania; registering taxpayers at the district level in an effort to address the problem at grass-roots level, and the adoption of Electronic Billing Machines in Rwanda; amendments to national legislation to specifically tackle tax-avoidance as in South Africa. More aggressive measures in Nigeria whose Federal Inland Revenue Service have threated to deny access to banking facilities for those companies that don’t join taxation register.

In Ghana, measures to combat tax evasion and avoidance are initiated by a number of actors, including the Ghana Investment Promotion Council with an initiative to develop a ‘beneficiary ownership regime’ aimed at identifying owners of companies, particularly in the extractives industries. In a more recent initiative, the Ghana Revenue Authority planned to use the Point of Sale (PoS) devices to strengthen tax collection and improve monitoring of revenue. There seems to be widespread support for this measure, including from Price Waterhouse Coopers Ghana. Kenya’s efforts focused on Small and Medium Enterprises, where the Kenya Revenue Authority seeks to address the issue at grassroots level and work closely with county authorities to integrate the SMEs into the taxation system. Malawi Revenue Authority keeps up with the trend of using technology, in particular electronic payment systems to encourage tax payers and prevent evasion and avoidance.

Finally, Botswana focused on tackling tax avoidance by identifying ‘multinational tax dodgers’ and has joined OECD’s framework on Base Erosion and Profit Shifting. According to a state official, ‘Botswana is […] obliged to conform to these standards and that may mean amendment of tax legislation where necessary.’ In the words of the same official, ‘Botswana’s tax system will be put under scrutiny whether it conforms to international best practice which should in turn boost investor confidence and hence it has the potential to attract investment by credible investors.’

The involvement of foreign actors, including governmental bodies is extensive across the studied countries. UK’s DFID has been particularly active in offering assistance, having spent over £32 million on tax system improvements overseas in 2015, and £26 million in 2016. Out of the 9 studied countries, seven (Ghana, Nigeria, Tanzania, Kenya, Malawi, Rwanda and Zambia) received assistance from the British government. For example, in 2015, Ghana and the HMRC partnered with the Ghana Revenue Authority to develop their expertise on tax legislation, compliance and data privacy. This agreement is part of a wider, OECD backed ‘global standard’ for an automatic exchange of information of tax payer’s data scheduled for 2018. According to International Development Secretary Justine Greening, ‘the UK is committed to helping developing countries get their tax systems in order so that as their economies grow they are able to increasingly fund their own health and education programmes and reduce aid dependence.’

Advocacy and civil society groups are actively gaining ground in running of campaigns to raise awareness on illicit financial flows. One of the widely known organisations is Tax Justice Network (TJN) which offers research, analysis and advocacy on tax evasion and avoidance, as well as The Global Tax Alliance for Tax Justice (a spin off from TJN), which brings together civil society organisations and activists working with this issue. Numerous regional organisations such as Tax Justice Network Africa, run national and grass roots level events. Among its initiatives is the Stop Bleeding Africa Campaign which joined various stakeholders in an attempt to drive one Africa-wide response. Numerous national organisations and civil-rights activists are promoting awareness as part of this initiative, for example the recent campaign in Ghana in collaboration with Ghanaian based Integrated Social Development Centre and Tax Justice Network. Numerous international charities also do extensive work organising initiatives and raising awareness on this issue, and include amongst others Transparency International, Action Aid, and Oxfam.

As was mentioned above, OECD has been an active player in introducing measures to address leakages of tax, and some argue, has been pivotal in the setting of certain international taxation standards. Tax Inspectors Without Borders, a joint initiative with UNPD launched in 2013 is aimed at providing technical assistance to developing countries to enhance their capacity to obtain tax contribution from multinational companies. Currently, technical assistance is being offered to 18 African states, in some cases partnered with actors such as UK’s HMRC, African Tax Administration Forum, Germany’s Federal Ministry of Finance, Netherlands’ Tax and Customs Administration, the World Bank Group, the French Direction Générale des Finances Publiques (DGFiP), USAID and others.

What has come to be known as the ‘Global Forum on Transparency and Exchange of Information for Tax Purposes’ was rolled out in the 2000s and includes 148 members, both OECD and non-OECD members. The Exchange of Information on Request, and most recently the Declaration on Automatic Exchange of Information (AEOI) have been the two core initiatives. These frameworks are now regarded as the new standard and currently over 100 countries have signed up to the declaration. The core idea is to allow for easier and timely transmission of financial information (gathered by financial institutions such as banks) about a country’s residents living overseas with the aim of greater transparency and prevention of tax evasion and avoidance, while suggesting that the existence of tax heavens may come to an end. The countries can sign multilateral (there are currently 98 signatories) or bilateral agreements, as we have seen between Ghana and the Netherlands. Countries are free to chose with which countries to exchange information.

Are we on the right track?

The examples outlined above would suggest that various actors recognise the need to address illicit financial flows and implement different measures to raise awareness (even if driven by profit motives), and put in place mechanisms to prevent tax dodging and allow for greater transparency. However, what is critical to note is that a number of the actors involved in pushing for anti-tax evasion and avoidance, may themselves be culpable for similar abuses of the tax legislation. For example, Deloitte, and other accountancy firms such as PwC were acting as advisories and helped companies such as Blackstone avoid paying tax as we have seen in the Paradise Papers. Moreover, a group of consultancy firms that have become known as ‘the big four’, PwC, Deloitte, EY and KPMG, are known to use their positions to lobby for certain regulations and in some cases employees of these firms are known to take up roles at the OECD and in national governments to push for their client’s interests. Furthermore, numerous international banks were discovered to make use of tax heavens to hide their profits, such as Barclays which declared profits of €557m in Luxembourg but only paid €1m in tax.

These are just some of the examples, where the ‘advisories’, are in fact the ones making use of the loopholes in legislation, while at the same time offering advice to countries in the Global South on how to better manage their taxes (see on this phenomenon John Christensen’s analysis in David Whyte and Jörg Wiegratz’s book here). What is important to note there is that such ‘advice’ often informs policy and legislation within those countries and here, one cannot fail to notice the characteristically unequal North-South dynamic.

While OECD’s initiatives are, one might argue, an important step towards greater transparency, and have even been deemed as ‘revolutionary’, commentators are calling for scrutiny of some of the organisation’s measures. In the case of Tax Inspectors Without Borders – a joint OECD/UNDP initiative – following a review of its operation it was discovered that leadership for the three of its pilot projects in Rwanda, Ghana and Senegal originated from donor countries, which was against the original formulation of the initiative.

In terms of the AEOI (Automatic Exchange of Information) one of the main concerns is the need for reciprocity meaning that it is required for a country to be able to collect and send information if it is to receive information in return. The issue here is the lack of capacity, infrastructure and resources in some Southern countries to do this, thus this would automatically exclude them from participating in the framework at least in the immediate future. Moreover, even if a country matches reciprocity requirements, another concern within the framework is the fact that countries are able to choose with whom to exchange information and this has been compared to a dating game. For example, even if country X wants to receive information from country Y, they will only be able to do this if country Y approves. An example is the US, which is a major player on the taxation arena and a country where many tax heavens are safely hidden. The States has for a long time imposed automated exchange of information on countries where their citizens reside, without participating in turn and is refusing to take part in the AEOI.

A final aspect to mention here is the fact that the framework is reliant on financial institutions to record and verify residency information of their customers in order to transfer the requested information to the correct country. The concern is that there are ways – for example, making an investment – to gain residency in certain countries, use that information to register in a bank but not reside and conduct financial transactions in the country in question. So, fraudsters may continue to evade and hide tax in other locations without risk of being unmasked.

In this blogpost I have summarised some of the initiatives to address tax evasion and avoidance by numerous actors on the African continent and draw attention to frameworks that are presented as ‘international standards.’ The initiatives vary in type, scale, and the actors involved. It also suggests that the initiatives are underpinned by various drivers, whether commercial, political or other. There is a degree of hypocrisy on the side of some ‘advising’ actors where they are directly involved in or are facilitating financial crime. OECD’s initiative, while potentially beneficial, has loopholes and seems to disadvantage Southern countries.

While a growing body of literature is currently emerging surrounding illicit financial flows, as well as around the nature of global tax governance as a whole, there is not enough evidence to suggest that the ‘global fight’ is indeed not a ‘global flight’ driven by certain powerful entities and interest groups to avoid paying tax. Given that the issue has universal significance and undermines the development of many countries in the Global South, more research (and campaigning) is needed in order to understand the nature of these initiatives, the forces behind them, and the unequal North-South dynamic that prevails.

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This article was published in the Review of African political Economy (ROAPE).

As Uhuru Kenyatta mounted a political comeback by campaigning against corruption, his family’s secret fortune was growing offshore, a massive new leak shows.

At his annual State of the Nation address last fall, President Uhuru Kenyatta mounted the podium at Kenya’s Parliament to acknowledge that too many Kenyans live in poverty and too many officials loot the country’s public resources.

The son of Kenya’s first president and leader of one of Africa’s largest economies, the 59-year-old Kenyatta urged lawmakers to join him in fighting corruption and yet again declared “the centrality of transparency, accountability and good governance as the anchors of sustainable development.”

But a massive cache of newly leaked documents show that Kenyatta’s family has for years been secretly accumulating a personal fortune behind offshore corporate veils.

Kenyatta, along with his mother, sisters and brother, have for decades shielded wealth from public scrutiny through foundations and companies in tax havens, including Panama, with assets worth more than $30 million, according to records obtained by the International Consortium of Investigative Journalists and shared with more than 600 reporters and media organizations around the world.

The records – from the Panamanian law firm Aleman, Cordero, Galindo & Lee (Alcogal) – show that the family  owned at least seven such entities, two registered anonymously in Panama and five in the British Virgin Islands. One BVI company owned a home in central London, according to the records, and two other companies held investment portfolios worth tens of millions of dollars. The Kenyattas’ offshore wealth, revealed here for the first time, represents part of an estimated half-billion-dollar family fortune amassed in a country where the average annual salary is less than $8,000 a year.

The family began to accumulate much of its offshore wealth while Uhuru Kenyatta was a rising political star. Two offshore companies were created during an investigation into alleged looting of the public treasury during the watch of President Daniel arap Moi, Kenyatta’s former political patron.

Under Kenyan law, the president must provide a list of financial interests to the Ministry of Finance each year. Kenyatta and his family members did not respond to requests for comment, including whether he declared any offshore interests or was required to do so.

Details of the Kenyatta family’s offshore wealth have been brought to light by the Pandora Papers, a collection of more than 11.9 million records from 14 law firms and other service providers based in the United Arab Emirates, the Seychelles, Panama, Singapore and other tax havens.

The investigation has revealed assets of 35 current or former world leaders, including the king of Jordan, the prime minister of the Czech Republic, and Kenyatta’s fellow African leaders Ali Bongo Ondimba of Gabon and Denis Sassou-Nguesso of the Republic of Congo.

The discovery that Kenyatta and his family owned Panamanian foundations and a string of shell companies provides a jarring contrast to Kenyatta’s projected image as a transparency advocate. Documents show that the expansion of the Kenyattas’ offshore holdings coincided with Uhuru Kenyatta’s political rise, with increasing the layers of secrecy to shield the family’s wealth from scrutiny even as Uhuru solidified his role as a man of the people.

The ‘burning spear’

The story of the Kenyatta family fortune, with its various companies and foundations in tax havens, begins with an ambitious tribal scion who would become one of post-colonial Africa’s most iconic leaders: Jomo Kenyatta.

Uhuru Kenyatta’s father was born Kamau Ngengi circa 1894 in the fertile Central Highlands of what was then known as British East Africa. Kamau’s father was a village chief in the powerful Kikuyu tribe, in a country where tribal affiliation often determines the outcome of elections. Educated at a Christian mission school, the young Kamau signaled his ambitions by taking the name Jomo Kenyatta, a local word for  “burning spear.”

At the start of the 20th century, a British colonial government tightened its grip on the region’s non-white population. A “hut tax” was imposed on people with little or no money, many of whom depended on their crops and livestock for survival. Some were driven to prostitution or consigned to forced labor.

Like many of his contemporaries, Jomo Kenyatta rebelled.

“Nothing is more important than a correct grasp of the question of land tenure,” Kenyatta wrote in 1938, while attending university in London.  “For it is the key to the people’s life.”

Jomo Kenyatta returned home to lead a pro-independence party and was quickly imprisoned by the British on unfounded and politically motivated charges that he led the nationwide rebellion then underway. When he left prison nearly nine years later, Jomo took charge of independence negotiations, and, in 1963, Kenya gained independence, with Kenyatta as prime minister. In 1964, he became the country’s first president, and he presided over an economic boom that burnished the country’s reputation as a post-colonial model.

But instead of building democracy, Kenyatta turned the fledgling nation into a one-party state marked by arbitrary detention, torture and political assassination. Promised land reform became a land grab: Kenyans found that property had simply changed hands from European elites to Kenyatta cronies.

A United Nations-backed commission would later find that in two years, one-sixth of all properties previously held by Europeans, including “vast farms” and valuable coastal real estate, were “cheaply sold” to Kenyatta, his family and his allies. According to the final 2013 report of Kenya’s Truth, Justice and Reconciliation Commission, beneficiaries included Kenyatta’s fourth and most influential wife, Ngina, their children, including Uhuru, and Moi, Kenya’s vice president at the time.

“Throughout the years of his administration, both land grabbing and irregular land allocations were perpetrated by and for the benefit of the president himself, members of his immediate family, his relatives and friends,” the report  declared.

Following Jomo Kenyatta’s death in 1978, in his 80s (his date of birth is unknown), Moi took over as president, as a result of complex negotiations designed to head off tribal feuds.

Former Kenyan president, Daniel arap Moi. Image: Pedro Ugarte/AFP via Getty Images

After an attempted 1982 military coup, Moi plunged Kenya deeper into authoritarianism, and over more than two decades, he looted more than $2 billion, a government-commissioned investigation would find.

Protected by their ties to Moi and by Jomo Kenyatta’s aura as father of the nation, the Kenyattas thrived.

Uhuru’s mother, Ngina, popularly known as “Mama Ngina,” was given 264 acres over decades, according to a later government probe, which recommended that the landholdings be revoked.

With vast landholdings and backing from international investors, the family built a business empire, acquiring large stakes in well-known Kenyan enterprises, including a media conglomerate,a major bank and upscale hotels.

In 1993, the family founded Brookside Dairy, which expanded across East Africa and is now Kenya’s largest milk producer. One of Jomo and Ngina’s daughters, Kristina Wambui-Pratt, became a shareholder in a company that builds housing from polystyrene panels. Another, Anna Nyokabi Muthama Kenyatta, married a gem-mining magnate and managed the Kenyatta family’s beachfront hotel. A discreet and camera-shy son, Muhoho, now controls the family’s finances, according to local media reports.

But none of Jomo and Ngina Kenyatta’s children rose faster or farther than Uhuru.

Named after the Swahili word for freedom, Uhuru played rugby (and socialized with Moi’s eldest son, Gideon) at a Nairobi private school.  He graduated from Amherst College, an elite U.S. liberal arts institution, in 1985 and returned home to launch an agricultural business and enter politics. He became the chairman of a local political party in 1997, and Moi named him to lead the country’s tourist board.

Uhuru burnished his everyman bona fides by dancing in public, while managing to indulge an equally public taste for expensive watches.

In 2001, Moi appointed Uhuru Kenyatta to a vacant seat in Parliament and, a month later, to the cabinet. Under increasing internal and international pressure to retire at the end of his second term, as required by the Kenyan constitution, Moi tapped Kenyatta to run as his successor in the 2002 election, betting on the Kenyatta name and tribal connections. But a coalition of reformist opposition parties crushed the Moi-Kenyatta alliance, relegating the 41-year-old Kenyatta and his party to the opposition .

The new president, Mwai Kibaki, ordered a probe of the Moi administration and the insiders who had helped spirit money out of East Africa.  He appointed Kroll Inc. – the private investigation firm that had unearthed the financial secrets of Iraq’s Saddam Hussein and Haiti’s Jean-Claude “Baby Doc” Duvalier, among others – to lead the inquiry.

Kenyatta was on the front lines of those who rallied to Moi’s defense.”The government should stop digging into the past,” Kenyatta told a rally of Moi supporters in western Kenya’s verdant Rift Valley near Lake Victoria.

But within a year, a leaked version of the Kroll report spilled into the headlines with blockbuster allegations: Moi and his inner circle had embezzled as much as $2 billion – more than twice what Kenya was receiving in foreign aid in a year — and stashed hundreds of millions of dollars in bank accounts overseas. The report alleged that Moi and his associates “laundered” and “parked” perhaps $400 million in accounts at Geneva’s Union Bancaire Privée and elsewhere. Kenyatta was not named in the report.

According to the report, the looting peaked in late 2003 after the new government took power. “A marked flurry of activity has been reported among ex-President Moi’s family and their close associates to pre-empt any possibility of losing their wealth to the government,” Kroll reported.

Moi denied wrongdoing and officials quickly announced that he would face no charges in exchange for a smooth transition of power. But the Kroll investigation’s linking ill-gotten wealth to Switzerland and Panama devastated his political legacy, and it raised questions about who else may have benefited from the regime’s looting.

Client 13173

One of the largest private banks in Switzerland,  Union Bancaire Privée advises some of the world’s wealthiest people on how to manage their money. Its eight-story glass headquarters overlooks Lake Geneva and the nearby Prada, Versace and Mont Blanc storefronts.

Union Bancaire Privée offices in Geneva, Switzerland. Image: Raymond PIAT/Gamma-Rapho via Getty Images

Like other private banks, Union Bancaire Privée often works with law firms in the British Virgin Islands, the Seychelles and other secrecy jurisdictions to create, register and maintain shell companies – which are without real operations and which list paid stand-ins as corporate officers on official paperwork – and similar entities that help clients conceal their ownership and wealth.

Some “offshore” clients are private citizens seeking to avoid taxes in the country where they live or acquire their wealth. Other clients are politicians and public officials, who are called “politically exposed persons” in the trade, because their wealth is deemed more likely to  stem from bribery or other forms of corruption.

In July 2003, the same month that Kenyatta defended Moi in public, records show that a Union Bancaire Privée lawyer, Othmane Naïm, asked Panama offshore specialists to help register a new foundation, to be known as the Varies Foundation. The foundation, like a trust, was designed to manage and shelter wealth for its beneficiaries.

Draft bylaws, also from July 2003, name the foundation’s beneficiaries: Uhuru Kenyatta and his mother. Later, records show, Union Bancaire Privée helped manage a foundation for Uhuru’s brother, Muhoho.

Invoices from Alcogal in Panama to the bank show that the Swiss advisers referred to the Kenyattas with a code: “client 13173.”

As with trusts and foundations offered elsewhere, including Belize (also South Dakota and Nevada),  Panama foundations can be designed to allow families to transfer wealth from one generation to another, tax free. Typically, an individual, or “founder,” transfers assets, such as a bank account or real estate, to the foundation, which becomes the assets’ legal owner.

Panamanian foundations are prized, like trusts, because those who create them, the true owners of the assets, are not required to register their names with the Panamanian government. That secret remains with their lawyers. Any breach of confidentiality laws carries a jail sentence of up to six months, the same sentence imposed in Panama for certain categories of child abuse.

According to a World Bank study, foundations are a common tool to mask dirty money. Ferdinand Marcos, autocratic president of the Philippines, is alleged to have stolen billions of dollars while he ruled the country from 1966 to 1986, funneling millions through a Panamanian foundation.

Alcogal said that it complies with requirements where it operates and “performs enhanced due diligence on a client who is determined to be a high-risk customer.” It told ICIJ’s media partner, Finance Uncovered, that it has not provided services to the Kenyattas’ foundations since 2014.The foundations were eligible for suspension under Panamanian law for failing to pay annual taxes, Algocal said.

Naim told ICIJ that he could not respond to specific questions, but said “we always complied with all applicable legislations and regulations.”

The Pandora Papers reveal the Kenyattas also secretly owned offshore shell companies.

Muhoho Kenyatta owned three registered in the BVI, according to records: One had a bank account that held an investment portfolio worth $31.6 million in 2016; another had unspecified investments at a bank in London.

From 1999 to 2004, Ngina Kenyatta and her two daughters held shares in a BVI company, Milrun International Ltd. The sisters used the company to buy a London apartment in the upscale Westminster neighborhood, according to records.

Similar apartments in the modern brick building now sell for more than $1 million. The apartment was rented until July by an English member of parliament, Emma Hardy, according to public records. Hardy’s attorney said that she signed an ordinary rental agreement and had never heard of the company involved.

Return to power

Following elections in 2007, a sharply divided Kenya was under another coalition government, and, with part of the family fortune secreted offshore, Uhuru Kenyatta mounted a comeback, assuming a new political persona. The populist had become an anti-corruption reformer.

In public, Kenyatta vigorously espoused transparency, and anti-corruption activists praised him for his fight against graft.

When he ran for president a second time, in 2013, he toured the country, repeating seven “key pledges,” including food, water and electricity for all. He also promised security on the nation’s restive border with Somalia and stringent anti-corruption measures, including new laws and agencies to probe and punish wrongdoers.

“It is time to get tough on those who seek to use their positions of power for their own personal gain,” a coalition of four political parties, including Kenyatta’s, declared in their coalition manifesto.

That year, at the age of 51 and after decades of grooming, Uhuru Kenyatta was elected president.

In his first State of the Nation address, Kenyatta promised honest government and offered to forgo 20% of his salary.

Meanwhile, Forbes magazine, in 2011, ranked Kenyatta as Kenya’s richest person and the 26th wealthiest in Africa, estimating the family fortune at about half a billion dollars. And Kenyatta, as president, fought to keep some things secret.

Two months after Uhuru Kenyatta won the 2013 election, the same commission that examined corruption as far back as his father’s presidency reported testimony that Jomo Kenyatta had acquired vast tracts of land through illegal means. The commission also found that the elder Kenyatta had “interfered in the investigation” of the assassination of a political rival.

A furious Uhuru Kenyatta demanded a retraction, albeit only about land deals that cast suspicion on the origins of the family’s empire. After a heated debate, in which several commissioners refused to comply with Kenyatta’s demand, the majority retracted references to the deals and issued a revised report.

“Protecting the wealth and economic power of the family today seemed more important to the Kenyatta family than the implication than their father was involved in the cover-up of a murder,” Ronald Slye, one of the dissenting commissioners, recalled in an interview with ICIJ.

As Kenyatta approaches his constitutional two-term limit next year, He increasingly has staked his legacy on transparency.

“What we own, what we have, is open to the public,” Kenyatta told the BBC in 2018, referring to his family’s wealth. “If there is an instance where somebody can say that what we have done has not been legitimate – say so.”

He continued: “Every public servant’s assets must be declared publicly so that people can question and ask, what is legitimate? If you can’t explain yourself, including myself, then I  have a case to answer. If you want to continue serving, you must make it public. Period.”

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This article was first published by ICIJ.

Contributors: John-Allan Namu (Africa Uncensored), Purity Mukami and Simon Bowers (Finance Uncovered)

On April 29, 2009, the tenants of a strip of shops and offices on Maddox Street in London’s exclusive Mayfair neighborhood woke up with a new landlord: an 11-year-old boy.

This news should have been surprising. Not only was Heydar Aliyev not yet in his teens, but he also happened to be the son of Azerbaijan’s authoritarian president, Ilham Aliyev. And yet, he had managed to become the owner of 33.5 million pounds (US$ 48.9 million) of prime commercial real estate in the heart of London.

But the tenants on Maddox Street had no chance to be surprised — because they had no way of knowing who really bought their building. And, until today, neither did the rest of the world.

On paper, the owner of the property was a company, Mallnick Holdings S.A., set up in the British Virgin Islands. The fact that it had been acquired by an associate of President Aliyev and then handed over to his young son was hidden, thanks to the Caribbean territory’s strict corporate secrecy.

The strip of commercial property bought by the Aliyevs on London’s Maddox Street. Credit: Will Jordan / OCCRP

The deal is just one example of the miraculous secrecy enabled by offshore finance: a thriving, global industry of formation agents, bankers, lawyers, and accountants that helps hundreds of billions of dollars worth of the proceeds of corruption, crime, tax avoidance and shady deals move undetected around the world every year.

Now, a massive leak of data pulls back the veil of secrecy on the offshore finance industry like never before. Known as the Pandora Papers, it is the broadest-yet leak of confidential financial documents, comprising nearly 12 million files from 14 companies that provide offshore services.

Coordinated by the International Consortium of Investigative Journalists (ICIJ), over 600 journalists from around the world, including more than 75 from OCCRP’s network, spent two years sifting through nearly three terabytes of documents.

The result is an unprecedented look inside the world’s shadow economy. Coming more than five years after the Panama Papers, which exposed law firm Mossack Fonseca, the latest leak ends forever the idea that abuses of the offshore system are the work of a few bad apples. Instead, the files expose a vast and often interconnected system that is feeding crises and discontent across the world.

It’s “the dark side of globalization,” Oliver Bullough, author of Moneyland: Why Thieves And Crooks Now Rule The World And How To Take It Back, told OCCRP.

For decades, major banks, law firms and accountants have worked hand in hand with the world’s biggest corporations to build a system that allows for seamless global commerce and the minimization of tax, Bullough said. As time has gone by, kleptocrats and criminals have increasingly used this system for their own ends.

“It just so happens that the same things that big corporations want — minimal scrutiny, minimal taxes, best protection for contracts and so on — are also the same things the kleptocrats want,” he said.

But while corporate tax minimization might hurt the budgets of developed countries, the worst damage is in the Global South. For a fee, offshore providers are able to create sophisticated global structures that can be used by politicians, officials and businessmen in some of the world’s poorest countries to siphon staggering amounts of money abroad. As the Pandora Papers show, service providers often prove all too willing to take on such clients.

“It’s like unleashing a tiger on an island full of flightless birds,” Bullough said. “It’s obviously going to be a disaster.”

The files illustrate the truly global nature of the offshore business. It’s a hidden world in which a reported secret mistress of Russian President Vladimir Putin can get a luxury apartment in Monaco via an offshore shell company, and where the King of Jordan is able to secretly snap up real estate in London and Malibu. Again and again, the files show the ease with which money can be quietly moved around the world — including by politicians and others in positions of public trust.

Azerbaijani President Ilham Aliyev (left) and Russian President Vladimir Putin. Credit: Russian Look Ltd. / Alamy Stock Photo

From missing taxes to stolen artworks and smuggled antiquities, the Pandora Papers lays bare exactly how the offshore industry hides the fortunes of the world’s rich and infamous alike. In many cases, it has also facilitated the transfer of vast wealth from poor and developing countries to tax havens and wealthy enclaves in cities like London, where fashionable central areas have been gobbled up by politicians, officials, and their relatives. Trillions of dollars, mostly from the earnings of large corporations are believed to be stashed in offshore tax havens. Each year, tax avoidance alone is estimated to cost the world’s poorest countries $200 billion a year — far in excess of what they receive in development assistance.

The entire system is so hard to unpack in part because jurisdictions that offer corporate secrecy, such as the United Arab Emirates, are able to attract so much money, said Lakshmi Kumar, Policy Director at Global Financial Integrity, a Washington, DC-based nonprofit.

“These offshore jurisdictions act as financial centres for their region, businesses migrate there. The UAE allows for commercial disputes to be settled through English common law, they provide anonymous companies, protections for businesses,” Kumar said.

“It’s safe and convenient for business. But that is also safe and convenient for criminal actors.”

“Bringing Mischief to Mortals Silently”

The service providers whose data make up the leak are spread across the world and have decades of experience discreetly servicing high profile clients.

The largest tranche of files, just over 3.75 million in total, comes from Trident Trust Group, a firm that has operated since the late 1970s in offshore havens including the British Virgin Islands, the Seychelles, and Panama, as well as the United States and the United Kingdom.

Long Bay Beach in the British Virgin Islands. Credit: robertharding / Alamy Stock Photo

The Pandora Papers shows Trident’s customers have included powerful people such as Bahrain’s former prime minister, Prince Khalifa bin Salman al-Khalifa, as well as Khadem al-Qubaisi, a former aide to Abu Dhabi’s royal family. Prominent businessmen, such as Alibaba’s Jack Ma, have also been clients.

The family and business associates of Azerbaijan’s leader Aliyev used Trident’s services to build an offshore-controlled empire in the United Kingdom worth over half a billion dollars in unexplained wealth. Documents show that Trident set up 84 companies in the British Virgin Islands for Aliyev’s circle — including some that received money from the Russian and Troika Laundromats, two multi-billion-dollar money laundering schemes first revealed by OCCRP. The companies were also used to secretly invest in businesses back home in Azerbaijan.

In some cases, the documents show Trident maintained relationships with clients in spite of accusations of wrongdoing. Abu Dhabi adviser al-Qubaisi remained a client of Trident years after he was accused by the U.S. Justice Department of playing a role in a multi-billion dollar fraud involving funds from a Malaysian sovereign wealth fund, 1MDB. Trident also continued to work with the family trust of Dan Gertler, an Israeli mining billionaire, years after he was accused by a U.N. expert panel of exchanging “conflict diamonds” from Africa for cash and weapons. Gertler has since been sanctioned by the U.S. government.

In a response to reporters, Trident refused to answer questions on specific cases. Instead, it said the company “is regulated in the jurisdiction in which it operates and is fully committed to compliance with all applicable regulations. Trident routinely cooperates with any competent authority which requests information.”

Other providers in the data include law firms, such as Panama’s Alemán, Cordero, Galindo & Lee, known as Alcogal, and Cyprus’ Demetrios A. Demetriades, known as Dadlaw. They also include a wide geographic spread, from Asiaciti Trust, a service provider that focuses mainly on the Asia-Pacific region, to Alpha Consulting, a firm based in the Indian Ocean nation of the Seychelles.

The latest revelations show that offshore providers make up a truly global and interdependent industry, said Rachel Etter-Phoya, a senior researcher at the Tax Justice Network.

“The celebrities, the political families are all involved. They’re all using the same service providers,” Etter-Phoya said. “The service providers work together and go after similar clients [and] the clients recommended them to each other.”

The data also contains fascinating details on another trend: the growing role of the United States as an offshore haven. Due to the central role the U.S. plays in the global banking system, the country is in a uniquely powerful position to bring secretive offshore finance to heel. But while the federal government has made recent efforts to rein in the industry abroad, many states — such as Delaware, Alaska and Nevada — have held out or are moving in the opposite direction. In recent years, lawmakers in over a dozen U.S. states have voted to expand their financial secrecy industries.

The Pandora Papers contains details on over 200 trusts set up in the U.S. in recent years. In dozens of cases, clients have abandoned more traditional havens, such as the British Virgin Islands and the Bahamas, in favor of the U.S.

The most popular destination has been South Dakota, where the past decade has seen the value of assets held in trusts reach more than $360 billion. State laws in South Dakota allow for the establishment of secret trusts which don’t have to pay a cent of tax to the state for any earnings. Unlike most states, which restrict the life of trusts to a century or less, South Dakota trusts are also “perpetual,” meaning they have no end date. This means they can continue making tax free gains and passing them on to future generations — theoretically forever.

South Dakota’s Mount Rushmore. Credit: Images By T.O.K. / Alamy Stock Photo

“As a citizen, I’m so sad that my state was the state that opened Pandora’s box,” Susan Wismer, a former South Dakota lawmaker, told ICIJ.

“You Know Who”

In the coming days, OCCRP will publish a broad range of stories based on the Pandora Papers. Frequently, the documents show that the biggest beneficiaries of the offshore systems are people in power, as well as their friends and family.

Known in the industry as “politically exposed persons,” or PEPs, such people are supposed to be subject to increased scrutiny to make sure their money hasn’t come from questionable deals or outright corruption. Offshore service providers routinely say they subject such people to enhanced “know your customer” checks.

In total, 35 current and former national leaders appear in the leak, alongside 400 officials from nearly 100 countries. Among those names are former British Prime Minister Tony Blair, Chilean President Sebastián Piñera, Kenyan President Uhuru Kenyatta, Montenegrin President Milo Đukanović, and Gabonese President Ali Bongo Ondimba.

Among the revelations are details of how Czech Prime Minister Andrej Babiš, who was elected on an anti-corruption platform, used offshore companies to disguise an investment of 15 million euros in luxury property in the south of France, including a chateau. The files also show how another European leader elected on an anti-graft platform, Volodymyr Zelensky, appears to have used complex offshore arrangements to allow his family to continue benefiting from overseas business without declaring it.

The leaked files show that offshore firms sometimes appear to have taken a lenient approach to their due diligence on politically sensitive clients.

Nikola Petrović was one such customer. The Serbian citizen was the head of the country’s state-owned electricity transmission company. He was also the kum — roughly equivalent to a best man or blood brother — of the country’s autocratic president, Aleksandar Vučić. He became an owner of a British Virgin Islands company, set up in 2016, via Swiss consulting firm Fidinam and Alcogal, the Panamanian law firm.

But when setting up the company, Petrović never informed Alcogal that he might be considered a politically exposed person despite being so close to the president. Furthermore, his Swiss lawyer specifically told Alcogal that Petrović was not a PEP. However, Alcogal’s due diligence after the formation of the company uncovered his political position and asked for a bank reference letter. Documents show that the Swiss law firm pushed back on requests by Alcogal, offering instead to write the reference letter themselves. Alcogal accepted the offer. Petrović kept the company secret from Serbian officials, never declaring it as required by law with the anti-corruption agency.

Petrović did not respond to questions.

The documents show the lengths providers take to preserve their clients’ anonymity. The leak shows how Panamanian firm Alcogal and a Swiss adviser for Jordan’s King Abdullah II worked to conceal the monarch’s identity from the public. Even in emails between themselves, they referred to Abdullah using pseudonyms: the “final beneficiary” living in Jordan, or “you know who.” After the British Virgin Islands passed a 2017 law requiring companies to confidentially disclose their real owners, correspondence showed that Alcogal and the advisers discussed using a workaround in which they would have disclosed a holding company, rather than the king, as true owner to local authorities. It is unclear what they ultimately decided to do.

The king’s attorneys told ICIJ that professionals manage the king’s companies to ensure compliance with relevant legal and financial obligations. In a response to ICIJ, Alcogal said that the law does not require it to report politically-exposed people, known as PEPs, on the basis of their political ties alone. The firm said that it conducts enhanced background checks on all politically-connected individuals.

“One Set of Rules for Them”

The vast, secret flow of offshore cash isn’t just hurting the budget bottom line. Across the world, it’s also feeding discontent and undermining governments’ legitimacy.

In Lebanon, a severe banking crisis and a series of financial scandals involving the country’s business and political elite has led to sometimes violent protests. Amid electricity cuts, fuel lines, and shortages of currency, Lebanese are fleeing the country in droves.

One of the banks that has been the focus of public anger is Al Mawarid Bank, which responded to the crisis by preventing clients from withdrawing their U.S. dollar savings. When news emerged in 2020 that bank chairman Marwan Kheireddine, bought a Manhattan apartment from the Hollywood star Jennifer Lawrence, angry crowds burned a building in Beirut they believed belonged to him.

But thanks to the secrecy enabled by offshores, wealthy individuals like Kheireddine are able to hide much more.

For example, the Pandora Papers show that in 2019 amid warnings by economists of the impending crisis, Kheireddine became the owner of a British Virgin Islands company that owned a $2 million yacht. The previous owner of the yacht, Yahya Mawloud, told reporters that the vessel had been given to Kheireddine as collateral for a loan.

Kheireddine did not respond to a request for comment from ICIJ.

Lebanese remain furious with their country’s elites, who they blame for the economic chaos. Wafaa Abou Hamdan, a 57-year-old widow, told OCCRP partner Daraj that inflation had caused her life savings to fall from the equivalent of $60,000 to just $5,000. “All my life’s efforts went in vain, I have been working continuously for the past three decades,” she said. “We are still struggling on a daily basis to maintain our living” while “the politicians and the bankers . . . who seized our savings have all transferred and invested their money abroad.

Even countries that appear to have benefited from the inflow of illicit cash, like the United Kingdom, are seeing increases in inequality and local corruption as a result, said Nicholas Shaxson, the author of Treasure Islands: Tax Havens and the Men who Stole the World.

As revelations of offshore abuses by elites continue to pour out, there is a growing realization around the world that there is “one set of rules for them, and another set of rules for everybody else,” Shaxson said. “I think a lot of people grasp that viscerally.”

The good news is that greater awareness is leading more people to embrace concerted, cooperative action to work globally to reduce secrecy and close loopholes, he said.

“I’m quite optimistic for the long term. But you know, under no illusions that it’s going to be easy. Or, you know, even going to be successful.”

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This story was first published by our partner OCCRP. It includes contributions from ICIJ, KRIK, Daraj, and other Pandora Papers partners.