4. Tax havens help dictators and their cronies plunder the resources of developing countries
… Teodoro Nguema Obiang, the African dictator’s son with lavish spending habits. In October 2011, TNO had over US$ 70 million-worth of assets seized by the U.S. Justice Department after reportedly stealing more than US$ 100 million from his homeland of Equatorial Guinea through “extortion, misappropriation, embezzlement, or theft of public funds”.
The dirty details
Equatorial Guinea is a small, Middle African country mired in corruption and repression/
More than three quarters of its 720,000 population live below the poverty line and over half lack access to potable water and electricity. It’s hardly surprising, therefore, to discover that the country ranks near the bottom of the UN Human Development Index.
But this is only half the story.
Since the discovery of oil there in 1996, the country has become one of sub-Sahara’s biggest oil producers and, by 2004, Equatorial Guinea was said to have the world’s fastest-growing economy. The problem is, very few have benefited.
So where is all the money going? Oil revenues have vastly increased the incomes of a minority, namely the ruling Obiang family and chums. (Rumour has it that Washington has been turning a blind eye to the Obiangs’ dirty deals for so long because of U.S. dependence on E.G. for oil.) One such beneficiary is Teodoro Nguema Obiang, one of the President’s sons and his heir apparent. This is a guy who likes to flash his cash, owning – prior to October 2011 in any case – Equatorial Guinea’s only private radio station, a rap-music company in Beverly Hills, a fleet of luxury cars, speedboats, a private jet and a US$ 35 million estate in Malibu. Yes, yuck.
The problem was, the maths didn’t add up. TNO’s only legitimate source of income came from his role as ‘Minister of Chopping Down Trees’ – otherwise known as running the Equatoguinean forestry ministry – which provides a salary of approximately US$ 4,000-5,000 a month. NGO Global Witness points out that, with that income alone, it would have taken TNO somewhere between 580 and 730 years to save up enough to buy his Malibu pad (which, by the way, was paid for in cash) assuming no other expenses and that he was paying no tax on his income.
There are several official suggestions as to how TNO actually built up such ‘impressive’ cash reserves, including narcotics-related activities and money laundering.  The important thing to note is that a lot – if not all – of his scams relied on tax havens. And yes siree, exploitative tax practices are a TNO strong point: a 2007 U.S. Justice Department memo catalogues an inventory of TNO’s corrupt activities, including the fact that he had funnelled at least US$ 73 million into the U.S. using shell corporations and offshore bank accounts. Likewise, it described a “revolutionary tax” that TNO placed on Equatoguinean timber; instead of payments being sent to the Treasury of Equatorial Guinea, TNO “insisted that the payments be made directly to him”.
And this is crux of the matter really: for many developing nations, natural resources are often the only significant source of wealth, making them extremely vulnerable to exploitation by corrupt officials. Tax havens are the principle vehicles that facilitate this exploitation, enabling the ruling elite to siphon money away from a country’s population using a global network of deception. As in the case of Equatorial Guinea, the wealth very rarely, if ever, spreads beyond the ruling elite.
Banks to pay particular attention to due diligence of Politically Exposed Persons, their immediate families, their circle of advisers and friends, and any others associated with their entourage. We can bring hard penalties against the pinstripe intermediaries who help the tax evaders. The IMF and other bodies dealing with money-laundering must officially make tax evasion a money-laundering offence.
Measures need to be taken to remove the walls of secrecy that encourage and enable dictators and wealthy tax evaders from hiding their ill-gotten gains offshore. Offshore companies, offshore trusts and foundations, and similar legal entities, must be properly registered on public record, and must disclose the identities of every person who benefits from them.
In the ten years prior to its collapse, Riggs Bank administered over 60 accounts for senior members of the Equatoguinean government. Despite the fact that deposits totalled between US$400 and US$700 million at a time, the American bank made no formal enquiry to figure out how such enormous wealth was stacking up. Riggs also helped establish offshore shell companies for the President and his sons.
The final word
From Investigative Journalist Richard Behar:
E.G. is less a country than a corrupt, extended-family business that cooked up its own national anthem. And the American oil industry has been singing along for years, cuddling up as much as necessary (and with barely any competition) to Teodoro Obiang Nguema Mbasogo, the 66-year-old despot who has ruled this backwater since 1979.