Paradise Papers: West African development dreams stand still while mining money moves offshore

A village hoped for a better life, Burkina Faso expected more tax revenue

The headquarters of Glencore International in Switzerland. Photograph: Bloomberg

The headquarters of Glencore International in Switzerland. Photograph: Bloomberg

 

On the night of September 6th, 2015, Juliette Kenyala awoke to the crunch of heavy vehicles rolling across the red dirt and coming to a halt outside her home in Perkoa in the landlocked west African nation of Burkina Faso.

For most of Perkoa’s 5,000 inhabitants the sound of a four-wheeler lumbering past the sparse mud brick homes, granaries and millet fields off the central highway signalled trouble: Most often, a visitor from the multimillion-dollar zinc mine that dominates the area.

Juliette (37), two months pregnant, laboured to her feet and walked past her four sleeping children to the front door, rousing mongrels and chickens from quiet corners as she went.

It was the police, and they wanted her husband, Bali Xavier Bado. The son of the village chief and head of a local youth association, Mr Bado had been among those leading protests at the west African mine owned by Nantou Mining SA, a subsidiary of the Swiss commodity giant Glencore PLC.

Mr Bado, an assistant engineer at the mine located about 80 miles from the capital of Ouagadougou, had helped to lead the men, women and children of Perkoa on a march to the mine to protest poverty, pay and environmental damages, and had blocked the entrance, halting operations.

The protest was peaceful until 4am on the fourth day, when police charged, and villagers scattered. Now, a few days later, police were making more unannounced visits. They arrested one of the protesters at the market. They took another from the school. For others, they came in the dark of night.

Mr Bado fled on his motorbike without telling his wife where he was going. It was safer that way, he told her.

The protests failed to produce any change for the disappointed villagers. When the mine had opened it appeared to hold the promise of a better life for the people of Perkoa. But that failed to materialise - as did the tax revenue financially strapped Burkina Faso hoped for.

Details from leaked Glencore records reveal a story of contrasts. As villagers struggled with hunger and poverty and raised their voices over the hardships caused by the mine, boardroom machinations in faraway Switzerland and Bermuda and other offshore sanctuaries moved millions of dollars in - and then out - of the small African nation whose name means “Land of Honest Men”.

The details are revealed in files - containing multimillion-dollar sales contracts, board of directors’ decisions, budgets and emails - from the blue-chip Bermuda law firm Appleby, documenting its relationship with the mining company’s parent, Glencore, one of the world’s largest metals, oil and grain traders.

Documents analysed by the International Consortium of Investigative Journalists (ICIJ), Suddeutsche Zeitung and 94 media partners reveal how Glencore made secret payments, fought lawsuits in cash-strapped countries and sought to reduce its tax bill in nations around the world.

Separately, ICIJ has obtained a confidential assessment by Burkina Faso’s tax office that accuses the Glencore subsidiary of abusing tax loopholes and creating fictitious charges by shell companies to reduce taxable earnings and skirt paying tens of millions of dollars in taxes to one of the world’s poorest countries.

‘Don’t give it back empty’

When the Perkoa zinc deposit was discovered in the 1980s, the village chief told the mine’s early owners: “When you borrow a cooking pot from someone to make dinner, don’t give it back empty,” a Burkina Faso expression meaning, don’t forget us.

Nearly two decades and a succession of mining companies later, relations began to deteriorate amid economic ups and downs in the mining industry. Zinc prices plummeted 70 per cent in 2007, the year in which Nantou Mining took control. Nantou’s operations were temporarily suspended in 2008 until prices recovered.

Today the mine is the country’s main producer of zinc, sending 720,000 tonnes of concentrate, a fine gray dust, to Canada, Spain and elsewhere each year. Zinc is most commonly used as an anti-corrosion coating.

Mine management insists that it never fully recovered from the downturn. In addition, in 2012, a Nantou subcontractor dismissed 338 contract workers after a three-day strike. The subcontractor said the employees’ contracts had ended. The workers said that they were sacked for seeking higher wages and better health and safety conditions.

“It’s like slavery in miniature,” one current employee who wished to remain anonymous told ICIJ. “What hurts is when I read the amount of zinc that Perkoa produces. And then I see how we live and work. It doesn’t make any sense.”

Glencore told ICIJ that its salaries and benefits to workers are “among the best across the Burkina Faso mining industry”. “We totally reject the allegation that Nantou Mining’s workforce was subjected to ‘slavery like conditions,’” Glencore said.

Villagers complained of what they called Perkoa’s “growing pauperisation.” Fruit trees near the mine’s perimeter were dying, villagers say, and poisoned by chemicals. Even if they had remained healthy, they were off-limits to those used to picking them. The mine obliterated the village’s most fertile food and oilseed fields, villagers complained.

When Nantou built new homes for villagers evicted by the mine’s takeover, it ignored community customs and family size, villagers lamented. As a result, villagers stayed away and built other homes with their own scarce resources. The mine’s housing now lies largely empty and abandoned, with broken gates and debris collecting in the entryways.

In addition to labour grievances and complaints about environmental damages, villagers accuse Nantou Mining of complicity in the mismanagement of a private foundation created to distribute social development funds. Complaints intensified in May 2015, focusing on the head of the foundation, the wife of Burkina Faso’s former foreign minister.

Price of zinc

Perkoa residents faulted the foundation for doing little to help one of the impoverished nation’s very poorest regions, where one in every three children is stunted and one in 10 is malnourished.

Villagers say that Nantou’s and the foundation’s support to the community falls far short of what’s needed - and of what was promised.

The foundation, into which Glencore’s Nantou paid part of its social and community development contributions, rejected the criticism. Nantou has received awards for its community development and has contributed to the development of the local communities and the surrounding areas, Glencore told ICIJ, including building bridges, roads, sanitation facilities and youth and training centres.

Yet Nantou has acknowledged elsewhere it hasn’t been able to match Perkoa’s wants. “Given the difficulties we face, the company cannot undertake, in the short time, any new engagements that would have a financial impact,” Nantou’s general director wrote to Perkoa’s village chief in August 2015 after the protest that sent Mr Bado running.

“The price of zinc is fairly low, and our revenues are constantly decreasing, contrary to our expenses,” the general director wrote in the letter obtained by ICIJ and Burkina Faso newspaper Le Reporter.

The company “is indebted to its suppliers and service providers for a lack of available cash,” he wrote.

Months earlier, Glencore CEO Ivan Glasenberg had told shareholders a different story. “There is demand growth” for zinc, Mr Glasenberg said in May 2015. “We think zinc is moving into a deficit,” Mr Glasenberg said, predicting demand would drive prices up.

The earlier forecast proved accurate. By the end of 2016, zinc was worth more than it had been in four years.

‘Two kinds of justice’

The police who came for Mr Bado gave up the search a few days later, and he returned home. But police arrested other protesters, including 10 Nantou employees, and farmers, teachers, schoolmasters and security guards, who were convicted of protesting illegally and sentenced to probation.

Mr Bado eventually returned to work in the mine’s mechanics plant. Within a week, he was fired from his 77-cents-an-hour job for his participation in the protest. “There are two kinds of justice in Burkina Faso,” Mr Bado said. “The justice of the state and the justice of the mine.”

In the wake of the protests at Nantou and sites owned by other companies, Burkina Faso’s parliament convened a committee to investigate the mining sector. Its September 2016 report estimated that seven mining companies, including Nantou, together had avoided paying the country $36.7 million by using an accounting technique that reduced the company’s taxable income. The committee singled out Nantou as the only mine to report an injury due to the lack of protective workwear and for paying less than $250,000 of $7 million owed to Burkina Faso’s environmental rehabilitation fund.

In response to questions, Glencore told ICIJ it has set aside the “full provision” for rehabilitation.

“We were victims in a way of our own naiveté and inexperience faced with these companies that are very experienced,” Ousseni Tamboura, the head of the parliamentary committee, told ICIJ from his government office.

The companies have thrived, he said, but not the citizens of Burkina Faso.

‘Avoided taxes’

When Mr Bado received his severance pay, $70.84 of the $669 he was owed was taken out and paid directly in taxes on his wages.

Paying taxes isn’t as straightforward for his former employer, Nantou. Incorporated in Burkina Faso, Nantou is owned through a chain of five offshore companies incorporated in Bermuda, the United Arab Emirates, Switzerland and the island of Jersey, according to a diagram of its financial structure marked “private and confidential” that Glencore shared with its offshore lawyers at Appleby.

Until Glencore sold the mine to a Canadian company in March 2017, it owned the majority of Nantou through Merope Holdings Ltd, a Glencore subsidiary in Bermuda that uses Appleby employees as stand-in directors.

Merope has neither employees nor an office of its own. Despite owning one of west Africa’s largest zinc mine, at least on paper, its 2011 financial statement contained just 1,065 characters - barely longer than seven tweets.

Internal law firm records showed that Glencore spent more in one year on “Govt fees; couriers, etc.” for Merope than Nantou spent on Mr Bado’s salary. Appleby, working for Glencore on the Burkina Faso zinc mine, billed up to $730 an hour, according to internal billing records, or nearly 950 times what Bado earned per hour as an assistant engineer at the Perkoa mine.

Sprawling webs of offshore ownership are not uncommon for mining companies. But a confidential Burkina Faso government audit of Glencore obtained by ICIJ, separate from Appleby’s files, reveal the central role of offshore companies in Glencore’s operations in Burkina Faso as well as a series of aggressive tax deductions deployed by the mining giant.

The audit by Burkina Faso’s tax office, covering 2013 through 2015, found the company had claimed tax deductions to which it was not entitled.

“While recognising freedom of management,” wrote tax inspector Jean Yameogo, Burkina Faso reserved the right to disagree with management policies “capable of damaging the rights of the public treasury”. On October 26th, 2016, Mr Yameogo issued Nantou a tax bill, including penalties, of $29 million.

Nantou had set up transactions with members of the Glencore corporate family to escape paying Burkina Faso taxes, the tax office found. The tax office also found Nantou sold the less valuable zinc concentrate to Glencore International in Switzerland instead of producing pure zinc within the west African country.

As a result, Burkina Faso could have lost taxes on the more valuable final product, a common complaint from tax officials across mineral-rich countries in Africa. Nantou also had borrowed money from Glencore in Switzerland tax-free, creating deductible interest payments to reduce the company’s overall taxable income, the tax office found.

In addition, Burkina Faso’s tax office said Nantou had also avoided taxes on payments to suppliers.

Nantou included “fictitious” charges in its accounts, the tax office found, through a British Virgin Islands Glencore company named Pasley Universal Inc that provided no real service.

While Nantou tried to persuade tax authorities that Pasley really was an operating company, Mr Yameogo wasn’t convinced and rebuked Nantou for not providing proof that it was a real enterprise.

Glencore told ICIJ that Burkina Faso has reduced the amount due from $29 million to $1.5 million and that Nantou “continues to challenge” the remaining amount.

Glencore denied that Nantou had included “fictitious” charges to Pasley Universal Inc in exchange for services. Glencore provided “technical, operational and management support” through Pasley to Nantou, Glencore said.

Beyond the Burkina Faso’s tax audit, the leaked Appleby documents raise other questions about whether Glencore used offshore transactions to slash its tax bills in the tiny African country. Appleby’s files reveal a string of loans from Glencore to finance the mine between 2010 and 2014.

In one email, Glencore explained, it contributed $30 million to Nantou through two offshore companies in Bermuda. As a result, Glencore wrote, Nantou “is already indebted” to one of the companies “under this loan”, which allowed Nantou to deduct $2.5 million in interest payments. At the same time, Glencore wrote, the $30 million was “not repayable . . . in any circumstances.”

“It definitely sounds like it’s likely that the structure has been built because of tax avoidance,” said Lauri Finér, a tax law researcher at the University of Helsinki.

The multiple loans; the $2.5 million in interest paid by the Burkina Faso company to the company in Bermuda, a tax haven; and the use of multiple secrecy jurisdictions are all indicators of possible tax avoidance, Mr Finér said.

“From the perspective of the whole group, it’s not real money,”he said. “It’s paid between the companies. So it’s plus, minus equals zero for Glencore.”

Nantou Mining SA did not pay corporate taxes in 2014 or 2015, according to a Burkina Faso government report.

Always wrong

After Mr Bado’s dismissal Juliette gave birth to their baby, Idrisse, but then fell sick with vomiting and bouts of vertigo. She spent 28 days in a hospital. The family sold Juliette’s motorbike, some land and a few pigs to cover the medical costs. Relying on Mr Bado’s employment at the mine, the family had chosen not to plant their fields earlier in 2015. Now, without crops in the ground, they had even less to eat than usual.

Mr Bado now ekes out a dangerous living descending deep vertical tunnels to hack at rocks in an informal gold mine and then bouncing by bus across west Africa to sell what he can.

In February 2016, Mr Bado met with Nantou’s lawyers to try to thrash out a compensation deal for what he claimed was unfair dismissal. Mr Bado pressed for $4,298. The meeting ended in a stalemate, leaving Bado empty-handed with no more money to continue his fight.

“When you are weak, you have to negotiate even if you are in the right,” Mr Bado said.

His wife, Juliette Kenyala, agreed: “The poor man is always in the wrong.”