How trade cheats have cost SA $25bn

Monday, 28 June 2010 14:59

Written by theNairobian (Reproduced from Noseweek)

1 Comments

This is another great investigative work reproduced (with their permission too) from Noseweek of South Africa. For those wondering the relevance to thenarobian, please read the First Chapter Here.

The Corruption-ridden 2008 maize procurement deals with the Kenyan National Cereals and Produce Board not only saw large financial losses to the Kenyan people – it also saw our own taxman being cheated. Nose127 reported how a technical blunder by Centurion-based Afgri Trading led to investigations that uncovered acts of fraud and corruption. Ongoing investigations now show that, by under-invoicing its parent Swiss-based company, Stellenbosch-based Noble Resources SA (Pty) Ltd knowingly defrauded SARS of tens of millions in undeclared revenues.

According to Washington-based Global Financial Integrity, since 1970 illicit financial transactions have led to an overall loss to Africa of more than $850bn – possibly as much as $1.8 trillion. In that period South Africa lost around $25bn in revenues.

Noble Resources’ little double-deal shows just how easy it sometimes gets to out-manoeuvre the tax authorities. The structures are out there, the wheels turn day and night (and the internet is endlessly restless).

This particular story starts with the 1999 UK registration of Euroworld Commodities Ltd, by Indian national “tenderpreneur” Rashmikant Prabhudas Kotecha, who discovered that with a bit of palm-greasing he could land huge contracts with Kenyan public officials. Euroworld Commodities, believe it or not, was one of the tender winners in Kenya’s quest to buy South African maize, and it’s clear that Euroworld had the deal clinched long before the tenders were actually announced, in July 2008.

Still a one-man band, in 2006/2007 Euroworld had two judgments recorded against it in British courts – for a mere £312. How did a corporate non-entity come to feature in a multi-million dollar grain deal between South Africa and Kenya? Think dining in style with the right people, think “official government visits” to London, or other capitals of the money world.

Noseweek’s investigations show that Rashmikant Kotecha’s first involvement with Kenyan white maize procurement was in 2004, when he landed a contract to supply around 100,000 tonnes. In that deal, Kotecha partnered with Johannesburg-based Louis Dreyfus Africa (Pty) Ltd, and his contact person in South Africa was Dutch national Ronald Reinier Jetten – who now heads Noble Resources South Africa.

When a new Kenyan maize procurement deal was in the offing, Kotecha, apparently openly boastful to competitors that he had inside information, discovered to his delight that his dost (Hindi for friend) Jetten was now heading the Noble Group’s South African operations.

Whereas SA maize traders, like Afgri Trading, only learned of the Kenyan demand for maize when Kenyan officials (nose127) visited South Africa in June 2008, Noble Resources was already armed with inside information as early as April 2008, when former UN Secretary-General Kofi Annan was brokering peace between the warring Kenyan political elites.

An inside source at Noble Resources told noseweek that by April 2008 Noble had already booked all export slots for bulk grain, for the last quarter of 2008, at the ports of Durban and Maputo. This effectively shut out all other South African maize traders: it’s alleged, in fact, that to ship their consignments, tender winners Afgri and Senwes had to negotiate with Noble for export slots.

A number of sources at Noble Resources informed noseweek that the Noble/Euroworld deal was handled exclusively and secretly by Jetten and Noble Group Grains Division head Diego Luis Barbero (he’s also listed as a director of Noble Resources SA) and Kotecha. Other local staff were instructed not to get involved, as the tender had been “securely fixed in our favour”.

The Noble/Euroworld deal didn’t work out quite as smoothly as expected: When Noble signed to supply 50,000 tonnes of white maize to the Kenyans, on behalf of Euroworld, Noble’s price was around $360 per tonne, but when the spot price fell markedly Euroworld sought to renegotiate the price – and Noble flatly refused.

A source says: “We knew the maize spot price had dropped and we knew the tender had been rigged in Kotecha’s favour; but above all we had secured exclusive rights to export slots at the nearest ports, so we were sure he couldn’t get an alternative supplier.”

Failing to secure an alternative supplier, Kotecha was stuck with Noble.

Once the consignment was on its way, Noble Resources went ahead with the trick that robbed the SA taxman. Noble purported to have sold the maize to Noble Group, its parent company in Lausanne, Switzerland, at the going price in SA, i.e. without profit and so tax-free (sources say it was billed at under $200 a tonne; Noble Group Switzerland then billed Euroworld Commodities at around $387 a tonne.

So, on a maize consignment of 50,000 tonnes, the taxman was cheated of taxable revenue on at least $9.35m (R95m at the time). Nothing compared to what Kenyans lost in the deal: their National Cereals and Produce Board paid Kotecha’s Euroworld some $460 per tonne. Kenya paid between $5m to  $10m more for the consignment than they would have, had the procurement been conducted legally and fairly.

One Noble employee told noseweek that if SARS began investigating, Jetten would simply leave the country: “He would get on a plane and fly to Lausanne or to The Netherlands, leaving us to carry the can – but it is painful to know that our company was part of a scheme that defrauded the Kenyans and South African taxpayers. I know other local traders are not amused because we often buy export slots without fixed export contracts in hand.”

When noseweek track-ed down Jetten, he was shocked that we had discovered so much about his involvement in the scheme. He wasn’t interested in discussing his relationship with Rashmikant Kotecha or the legal implications in Kenya and South Africa of the way his company had set up the deal with Euroworld Commodities. “It was a business deal,” was all Jetten would say – besides declaring that he no longer had any relationship with Kotecha.

Meanwhile, noseweek has discovered that the Kenyans were ready to pay premium prices for the white maize because it allegedly fulfilled their requirement that it not be genetically modified. But sources at Noble Resources SA claimed that the company had “persuaded” pre-shipment inspection company SGS to provide GMO-free certificates, despite their inspectors finding traces of GMO proteins in the cargo. SGS head office in Johannesburg promised to investigate the claim, but at the time of going to press, noseweek had not received a response.

Out of Africa

A report explaining how Africa lost more than $850bn between 1970 and 2008 in illicit financial flows – mainly through corporate tax evasion, trade mispricing and overpriced supply contracts – suggests that long-standing debates over the merit of foreign aid are wrongly directed. Illicit outflows from Africa, orchestrated by international companies and corrupt officials, have run at well over double the levels of foreign aid sent to Africa from rich countries, according to the report from Washington-based Global Financial Integrity.

The authors, who include former IMF economist Dev Kar, suggest Africa’s illicit outflows from 1970 to 2008 could total as much as $1.8 trillion, if transfer pricing schemes and mispricing of the trade in services with Africa are taken into account. Africa’s biggest economies were worst hit: Nigeria was reckoned to have lost $89.5bn; Egypt $70bn; Algeria $25.7bn; Morocco $25bn; and South Africa $24.9bn.

Private businesses arrange most of the outflow but government agencies fail to staunch it. Commercial tax evasion accounts for about 65% of the losses; drug trafficking and counterfeiting for about 30%; and bribery and theft involving state officials about 3%.

The report raises policy questions for the World Bank, which has launched its own detailed study (financed by Norway) into capital flight.

The Noble Group

Singapore-listed Noble Group was founded in 1987 by commodities trader Richard Elman. In 2009 Forbes Magazine profiled the company thus: “Noble has grown from a small-time metals trader to a commodities merchant and supply-chain manager, with revenue last year of $36bn, up 54% from 2007.”

Presently, Noble Group has four divisions: Agriculture (cocoa, coffee, cotton, fertilisers, grains & oilseeds and sugar); Energy (carbon credits, coal & coke and oil & gas); Logistics (chartering and fleet management); and Metal, Minerals & Ores (aluminium & alumina, ferrous, ferro alloys, iron ore and non-Ferrous).

Noble has six main offices; Hong Kong, Singapore, Lausanne (Switzerland), Stamford (USA), London (UK), Sao Paulo (Brazil). South Africa is a new minor operation.

Noble Resources SA (Pty) Ltd was registered in 2003 and specialises in supplying coal, grains and oilseeds – all controlled and traded from Lausanne. As a limited-liability company, Noble Resources SA is not required to publish its financial statements, while Noble Group’s financial statements don’t identify its revenues from minor operations.

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Comments  

 

0 #1 Anthony Ruoro 2011-12-06 18:12

Hey ! Could the site owners or managers pls email me since i find no way to contact you. agmofreekenya@g mail.com

Thnx and gr8 website.

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