How Ghana started but failed to remain a tax haven
Did you know Ghana was once a tax haven?
Ghana was once a tax haven, but just after four years, the country capitulated following pressure from international civil society groups.
It started when in June 2005, the Ghana government signed a memorandum of understanding with Barclays Bank to enable the bank develop an offshore operation in the country. The tax haven was to be called the International Financial Services Center (IFSC).
Barclays commissioned a concept paper for the Ghana government, which was produced by the bank’s consultant, Grant Thornton Mauritius. In June, 2006, the government signed off on the recommendations, authorizing Barclays and its consultants to develop the proper legal framework, which Ghana’s parliament passed into law in 2007.
In a publication in 2008, the Bank of Ghana justified the need for a tax haven in the country. The paper titled: Offshore Banking and the Prospects for the Ghanaian Economy, among others, argued that “With the changing face of the global financial architecture and the need to identify additional sources of cheaper investment funds, Offshore Financial Centres (OFCs) have become an important vehicle through which this can be achieved.”
Because at that time the central bank believed that, “One of the key developments in the world economy during the last few decades has been the growing international mobility of capital. An element in this process has been the growth of offshore finance. It is estimated that 45 per cent of the world’s private wealth is now managed offshore.”
The Bank also noted that the government of Ghana decided to introduce an IFSC in Ghana to further increase the depth of the financial sector.
The IFSC is regarded as an important part of the financial sector development strategy, it added.
The Bank of Ghana was of the view that offshore banking establishes the institutional framework that would link the financial sector to huge volumes of cross border transactions in global financial markets.
“To this end therefore, the management of Barclays Bank Ghana Limited has been granted a General Banking Business licence by the Bank of Ghana to operate the first banking business under the international banking component of the IFSC, Ghana’s International Financial Services Centre will have a full range of non-bank financial services,” the Bank said.
Barclays was given the license to operate in September 2007. And effectively, Ghana became a tax haven! Its Offshore Banking Unit then became the first and only such operation in North and West Africa.
This 2010 Bank of Ghana list of licensed banks shows Barclays has an additional offshore banking license.
In 2010, the New York Times published a report about the investigation of 50 cases of corruption in Iraq, related to reconstruction of the war ravaged country, and indicated that investigators found stolen money lodged in accounts around the world including Ghana.
“Some suspects also tried to conceal foreign bank accounts in Ghana, Switzerland, the Netherlands and Britain, investigators said. In other cases, cash was simply found stacked in home safes,” the report said.
The Organization for Economic Co-operation and Development (OECD) then, warned Ghana strongly to beware of the risks of becoming a tax haven with the establishment of offshore banking in the country.
The OECD asked the country to ensure that by becoming a tax haven, it does not fuel corruption and crime in West Africa.
Jeffrey Owens, formerly of the OECD was quoted as saying, “the last thing Africa needs is a tax haven in the centre of the African continent.”
Dr. Wilson Prichard a tax and development expert and others argued that Ghana’s offshore banking center, next door to oil-rich Nigeria, could do terrible economic damage in the region, as Africa’s wealthy use it to further reduce taxable income in their own impoverished nations.
“Aside from the general social costs associated with the operation of tax havens globally, in the absence of a very strong regulatory framework and very strong standards of transparency there’s a particularly high risk that a tax haven in west Africa, which is home to major oil wealth and high levels of corruption, could facilitate large-scale corruption and tax evasion, and pose a correspondingly large risk to good governance and economic growth in the region,” Prichard was quoted as saying elsewhere.
By 2011 after receiving the license to operate, Barclays opened 200 accounts, but then started planning to shut down, the bank told journalists in the Ghanaian capital, Accra, citing the Ghana government’s inability to put in place laws required to make offshore banking to function.
Meanwhile, the Bank of Ghana had already started reviewing Barclays Bank’s offshore license and eventually cancelled it.
Choosing its words carefully, the Bank of Ghana at that time, explained why it decided to convert Barclays Bank’s offshore license into a regular one.
The central bank said it took the decision because of perceptions of money laundering, low interest by Ghanaians in the service and lack of regulations.
“Very little interest has been shown in offshore banking in Ghana,” then central bank governor, Mr Kwesi Amissah-Arthur, now Vice President told journalists in Accra.
He also said while the Act for offshore banking has been passed, the regulations were yet to be passed.
“At a time that Ghana was gaining a reputation for laundering, we did not want to confirm this misperception,” he said during a Monetary Policy Committee meeting on February 18, 2011.
But on February 16, 2012, Ghana was blacklisted as a money-laundering nation for failing to meet international standards. However, on October 19, 2012, the OECD backed FATF announced that “Ghana has been removed from the FATF’s Public Statement” of the blacklist.
With the Panama Papers now in the news, the trove of 11.5 million leaked internal documents, about 2.6TB of data, from the Panamanian law firm Mossack Fonseca, showing how hundreds of thousands of people are using anonymous shell companies across the world to hide their money has thrown the spotlight on offshore companies.
The leak, which is the biggest in journalistic history, has not only sparked debates on shell companies and tax havens, it has also led to some resignations – including that of the Iceland Prime Minister, Sigmundur Gunnlaugsson. He was confronted by demands for his resignation after documents from the leak revealed that he and his wife had set up a company in the British Virgin Islands. He was accused of a conflict of interest.
The leaks have also compelled British Prime Minister, David Cameron to publish details of his tax documents. He had admitted investing in his late father’s Investment Company registered in the British Virgin Islands.
Meanwhile, the Tax Justice Network’s 2015 Financial Secrecy Index rates Ghana’s financial secrecy – the tendency to facilitate tax evasion, money laundering and illicit financial transfers; at a fairly high 67 per cent.
The Tax Justice Network, an organisation concerned with tax havens and tax evasion, ranked Ghana 48th out of 92 territories, in its 2015 Financial Secrecy Index which ranks jurisdictions according to their propensity to facilitate huge illicit financial flows.
Ghana’s rating is not too far behind Switzerland, which leads the ranking in financial secrecy with 73 per cent, maintaining the popular perception of Swiss banks as the most financially secretive and the most preferred destination for capital flight.
An estimated $21 to $32 trillion of untaxed or lightly taxed private financial wealth is located in tax havens around the world that use secrecy to attract illicit financial flows.
As the Tax Justice Network believes in the identification of tax havens as a first step to fighting illicit financial flows, it uses the Financial Secrecy Index to identify which territories offer greater platform for tax evasion and capital flight, by combining an assessment of the size of the territory with an assessment of its financial secrecy, measured by 15 indicators.
The indicators include banking secrecy, existence and availability of registers for trusts and foundations, companies, as well as register information for their beneficial owners, accounts and financial reports; the efficiency of tax administration; anti-tax evasion and anti-money laundering structures; scale and effectiveness of information exchange between tax jurisdictions; commitments to bilateral treaties and international conventions; and international judicial cooperation.
Ghana’s performance among the indicators, was weak in the availability of registered information on beneficial owners of companies, company accounts and country-by-country financial reports, and their accessibility and affordability to the public (Tax Justice Network considers a fee of less than $10 or £10 for accessing the information, to be affordable).
High weakness was also found in the efficiency of Ghana’s tax and financial regulations – Ghana does not require domestic tax payers to disclose to local tax administration authorities, their payments to non-residents.
By Emmanuel K. Dogbevi
Email: [email protected]
Copyright © 2015 by Creative Imaginations Publicity
All rights reserved. This article or any portion thereof may not be reproduced or used in any manner whatsoever without the express written permission of the publisher except for the use of brief quotations in reviews.