POVERTY: EU money earmarked for African development winds up in tax havens and African banks

  The headquarters of the European Investment Bank in Luxembourg Photo: Art Directors & TRIP / Alamy

By Leah Hyslop 01 Dec 2010
EU money earmarked for African development winds up in tax havens and African banks, report claims
A new report alleges that the European Investment Bank’s lending practices in Africa facilitate tax evasion and corruption.
Counter Balance, a coalition of NGOs dedicated to challenging the European Investment Bank (EIB), issued the report, entitled Hit and run development: some things the EIB would rather you didn't know about its lending practices in Africa, and some things that can no longer be covered up last week.
In it, the organisation claims that millions of pounds earmarked by the EIB last year for funding development in Africa ended up in tax havens and African banks, one of whose managing directors was being investigated for fraud at the time.
On its website, the EIB says that its aim in the sub-saharan African, Carribean and Pacific countries is "to support projects that deliver sustainable economic, social and environmental benefits”, particularly “private sector-led initiatives that promote economic growth and have a positive impact on the wider community and region."
Counter Balance claims however that the bank is neglecting its traditional role in financing small- to medium-sized enterprises (SMEs) to concentrate on intermediated loans (large loans to private banks, who are then expected to lend to SMEs) and offshore private equity funds.
The group says that these practices not only “prioritise profit maximisation over concerns about sustainable development”, they make it difficult to trace what happens to the money, and can faciliate “sinister practices such as tax evasion, money laundering and personal enrichment".
“When development money is given to unaccountable financial bodies with no development interest or experience, untracked by the EIB and resulting in alleged corruption and money laundering, it is hard to see how the EIB is meeting its legal obligations under its mandate,” the organisation said.
One case study highlighted in the report centred on a €50 million (£42 million) loan to a bank in Nigeria in 2007, when its managing director was under investigation by Nigeria's economic and financial crimes commission.
A spokesman for the EIB said that that the bank had a "zero-tolerance" policy on corruption and that many of the loans to African banks mentioned in the report had been discussed, but never actually made. “When financing projects that contribute to reducing poverty and promoting economic development in Africa the European Investment Bank works closely with fund managers selected for their track record and expertise specialist management skills," he said.
“All projects funded by the EIB and intermediaries are subject to the highest accountability standards, examined and are subject to the Bank's due diligence with this respect both before approval and following signature through the Bank's monitoring process."
Regarding the EIB's use of offshore financial centres, the spokesman added that the EIB "does not do business in blacklisted offshore financial centres, has strict internal rules regarding the use of offshore financial centres and ensures that beneficiaries of EIB funding conform to international standards on the use of offshore financial centres."
Around 10 per cent of the EIB's budget is spent outside of the EU every year. In 2009, this approximated to €10 billion (£8.3 billion) of investment
http://www.telegraph.co.uk/finance/personalfinance/offshorefinance/8168734/EU-money-earmarked-for-African-development-winds-up-in-tax-havens-and-African-banks-report-claims.html

POVERTY: EU aid for Africa ends up in tax havens, watchdog claims

 David Hencke guardian.co.uk, Thursday 25 November 2010
Claims that hundreds of millions of pounds of EU aid for Africa is being handed over to banks and private equity funds and then funnelled into tax havens.

2010
People queue to get food in Malawi. According to Counter Balance, only €2.8m of a €15m EIB loan to Malawi has been handed out. Photograph: Graeme Robertson

Hundreds of millions of pounds of European Union aid to help the poor in Africa is being handed over without public scrutiny to banks and private equity companies and funnelled into tax havens, a new report claims.
Counter Balance, a group of non-government organisations, has investigated the €1.1bn (£932m) of annual aid from the taxpayer-funded European Investment Bank to Africa and the Caribbean. It alleges that the cash disappeared into African banks, a Luxembourg tax haven and a Nigerian bank whose managing director was under investigation for fraud.
The EIB is able to borrow billions on the markets to fund the aid because it has a triple AAA credit rating. This means Britain and other leading EU economies are underwriting its loans and there is now concern, following the Irish financial crisis, that there could be problems with its lending to Africa.
The report claims that:
•A €50m loan was given to the Intercontinental Bank of Nigeria in 2007 when the MD was under investigation by Nigeria's economic and financial crimes commission – the equivalent of Britain's Serious Fraud Office. The bank was bailed out by the state less than two years later.
•A €15m loan to the National Bank of Malawi was publicised on the EIB's website but never made. The bank thought the EIB had given it to NBS Bank in Malawi — but it had not. It has now "inexplicably" ended up at First Merchant Bank in Malawi, but only €2.8m has been handed out.
• A €7m loan for Gabon and a €5m loan to Rwanda granted more than a year ago have still not been spent.
• Some 60% of EIB's investment in private equity funds for Africa – some €125m – is in one African country, Mauritius, where according to the EIB "the comprehensive regulatory framework favours private sector development".
• Another €4m in private equity investment destined for Angola was given to a company based in Delaware but registered in Luxembourg, a tax haven. Another firm registered in Luxembourg handled a €5m investment for Cameroon and Chad.
The report condemns the EIB for lack of checks and failure to make public what is happening to the cash. "The bank provides next to no information on where this money ends up. This is compounded by the EIB's rigorous protection of its clients' commercial confidentiality as well as the interest of the latter to protect the confidentiality of the ultimate clients benefitting from the loans."
The EIB said the bank had "exemplary transparency and accountability standards". It said: "Working with African financial institutions allows the EIB to pass on specific sector understanding, banking best practice and ensures more effective lending and cheaper financial support for local companies."
The spokesman said that information was held back for commercial reasons. " No bank in the world would release all this information about its clients," he said.
The EIB admitted that there had been confusion about which bank in Malawi had received its cash but said that "we like to spread the money around to different banks".
http://www.guardian.co.uk/business/2010/nov/25/european-investment-bank-criticised