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May 5, 2009 / jeni

Barclays: You’re Not Helping

barclaysThe recent G20 London Summit featured a ‘dramatic crackdown on tax havens‘. The use of West African countries as major transit points for cocaine trafficking to Europe is well documented (here, here, here — you get the idea). Thus, some might see Barclays’ latest gambit in the region as… less than helpful.

Barclays bank is playing a lead role in the establishment of a tax haven in Ghana, in a move that could see huge mineral wealth in west Africa vanish into it from poverty-stricken countries’ coffers, the Observer can reveal.

The controversial British lender has for the last four years worked closely with the Ghanian government to start an International Financial Services Centre offering low taxes and minimal financial disclosure. Development charities fear that the establishment of a fully operating tax haven so close to oil- and mineral-rich countries such as Nigeria, Sierra Leone and Equatorial Guinea will encourage a rapid increase in tax and capital flight.

There is also concern that cocaine barons, increasingly using west Africa as a trafficking route into Europe, could launder drug money through Ghana.

I’d say this is less of a ‘concern’ and more of a ‘certainty’ — why wouldn’t drug barons or corrupt officials take advantage of this opportunity? Barclays argues that the scheme will bring tourism and investment to Ghana, but is this worth the wider governance and security effects?

Governments, international organisations and non-state actors are only part of the equation when it comes to crime and conflict issues. An un-engaged or un-regulated private sector can easily claw back progress achieved by other actors. The Barclays-Ghana scheme is more than a simple business decision; to the extent that it facilitates corruption and drug trafficking, it may contribute to instability, violence and even renewed conflict in the region. This is not a statement made lightly; neither the fragility of the relevant states nor the ferocity of the drugs trade in the region are easily overstated. As Reuters reports, ‘One haul last year of 600kg of cocaine found in the boot of a car in Guinea-Bissau had a street value equivalent to about 10 percent of the country’s GDP of $340 million’.

From the UNODC report, Drug Trafficking as a Security Threat in West Africa:

While many countries are becoming more stable, there remain areas that are not truly under the control of an accountable nation, and the threat of armed insurrection still exists. Between 1998 and 2005, at least 35 armed groups have been active in ten African countries. Most of these acquired their arms illegally, and many are actively involved in criminal activities to fund their operations. Even if they are unsuccessful in their political aspirations, their criminal activities are likely to retain enduring attraction.

The relationship between diamond smuggling and the civil wars in Sierra Leone and Liberia has been well documented, but, at their peak, profits accruing from this activity amounted to some tens of millions of dollars per year. The potential destabilizing influence of the cocaine traffic, where the value of a single consignment can exceed that sum, is very real. The profits generated by this trade are larger than the entire security budgets of some of the smaller West African countries.

The situation in West Africa could come to resemble that confronting Mexico today, in which some local police forces have been co-opted by trafficking groups, which engage in open warfare with both the state and one another. Except West Africa, as a whole, is both poorer and less stable than Mexico, and so more likely to be subsumed in the conflict. Large numbers of former child soldiers and other brutalised young men have few rival sources of income or alternative plans for their future.

The current situation in West Africa is dire — but not nearly as bad as it could get. Concerted action by a spectrum of global actors — especially to shore up national criminal justice systems and police enforcement — could avert the most catastrophic predictions. In this context, the Barclays scheme is unwelcome news.



Leave a Comment
  1. Chris Glavin / May 7 2009 13:50

    It was my understanding that the anti-Tax Haven agreements that came out of the G20 amounted to little more than a gentleman’s agreement among G20 members to allow them to apply unilateral sanctions against tax havens they feel they are losing tax revenues to in order to, for lack of a better word, bully the haven into changing its policies (with the exception of China’s tax haven’s of course – they are off limits). Overall, the effort seems to be directed at recovering as much lost revenues as possible for states in tight economic times.

    So for example, under this gentlemen’s agreement it would be acceptable for Switzerland to close its border with Liechtenstein, or for the United States to bar airport traffic that originates in the Cayman Islands, or for Australia to slap trade restrictions on Vanuatu.

    From this, it would seem that for Barclay’s to create a tax haven out of Ghana, the prospects of one or some G20 members slapping some form of sanctions on Ghana would have risen. That is, of course, assuming that those G20 members perceive Ghana’s tax haven as unduly damaging their state’s finances.

    But then, the profits from drug smuggling and trafficking aren’t taxed anyway, which would lead one to question whether the criminal aspects of a Barclays-Ghana tax haven are, alone, enough to push G20 members to pressure Ghana to change its policies.

    • kiers / Jun 9 2009 09:02

      interesting….i was always curious how the actors on the world stage all of a sudden decided to clean up bank secrecy.! Now it makes sense.

      what are the chinese havens? HK? Macau?
      the chase for global capital is now at the bottom of the barrel! Crime has good net margins ~50% : no interest, no depreciations, no goodwill amortizations, no taxes! nice little gravy train to suck on.

      Maybe barclays(with it’s saudi board membership) will help set up some good quality madrasas as well? good for the local economy???


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