DRC and Congo-Brazzaville have been losing millions of dollars of much-needed tax revenues.
Company says it pays taxes and invests 3 million euros ($4.5 million) annually.
A Swiss-based logging company operating in the Congo Basin has been accused of declaring losses in its local subsidiary to avoid being taxed while at the same time transferring immense amounts of cash into its offshore accounts.
Conducted by Greenpeace International, the investigative report, Conning the Congo, says that Danzer Group has been using “an elaborate profit-laundering system” that has also meant moving cash out of the Democratic Republic of Congo into offshore bank accounts in Switzerland.
The Greenpeace Report — which is based on a Danzer’s internal documents — says that the company has been evading tax in both countries.
And so DRC and Congo-Brazzaville — which own vast tracts of the Basin’s rainforests — have been losing millions of dollars of much-needed tax revenues.
For instance, Greenpeace says that by not complying with the tax agreements the company had made with the two governments, the latter have lost an estimated 7.8 million euros ($12 million) in tax revenue between 2000 and 2006.
In real terms, Greenpeace says this would have been 80 per cent of what DRC used in 2000 to finance public health care or the cost of vaccinating 700,000 Congolese children.
But in a statement sent to The EastAfrican from Switzerland, the Danzer Group terms Greenpeace’s accusations “groundless allegations” and “populist gimmick.”
The company says it pays taxes and invests 3 million euros ($4.5 million) annually in both DRC and Congo-Brazzaville.
“The recent allegations made by Greenpeace are totally without foundation. They are an absurd, populist gimmick,” the statement says.
The company also says that Greenpeace had filed cases in Switzerland against it in 2004 and 2006 but the charges were dropped by the Swiss Attorney General’s Office.
Greenpeace is an independent not-for-profit organisation involved in environmental and peace campaigning throughout the world.
Among other roles, the organisation’s trademark operations involve investigating, exposing and challenging governments and industry to stop operations that destroy forests and contribute to climate change.
It comprises 27 independent national/regional offices in over 40 countries across Europe, the Americas, Asia and the Pacific.
Greenpeace says that Danzer Group’s subsidiaries in the DRC and Congo Brazzaville — Siforco and IFO, respectively — sell wood to its Swiss-based firm, Interholco AG, at a price that is below the true market value of the wood.
“Internal Danzer Group documents show, in great detail, the price-fixing arrangements between the Group’s Swiss-based trading arm Interholco AG and the parent firm’s logging subsidiaries in the DRC and the Republic of the Congo,” the report says.
The report further alleges that once the company fixes a price that is below that for which wood sells in the market, it then makes “unofficial” payments through bank accounts in Europe, enabling it to “evade the payment of a variety of taxes to which it is liable to the DRC.”
But now, Danzer Group accuses Greenpeace of “stealing” its data and protests that it has been operating on losses saying; “It is unfortunate that Greenpeace, despite the fact that it is in possession of many items of stolen data, fails to mention that Danzer operations suffered a loss of 11 million euros ($17 million) in 2003 alone.”
It adds: “One cannot evade paying taxes when there were no profits to tax in the first place.”
Based in Switzerland, the Danzer Group is owned by a wealthy German family. The company prides itself on being the world’s largest manufacturer of hardwood veneers, operating six veneer factories and five sawmills in Europe, North America and Africa.
It operates 30 sales outlets and employs a workforce of some 4,700 staff. It posted a turnover of approximately 410 million euros ($615 million) in 2007.
Its subsidiaries in the Congo Basin, started in 1972, employs 2,400 people while a further 20,000 people benefit indirectly.
Greenpeace appears to have been able to acquire a 2003 audit on the company’s holding firm, ANBE AG, which was carried out by PricewaterhouseCoopers and which exposed how the transfer pricing has been contravening DRC’s laws.
Curiously, Danzer Group appears to have been predicting losses in its subsidiary in DRC and the Republic of Congo but profits for its Swiss-based mother company.
For instance, Greenpeace presents Siforco’s 2003 business plan in which the company projected a loss of 1 million euros ($1.5 million) but an offshore profit of 440,000 euros ($686,000).
This is the second time the Swiss-based company is featuring prominently in a Greenpeace investigation.
In a previous probe, Danzer was named for trading in illegal timber, bribery and dealing with a timber dealer who had been blacklisted by the UN Security Council for trafficking arms in Liberia.
What is worrying for the two resource-rich countries is that the Greenpeace report shows that falsifying accounts there seems to be the rule rather than the exception.
“Export figures for the whole of the DRC (2002–05) and the Republic of the Congo (2004–06) indicate that the phenomenon of tax evasion through under-invoicing of the sales value of exported timber from both countries is by no means restricted to the Danzer Group.”
To Greenpeace, logging companies are only able to do this because they are “able to feed networks of corruption.”
Western companies also seem to be directly (and indirectly) abetting an ongoing humanitarian catastrophe in the DRC.
The seemingly forgotten war there has no parallels anywhere on the planet — Informed estimates now say that it has brought to their early deaths some 5.4 million people and could be killing 45,000 people every month — thus making it, as Greenpeace observes, the world’s deadliest conflict since the Second World War.
“The vast majority die from non-violent causes such as malaria, diarrhoea, pneumonia and malnutrition — conditions that are easily preventable and treatable so long as people have access to basic healthcare and nutritious food.”
The World Bank, IMF and the governments in the two countries seem unable to combat the cheating. In the DRC, for instance, Greenpeace’s report says that the tax evasion has been going on right under the noses of the Bank, the IMF and the government.
In DRC, 75 per cent of timber exports is controlled by four foreign companies — Danzer Group (which accounts for 40 per cent), NST Group of Portugal, Olam of India and the Lebanese company, Trans-M. The Greenpeace report concentrates on the activities of Danzer.
But in its website, Danzer says its operations in the Congo Basin are beyond reproach.
“For years, our work in Africa has involved large investments that have made significant contributions to local development,” it adds.
The company also prides itself for being one of the most important investors in both DRC and Congo-Brazzaville.
But the Greenpeace report paints a rather different picture from what the company has posted on the website.
It offers evidence to show that Danzer has been falsifying its accounts since the late 1990s. It also appears from the report that officials in the three subsidiaries have been going to great pains to hide the true nature of their operations.
For instance, the report quotes a 2002 letter from one Schmidt of IFO who cautions a colleague, “If false information gets into unauthorised hands, this will certainly lead to costly consequences for IFO or for Siforco.”
Besides under-invoicing timber exports, the report says that Siforco has been under-invoicing for services provided to other Danzer Group companies, including milling and transporting of logs.
A further source of tax evasion appears to be payment of expatriates working for Danzer Group in the two countries, who are allegedly paid from offshore accounts.
Greenpeace quotes from an audit done by PricewaterhouseCoopers in May 2003, “PricewaterhouseCoopers states candidly that some of Siforco’s costs are paid outside the country of production and outside the subsidiaries’ own local accounts.”
It also says that the firm’s auditors questioned the use of offshore accounts as a source of additional income in Switzerland to pay for the salaries of expatriates, spare parts and foreign exchange. The audit firm concluded, “These transactions might not fully comply with local (DRC) law.”
After the Amazon, the Congo Basin contains the second largest expanse of rainforests in the world. It is credited for ameliorating the world’s climates as well as being an extremely important source of biodiversity.
Today, Greenpeace says that 53 million hectares of the rainforests are under the logging sector. Here, companies from France, Belgium, Germany, Italy, Portugal, Switzerland, the USA, Lebanon, Singapore and India compete for the lucrative timber export business.
The activities of these companies are barely controlled by governments largely because the latter are weak and prone to massive corruption.
Greenpeace asks the DRC government and the World Bank to prevent further expansion of industrial logging until comprehensive social and environmental land use planning has been conducted and basic governance and anti-corruption measures have been established.
It also asks rich governments that give financial aid to the DRC and Congo Brazzaville to “prevent further fraudulent expatriation of wealth and profits from the two countries by companies that engage in tax evasion, capital flight and aggressive tax avoidance.”
