Wednesday, August 10, 2022

Botswana blacklisted for international aid fraud

Botswana is likely to lose out on aid from the French Development Agency and the Organisation for Economic Cooperation and Development (OECD) as a result of being blacklisted for aid fraud after failing to meet standards set by OECD.

Botswana banks have also been banned from distributing aid money from the French Development Agency. France released this week a blacklist of 17 countries, including Botswana, that do not help investigate foreign aid fraud, banning the use of their banks to help distribute development funds, French officials said Monday.

French Minister of Sustainable Development, Pascal Canfin, said that the composition of the list is the result of a report by the Finance Ministry last year, related to the standards set by the Organization for Economic Cooperation and Development (OECD). Aides to development minister Pascal Canfin were, however, unable to say how much French foreign aid currently transits via banks in the countries featured on the new blacklist.

France ranks third among Development Assistance Committee members in terms of its official development assistance (ODA) volume,. The OECD Development Assistance Committee (DAC) is one of the key forums in which the major bilateral donors work together to increase the effectiveness of their common efforts to support sustainable development. The DAC concentrates on how international development co-operation contributes to the capacity of developing countries to participate in the global economy and the capacity of people to overcome poverty and participate fully in their societies. The officials justified their blacklisting of Botswana and 16 other countries by saying there was a lack of transparency in the countries on the list, adding that poor and developing countries were often the main victims of fraud.

“The aim is primarily preventative, to put pressure on these countries by publicising this list to progress towards more transparency,” they said. Botswana is also accused of not having adequate international agreements under which information for tax purposes could be exchanged. Last year, the country was named alongside 11 other countries to be excluded from the international business community because they are tax havens.

The new blacklist comes at a time when Botswana is stepping up efforts to remove secrecy provisions and deficiencies in its tax information exchange agreements and laws in a bid to reverse impressions that the country may be a tax haven. Botswana has recently been signing a number of Tax Information Exchange Agreements (TIEAs). The conclusions of these agreements are in response to an on-going review by the Global Forum on transparency and exchange of information for tax purposes following revelations that some of Botswana’s laws have deficiencies which could hamper the country’s ability to exchange information for tax purposes. Botswana is not only amending her laws to do away with the deficiencies observed by the Global Forum but it is also amending the Exchange of Information Article in the Double Taxation Avoidance Agreements (DTAAs) that are currently in force. “The main laws that were considered to have deficiencies are the Income Tax Act and the Banking Act. All of the existing 12 DTAAs, except that with the United Kingdom, were seen not to be compliant with the standards on exchange of information for tax purposes.

“For any country to pass the review, it has to have ability to exchange information by having no secrecy clause in its banking law, to have provisions that allow its revenue authority to exchange tax information with other tax jurisdictions and to have a minimum of 12 international agreements that are compliant with international standards, Parliament has approved the amendment of the Income Tax Act in December 2012 to allow the Botswana Unified Revenue Service to exchange information for tax purposes. Additionally, the amendment of the Banking Act is at an advanced stage and may be presented to the June/July 2013 session of Parliament for approval. This amendment is mainly meant to repeal strict banking secrecy provisions and to allow for banking information to be provided for the purpose of exchanging information with treaty partners. The new amendments aimed at helping Botswana shed its tax haven image may however act against the country’s drive to diversify its economy. BIDPA’s Professor Ronam Grynberg observed in a recent article that: “Until Botswana behaves more like the economic predators of the world, we shall suffer the same future as the scores of small states which behave like prey: We will be eaten by lions! By economic predators.” Professor Grynberg was referring to Luxembourg, Switzerland and Ireland, saying: “These three European predator countries have maintained tax systems that have made them particularly good places to invest or store wealth in. On top of that, Luxembourg and Switzerland have been the tax havens of choice for most of Europe, as well as some very unsavory characters in Asia, Africa and the Americas. They have maintained bank secrecy laws that have been the bane of the existence of the tax authorities in larger countries like France, Germany and Italy. Their prosperity has in no small part come from this predatory, some would even say parasitic relationship with their neighbours.”

Professor Grynberg further states: “The off-shore banking and financial centers in Luxemburg and Switzerland provide hundreds of thousands of jobs for decent, respectable people in those countries whose main economic function is helping mostly wealthy individuals, some of whom are criminals, hide their wealth from the home country authorities. Until very recently, tax evasion – illegal in most countries – was not even a crime in Switzerland. And this year, Switzerland is finally implementing a bizarre tax deal with the UK Treasury where it has agreed to transfer tax liabilities on income earned by UK citizens with accounts in Switzerland but would not violate Swiss bank secrecy by telling the UK authorities who they are. It has made Switzerland and Luxembourg two of the richest nations on earth. And while crime may not pay, it would appear that helping those who commit crimes certainly has been very profitable for Switzerland and Luxembourg.

“Unfortunately for Botswana and so many other small countries, we have not taken the same path as the predators; we have played by the rules, listened to what we were told by the international community. We were nice, but as the Americanism goes, nice guys finish last! If Botswana is to develop and achieve some economic success when our diamonds run out in the next decade, it may be useful to draw some lessons from the way the successful economic predators of the world and how they have behaved. But to use the Swiss and Luxemburg models of tax havens and bank secrecy is not open to Botswana.

“The Organization for Economic Cooperation and Development (OECD), the Paris-based rich man’s club and self-styled global policeman on tax competition for OECD members, likes to pounce on small states which are tax havens, but certainly not on Luxemburg and Switzerland, which are of course OECD members. But while being an aggressive tax haven is unlikely to work, the Irish model certainly is open to Botswana. Our neighbour, South Africa, is introducing laws and regulations and providing a commercial environment that is increasingly unpalatable to its own business sector.

This creates a real opportunity for Botswana.” Professor Grynberg says Botswana should respond in kind.

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