Tax Evasion in Zambia: NGOs File Complaint Against Glencore, First Quantum for Violation of OECD Guidelines

SHERPA (France), the Centre for Trade Policy and Development (Zambia), the Berne Declaration (Switzerland), l’Entraide Missionnaire (Canada) and MiningWatch Canada

Lausanne/Zurich/Paris/Lusaka, April 12th 2011. SHERPA (France), the Centre for Trade Policy and Development (Zambia), the Berne Declaration (Switzerland), l’Entraide Missionnaire (Canada) and MiningWatch (Canada) have filed a complaint today against Glencore International AG and First Quantum Minerals Ltd. before the Swiss and Canadian National Contact Points (NCP) for violating the OECD Guidelines for Multinational Enterprises.

The cause for the complaint lies in the financial and accounting manipulations performed by the two companies’ subsidiary, Mopani Copper Mines Plc (MCM), in order to evade taxation in Zambia.

Those allegations are based on the results of a 2009 audit performed at the request of the Zambian authorities, with support from Norwegian government, by international accountants Grant Thornton and Econ Pöyry. Among the anomalies revealed by the report, an unexplained increase in operating costs in 2007 (+$380 million), stunningly low reported volumes of extracted cobalt when compared to similar mining companies operating in the region, and manipulations of copper selling prices in favor of Glencore which constitute a violation of OECD’s “arm’s length” principle. The result of those various processes was to lower by several hundreds of millions dollars MCM’s net income for the 2003-2008 period, hereby substantially lightening the company’s tax burden.

Those actions are all the more deplorable when one considers that the Mopani consortium operates in an already attractive fiscal environment, one highly favorable to foreign investment, and that Mopani also enjoys the effects of a 2000 development agreement with Zambia that provides massive financial and tax exemptions.

According to Global Financial Integrity, multinational corporations’ tax evasion, when averaged per year over the last ten years, amounts to a global net loss of $400 to $440 billion for developing countries.

In Canada, two non judicial procedures exist to send a complaint in regard to alleged abuses in foreign country by Canadian enterprises: the National Contact Point established in 2000 and the Counsellor Office on Corporate Social Responsibility (CSR) for Extractive Industry, created in March 2009 by the Canadian government in its policy: "Building the Canadian Advantage: A Corporate Social Responsibility (CSR) Strategy for the Canadian International Extractive Sector."

Both have some similar characteristics: they are voluntary and can’t make inquiries into the cases (although some European NCPs have taken the initiative to do so on site), and they can’t impose real sanctions. In the case of the Counsellor’s office, it would likely accept only minor cases, won’t have guidelines to interpret the norms it is supposed to follow, and is accountable only to the Canadian government. As for the NCP, an evaluation of its interpretation of the Guidelines (the next one is for June 2011) is undertaken from to time by a committee of OECD governments, multinational enterprises and international workers’ unions. And further, the NCP performance of each country can be compared at an annual meeting. Finally, when a specific instance complaint is accepted and suited, most of the NCPs issue a final declaration.

This is far from the measures proposed by Bill C-300, defeated last October. It would have permitted the complaint to be brought to the Department of External Affairs, which, if the complaint was well founded, would have assessed and ruled on it. This law would have allowed all government support to the enterprises at fault to be cut.

The situation revealed by the experts audit about the Mopani Copper Mine PLC is a real scandal!

The five associations expect the NCPs to:

  1. formerly recognize the violations of the OECD Guidelines committed by corporations Glencore International AG and First Quantum Minerals Ltd.;
  2. ensure by all necessary means that the above-mentioned corporations refund the tax money the Mopani consortium should have owed to the Zambian Revenue Authority had the companies’ communication been lawfully conducted, and had transfer pricing not been manipulated;
  3. require the above-mentioned corporations to commit themselves to comply scrupulously with the OECD guidelines and with Zambian laws and regulations.

SHERPA | Maud Perdriel-Vaissière + 33 (0)6 83 87 97 34 | Jean Merckaert + 33 (0)6 81 84 30 64
The Berne Declaration | Olivier Longchamp | + 41 (0)21 620 03 09
CTPD | Savior Mwambwa | + 260 977 875404
MiningWatch | Catherine Coumans | + 1 (613) 569 3439
L'Entraide missionnaire | Denis Tougas | + 1 (514) 270 6089