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Who is benefiting from Zimbabwe's diamonds?
14/02/2012 00:00:00
by Global Witness
 
Controversial ... One of the mining operations in Marange
 
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UK-BASED campaign group, Global Witness has long campaigned against diamonds mined from Zimbabwe’s Marange in the eastern Manicaland province over allegations of human Rights abuses and the involvement of country’s security services in the exploitation of the gems. The Zimbabwe government denies the allegations.

Now Global Witness has published a report which seeks to unravel the complex ownership and control structures of companies operating in Marange and claims that proceeds from the gems are likely providing an off-budget source of cash for the country’s partisan security service chief’s as well as fund a possible war chest ahead of key elections expected this year. Below is an abridged version of the report:

Executive summary

In 2008 the Zimbabwean army took control of the Marange diamond fields using troops and helicopter gunships, killing and wounding many small scale miners in the process. Since then diamond mining concessions have been allocated to several companies in questionable circumstances. Anjin and Mbada are two such companies.

Anjin claims to be the world’s biggest diamond company. It is a joint venture between an obscure Zimbabwean firm called Matt Bronze and a Chinese construction company. Anjin’s Zimbabwean board members include senior serving and retired military and police officers, and the Permanent Secretary at the Ministry of Defence.

Mbada is a joint venture between a South African scrap metal company and the state-owned Zimbabwe Minerals Development Corporation.

Control by the military and police over a major diamond mining company creates opportunities for off-budget funding of the security sector. There is a real risk of these revenues being used to finance violence during a future election.

In the last financial year 25 percent of Mbada was passed to a third party, Transfrontier, which has an opaque company structure based in secrecy jurisdictions and tax havens. The beneficial owners of Transfrontier are unknown.

However the firm is named as a ‘sister company’ by a South African firm, Liparm Corporation, whose sole director is former Air Vice Marshal Robert Mhlanga, who is also the chair of Mbada.

Mr. Mhlanga was a prosecution witness in the 2003 treason trial of then MDC opposition leader Morgan Tsvangarai. Mhlanga is reported to have been Chief of Staff Operations at the National Command Centre which controlled the announcement of poll results in the disputed 2002 presidential election.



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The presence of Mbada, Transfrontier and associated companies in countries with zero rates of corporation tax such as Mauritius, Hong Kong, British Virgin Islands and Dubai in the United Arab Emirates, raises the questions of where these companies pay their taxes and whether these arrangements are a good deal for Zimbabwe.

Complex legal structures and secrecy jurisdictions can be used to hide who benefits from natural resources. Such secrecy is inappropriate for national assets and has the potential to conceal corruption, tax avoidance or off budget government spending.1 Global Witness has repeatedly called for transparency over the ownership of concessions, such as those controlled by Mbada.

Revenues from the Marange diamond fields represent a potentially large windfall to support development in Zimbabwe. The country’s citizens have a right to know how these revenues are managed.

Background

AFTER diamonds were discovered in the Marange fields in 2006 up to 30,000 diamond panners converged on the region. In the autumn of 2008 the government launched Operation ‘Hakudzokwi’ or ‘You will not return’ – designed to secure the mines.

Soldiers, police and helicopter gunships were deployed, resulting in the killing and wounding of many small scale miners.

Operation Hakudzokwi followed the intense election violence of June 2008 which was designed to intimidate civil society and supporters of the opposition Movement for Democratic Change (MDC).

After the election, and following mediation by the Southern African Development Community (SADC), a Government of National Unity was formed.

Zanu PF retained control of key security ministries such as the President’s Office (responsible for the Central Intelligence Organisation (CIO)), Defence, Home Affairs (with co-ministers from Zanu PF and the MDC) and the Ministry of Mines and Mining Development.

The MDC took control of the Prime Minister’s office and the Ministry of Finance, among other ministries.

Who’re Anjin?

The Anjin Investments (Pvt) Ltd diamond mine is located in block ‘C’ and there are unconfirmed reports that Anjin also has the right to mine in concession blocks ‘J’, ‘K’ and ‘Eii’. The Anjin Investments (Pvt) Ltd diamond mine is located in block ‘C’ and there are unconfirmed reports that Anjin also has the right to mine in concession blocks ‘J’, ‘K’ and ‘Eii’.

A director of Anjin is reported to have claimed that it is now the world’s largest diamond company: “We are now the largest diamond company in the world and this has been confirmed by KPC [Kimberley Process Certification scheme].

“We are the largest mining diamond company in the world because we have surpassed the KPC minimum requirements. We are the largest in terms of the size of our area of operation and the amount of ore we are capable of processing every day.

“We are also large in terms of the field, we have got the largest deposits in the world.” These claims have not been independently verified.”

Anjin is a joint venture between a Chinese firm, the Anhui Foreign Economic Construction Group (AFEC(G)), and a Zimbabwean company, “Matt Bronze”. AFEC(G) is a large, well established Chinese company involved in many overseas construction projects.

These include a US$124 million renovation of the Akii Bua national stadium in Uganda; and a renovation of Mozambique’s Maputo International Airport – a US$106 million project funded by China’s Exim bank.

In Zimbabwe AFEC(G) is building a new National Defence College. The deal is financed by a US$98 million loan from the Chinese state-owned Exim Bank and it has been reported in the press that the terms of the loan include a provision for repayment of the debt using revenues from Anjin.

The MDC Finance Minister was highly critical of the terms of this loan: Hon. MR. CHINYADZA: “My supplementary question Hon. Minister, in view of the extent of our indebtedness, can we afford to continue to borrow funds for non-productive investments in Zimbabwe?

Hon. MR. BITI: “No we cannot. Let me be very clear, when you are in debt, the precarious position that we are at the moment, you cannot contract other debts. If you are going to contract other debt, it has to be concessionary debt.

“I want to make reference to the Chinese Agreement [sic] that was ratified by this Parliament. It is criminal Mr. Speaker for a country like Zimbabwe to enter into an agreement with a rate of interest like 2 percent, 4 percent or 5 percent. I want to say that there are friends, let me put “friends” in inverted comas, “friends and countries”, that have been prepared to give Zimbabwe money.

“Mr. Speaker Sir, but when you look at the agreement, the agreements are levying interests in the name of concessions of 2 percent and above. A country like Zimbabwe does not have the capacity to repay this interest. It does not have the capacity of paying such amounts.”

Military involvement

Global Witness has obtained information showing that several of Anjin’s Zimbabwean directors are drawn from the military and police.

This raises serious questions about who controls the company and the profits it generates – questions serious enough to justify cancellation of the contract. The Chinese executive directors of Anjin are Mr. Jian Qingde, Mr. Jiang Diaru, Mr. Tian Shiyue, Mr. Jian Zhaoyao, and Mr. Li Renfu, and nonexecutive board members are Mr. Zhang Shibin and Ms. Lu Qingxia.

The Zimbabwean members of Anjin’s Executive Board are: Mr. Martin Rushwaya, the permanent secretary in the Ministry of Defence; Mr. Oliver Chibage, a commissioner in the Zimbabwe Republic Police (ZRP); Ms. Nonkosi M. Ncube, a commissioner in the ZRP; Mr. Munyaradzi Machacha, a Zanu PF director of publications; Mr. Mabasa Temba Hawadi, a director of Marange Resources (Pvt) Ltd, a subsidiary of the ZMDC.

Non-executive board members are: Mr. Morris Masunungure, a current or retired officer in the Zimbabwe Defence Forces (ZDF); Mr. Romeo Daniel Mutsvunguma, a retired colonel in the ZDF alleged by Human Rights Watch to have participated in violence in 2008.

The principal officer and company secretary of Anjin is Mr. Charles Tarumbwa. The current EU restrictive measures (sanctions) list includes Brigadier Charles Nathaniel Tarumbwa alongside the notation “Manicaland and Mutare South. Directly involved in the terror campaign waged before and during the elections.

It has been alleged by an MDC parliamentarian that Anjin’s mining concession was granted by Defence Minister Emmerson Mnangagwa when the minister of mines was on leave and Mnangagwa was acting minister of mines.

Despite the establishment of a Government of National Unity, the security services remain unreformed. The upper echelons of the Zimbabwe Defence Force, Central Intelligence Organisation, and the Zimbabwe Republic Police remain partisan, their loyalties appearing to lie with Zanu PF ministers and President Robert Mugabe rather than the Government of National Unity as a whole.

A key component of security sector reform in Zimbabwe will be establishing democratic control of the budgets of the security forces. A democratically elected government should set national security strategy, and collect taxes in order to fund these priorities, through a budget-setting process carried out by the Ministry of Finance on behalf of the Cabinet in the Government of National Unity.

This process should be scrutinized by Parliament, which holds the Government to account. Direct control of a source of funding (such as a diamond company like Anjin) by the police, armed forces or the Ministry of Defence directly cuts across this democratic process. It enables the Zimbabwean military to set and fund their own agenda, with little control or scrutiny exercised by elected politicians.

Diamond revenues should flow into the Ministry of Finance, which would allow the Zimbabwean Cabinet to decide on its public expenditure priorities.

The partial control exercised by the Zimbabwean security establishment over Anjin raises the question: Do Anjin or Matt Bronze make any payments direct to the Ministry of Defence, Ministry of Home Affairs, Zimbabwe Republic Police, Zimbabwe Defence Force, Central Intelligence Organisation or the Office of the President and Cabinet?

Mbada diamonds

Mbada Diamonds is another large diamond mining firm operating in block ‘A’ in Marange. There are unconfirmed reports that Mbada has also gained concession block ‘P’ and the top half of concession block ‘I’.

Global Witness has uncovered a complex and opaque legal ownership structure for Mbada, including companies in Hong Kong and the British Virgin Islands, as well as a
string of what appear to be nominee company officers.

Mbada is a joint venture between the state owned Zimbabwe Minerals Development Company (ZMDC), which owns Marange Resources (Pvt) Ltd, and Grandwell Holdings, a company registered in Mauritius and a subsidiary of New Reclamation Group (“Reclam”), a South African scrap metal recycling company.

Until last financial year Grandwell was wholly owned by Reclam.

However, in its 2011 annual report, Reclam stated: During the financial year ended 30 June 2011, the company transferred 4,999 shares in Grandwell comprising 49.99 percent of the share capital of Grandwell to Transfrontier in consideration for the procurement and introduction of mining and resource opportunities and associated funding in southern Africa for the benefit of the issuer including, for example, coal, gold, chrome, diamond, iron ore and platinum.

Transfrontier is a company incorporated in Hong Kong and is focused on resource-related business opportunities in southern Africa. …

“The original Mbada Concession Area covers approximately 1,100 hectares of land. As a consequence of the endeavours of Transfrontier and pursuant to an application by Mbada for an extension of the concession area, in April 2011 the Mining Development Board of Zimbabwe advised Mbada in writing that original Mbada concession area had been re-aligned and increased in size by a further 6440 hectares to 7540 hectares which has substantially further enhanced the life of mine and expected production levels.”

It is possible that the transfer of almost 50 percent of Grandwell to a third party such as Transfrontier Mining Company Limited was foreseen in the original 2009 Memorandum of Agreement between Marange Resources and Grandwell, which states: “Grandwell is a company in which at least 50 percent of the issued share capital shall be held by Reclam…”

This six-fold increase in the size of the concession area follows irregularities in the initial concession allocation process, documented in a previous Global Witness report.

These irregularities included a refusal to hold a public and transparent tendering process, a failure to properly register Mbada as a company in Zimbabwe, inadequate due diligence investigations into Mbada, and a failure to properly appoint ZMDC members to the joint venture board.

According to Zimbabwean law mineral rights are vested in the president. The above statement by Reclam raises the following questions: Was the transfer of 50 percent of Grandwell Holdings to Transfrontier Mining Company Ltd made in return for the grant of an extra 6,440 hectares concession area? If so, why was 50 percent of Grandwell transferred to Transfrontier, registered in Hong Kong, rather than to the Presidency of Zimbabwe, in whom mineral rights are vested?

Transfrontier mining

Transfrontier Mining Company Limited now owns almost 25 percent of Mbada, a major diamond mining company, through Transfrontier’s almost 50 percent shareholding in Grandwell Holdings.

Transfrontier Mining Company Limited is, on paper at least, owned by a network of linked companies and individuals in Hong Kong and the British Virgin Islands. Half of
Transfrontier Mining is owned by Quorum Nominees, and half by Golden Universe.

Quorum Nominees is owned by Leslie Chang. Golden Universe is half-owned by Mehta Nominees and half by Billy Li. Fifty per cent of Mehta Nominees is owned by Vibury and fifty per cent by Connetty Nominees.

Finally, two companies registered in the British Virgin Islands (Express Agents and Leisure Star) each own half of Vibury and Connetty Nominees.

A survey of Hong Kong corporate documents reveals that an accountancy and secretarial services firm based in Hong Kong called Chang Leung Hui & Li CPA Ltd (CLHL), established all of the Hong Kong based entities.

In addition they set up Transfrontier Mining, Transfrontier Group Company, Transfrontier Airlines, Transfrontier Energy, and Transfrontier Telecommunications. The Corporate Secretary for all of these companies is listed as CLHL Secretaries.

Lesley Chang and Billy Li are directors of CLHL and are unlikely to be the true beneficial owners of Transfrontier. All the Hong Kong entities (including CLHL, Transfrontier, Vibury, Connetty, Mehta, Quorum and Golden Universe) are registered at 12/F 3 Lockhart Road, Wanchai, Hong Kong, which is the address of CLHL.

The ultimate beneficial owners of Transfrontier have not been identified. However, they may be connected with (retired) Zimbabwean Air Vice Marshal Robert Mhlanga, the Chairman of Mbada. Mr. Mhlanga is also the sole director of Liparm Corporation, three interlinked companies (Liparm Investment Holdings, Liparm Consultancy, and Liparm Trading) incorporated in South Africa.

Mr. Mhlanga is widely reported to have been President Robert Mugabe’s personal pilot, and was a prosecution witness in the 2003 treason trial of then MDC opposition leader Morgan Tsvangarai.

Mhlanga is reported to have been Chief of Staff Operations at the National Command Centre which controlled the announcement of poll results in the disputed 2002
Presidential elections.

Until recently, Liparm’s website described its “sister companies” thus: “Liparm Corporation has vested interests in business opportunities that enhance the value of our operations. These companies include, among   others, the Transfrontier Group Company Limited, Skyview Minerals (Pvt) Ltd and Mbada Diamonds (Pvt) Ltd.

“We value our sister companies as they not only provide a platform for the enhancement and the promotion of operations, but also create exposure and opportunities for sustainable growth and business development on a global scale.”

A few days after Global Witness wrote to Mr. Mhlanga asking about the relationship between Liparm and Transfrontier, the section on Liparm’s website describing its “sister companies” was removed. Global Witness has saved and archived the relevant web pages.

Liparm also may be establishing a related company, Transfrontier International, in Dubai, a low tax zone in the United Arab Emirates. In late 2011, in the Dubai Yellow Pages, an employee of Liparm Corporation placed a public request for prices for two 2500kg safes for an “associated” company called Transfrontier International which has established an office in Almas Tower in Dubai.

Almas Tower is the home of the Dubai Multi Commodities Centre and the Diamond Exchange. It is not known whether Transfrontier International is actively trading in Mbada-produced diamonds in Dubai.

There has been uncertainty about the true beneficial owners of Mbada since the outset. The former CEO of the ZMDC admitted to a Parliamentary Committee that “it would have been difficult to do due diligence on [Mbada parent company] Grandwell because it is a paper company, registered in Mauritius.”

This poses the question: Who are the ultimate beneficial owners of Matt Bronze and Mbada and associated companies, including Transfrontier (and related companies
registered in Hong Kong, British Virgin Islands and Dubai), Skyview Minerals, Reclam and Liparm?

Revenue implications

Zimbabwe desperately needs tax revenues. For example, in 2011, life expectancy at birth in Zimbabwe was just over 51 years. This reflects, in part, the rapid decline of the country’s health system in recent years.

The MDC-controlled Ministry of Finance recently presented the 2012 national budget with expenditure totaling US$3.4 billion, and specified additional spending that would occur only if the Treasury received US$600 million from diamond revenues promised by the Zanu PF-controlled Ministry of Mines.

The Finance Minister noted “we are beginning to sound like a broken record in emphasising the need for transparency in the handling of our diamond revenues and, indeed general revenue from the rest of the mining sector.”

Accurate figures about revenues from Marange diamonds are notoriously difficult to find. In its annual report one of the owners of Mbada, Reclam, reports the figures “related to its diamond operations”.

The profits recorded by Transfrontier or ZMDC are not known, nor the royalties, dividends and taxes which were paid by Mbada. However, Reclam states that “Zimbabwe will retain approximately 62 percent of the revenues derived from the diamonds’ sales in the form of royalties, resource depletion fees, taxes and the government’s 50% equity interest in the joint venture.”

The complex structure of Mbada and its related companies, many of which are located in tax havens, raises three related questions: Are Transfrontier International actively trading in Mbada produced diamonds in Dubai? If so, how are the transfer prices governing the sale or transfer of diamonds between two related companies (Transfrontier and Mbada) determined? If so, how does this affect the taxes paid to the Zimbabwean Treasury?

Conclusion

This paper reveals the control exercised by the Zimbabwe security sector over Anjin and the transfer of 25 percent of Mbada, a valuable diamond mining company, to a firm based in a series of tax havens and secrecy jurisdictions with unidentified beneficial owners.

The secrecy surrounding the real owners of Mbada has a number of potential consequences, including a possible loss of tax revenues, and the potential opportunity for officials or military figures to personally benefit from a state asset.

The partial control of Anjin by the military and police creates opportunities for off budget funding of an unreformed and partisan security sector.

Recommendations

Global Witness recommends a series of short term measures, plus, in the longer term, the creation of policy and legal frameworks which should help avoid problems in the future.

The Government of National Unity (GNU) should cancel the Anjin contract. The GNU should immediately review all other contracts in the Marange diamond fields, and audit concession allocation procedures and operations conducted so far, to see whether they represent a good deal for Zimbabwe.

Mbada and Anjin should publish details of their ultimate beneficial owners, and those of related companies such as Transfrontier and Matt Bronze.

The GNU should publish all mining concession contracts and other relevant agreements.

The Kimberley Process should not authorize sales of diamonds by Anjin. Consumers should not buy diamonds originating from the Marange mines until they can be certain they will not fund human rights abuses.

Long term

The GNU should pass legislation banning serving members of the military, police, the CIO and other members of the security services from control over, or beneficial ownership of, mining companies.

The GNU should design new transparent and fair concession allocation procedures designed to maximize public benefit.

The GNU should undertake reforms which would allow it to sign up to the Extractive Industries Transparency Initiative (or a domestic equivalent), designed to improve transparency of revenue flows.

The Financial Action Task Force, which is the intergovernmental body that sets the global anti-money laundering standards, should adopt a standard that requires each jurisdiction to collect and list publicly the beneficial ownership information for any company incorporated there.


 
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