Corruption Investigation of Namdia
Several months ago The Namibian newspaper published an investigative article claiming that diamonds were being bought in Namibia from the government’s new trading company Namdia (Namibia Desert Diamonds) reportedly by well connected individuals at a price of US$500/ carat and were then being sold out of Dubai for $2,500. It has been reported this week that the corruption investigation which was commenced has been brought to an end by the Anti-Corruption Commission, Director Mr Paulus Noa.
The trading price of the Namibian diamonds that was discovered by the Namibian's investigative team is itself is not abnormal. In 2015 the average price for Namibia’s diamonds, which are the best and highest price in the world exported by De Beers was some US$569/ per carat according to the Kimberly process. Thus these 2016 transactions that were subject of such controversy do not seem to undervalue, at least if we are talking about averages. But in the diamond trade there is no such thing as an ‘average diamond’. Diamonds vary in quality from cheap bort used in industrial production to the1,110 carat ‘Lesedi La Rona’ diamond discovered in Botswana in 2015 valued in the millions of dollars. In fact if one uses the De Beers classification system there are over 5,000 grades of diamonds and so what was exported from Namibia ay have been very valuable but unless each stone is carefully specified the authorities will never know.
For years before Dubai took its place as ‘launderer in chief’ of the global diamond trade Switzerland and Israel that played this role and still to some extent do but these are now bit players in this huge and scandalous part of the trade. If you want to see the evidence of what Dubai does to the tax base of just about everyone involved in the diamond trade just go to most reputable source , the Kimberly Process statistics on the diamond trade. In 2015, the last year for which such data is available, the United Arab Emirates ( read Dubai) which produces no diamonds, imported some 62 MCT of diamonds, roughly half the world’s production of rough diamonds at a unit price of $87 per carat. This was worth some U$$ 5.4 billion. But in the same year Dubai exported almost exactly the same quantity of rough diamond, some 63 Mct at a unit price of $119 per carat. In other words Dubai exported US$7.6 billion. The average margin therefore is 40% considerably less than 500% reported in the Namibian transaction.
So what happened to the US$ 2 billion difference between Dubai’s imports and its exports of rough diamonds? It certainly did not end up in the coffers of the Dubai tax authority as they levy no tax on these transactions. It is transfer price manipulation in its purest and worst form and the proceeds went to private individuals as profit and the only important question is to whom? It is a question of direct interest to the Namibia Tax authorities and not the Anti-corruption authority because if the difference between the buying and selling price went to the off-shore accounts of the individuals involved then they will owe the tax authorities a great deal of money.
What normally happens to these profits depends on the agreement between parties to the transaction? They are distributed between the seller and the buyer. Dubai is not only a tax haven for the most scandalous sellers and criminals in Africa but also for the Indian and Chinese diamond cutters who the main buyers and who buy at inflated prices so as to assure that they pay no income tax in India or China. Dubai performs no productive role in the diamond value chain except shielding those African, European and Asian traders from investigation by their tax authorities. Dubai's exclusion from the Kimberly process would not prove to be a loss to anyone but tax fraudsters.
Perhaps the most awful thing that one can say of this this international tax fraud in then diamond trade is that it is ‘normal business practice’. It would be nice to think that this sort of practice is confined only to diamonds but it is not and there is ample evidence that this is normal business practice in most commodity trades. The taxation authorities in Namibia should demand from the Dubai authorities an accounting for this transaction and an explanation of who got what. It is possible, though not probable, that the entire benefit of the transaction ie the difference between $500 and $2500 per carat went to the Indian buyer and not to the Namibians involved. If this is the case then this is purely a matter for the Indian tax authorities but they already have appropriate taxes that deal with this sort of regular fraudulent practice in the diamond trade. If Dubai fails to comply with a legitimate request for assistance in a fraud investigation in Namibia then Namibia should take the matter to the Kimberly process and seek Dubai's suspension from membership which would end their diamond exchange and their global laundry service. While another country would inevitably take Dubai’s place that fact alone cannot be a reason to stop combatting tax fraud.
But let us assume for a moment that these well connected Namibian individuals have made a considerable killing on this diamond transaction and that this was actually the intention of government. The famous 19th century German chancellor, Otto von Bismarck, was once quoted, probably incorrectly, as saying ‘Laws are like sausages. It's better not to see them being made. To retain respect for sausages and laws, one must not watch them in the making.’ The same unfortunately is true of the creation of an indigenous economic elite in Africa. It is an ugly process but an indigenous economic elite is needed to develop Namibia. The only serious question that a ‘development cynic’ should really ask is whether these illegal profits made in Dubai are brought back to Namibia and invested in projects that will make more profits and thereby develop the country or whether they end up, as is so often the case in their tax haven bank accounts, safe from the eyes of Namibian tax authorities.
These are the views of Professor Roman Grynberg and not necessarily UNAM where he is employed.
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