A Fishy Business: Shifting Profits Out of Africa

Leaked documents and an affidavit from a whistleblower working at a major Western fishing company operating in African waters have given rare insight into how food multinationals can shift profits around the world to avoid paying taxes in developing countries.

The files, from Icelandic fishing giant Samherji, which supplies sardines and mackerel to major supermarkets such as Tesco and Carrefour, were uploaded to the Wikileaks website last year by a whistleblower. Johannes Stefansson was once the managing director of Samherji’s companies in Namibia, but he is now working with authorities there on a criminal investigation into what has been dubbed the “Fishrot” scandal.

Ministers and company executives were forced to resign after a series of explosive reports showed Samherji had paid millions of dollars in bribes to gain access to Namibia’s lucrative fishing quotas. The company brought in lawyers to investigate after Al Jazeera, Icelandic broadcaster RUV, and OCCRP member center The Namibian broke the scandal late last year.

But Stefansson’s complaints were not limited to allegations of bribery. In a lengthy affidavit provided to Namibia’s Anti-Corruption Commission, he also claimed Samherji had shifted significant revenues to group companies in what he believed to be a tax-avoidance scheme.

An analysis of the leaked files by Finance Uncovered, as well as public documents and the company’s financial statements, suggest Samherji used various techniques to reduce taxes in Namibia by shifting money to low-tax destinations like Cyprus and Mauritius.

These include sending at least 93 million Namibian dollars (US$8.2 million) in controversial “fee” payments to the group’s other companies in low-tax Mauritius and the U.K., and selling fish below market prices to group companies in Cyprus.

In his affidavit, Stefansson also alleges Samherji overcharged its Namibian company for the cost of chartering trawlers, a strategy that shifted profits out of Africa and reduced its tax bills there.

A spokesman for Namibia’s Ministry of Finance confirmed it was investigating the tax affairs of “Samherji, its affiliates and all companies as well as individuals implicated in [the] Fishrot saga.”

He added: “[Your] findings will go a long way in complementing efforts of the Ministry to investigate and audit tax affairs of these companies.”

Samherji, one of Europe’s largest fishing companies with annual revenues of some $700 million, first entered Namibia in 2012. After landing a deal two years later with a state-owned fishery that awarded it lucrative quotas to catch horse mackerel, it quickly grew to become one of the biggest players in an industry that brings in a fifth of the country’s export earnings.

Samherji strongly denies any wrongdoing. Its current co-CEO, Björgólfur Jóhannsson, said there were legitimate business reasons for all the transactions raised by Finance Uncovered, arguing that it is standard practice for multinational companies to use specific subsidiaries to legally minimize legal, tax, and operational risk.

He said Samherji had allocated “substantial” resources to investigate its operations in Namibia since the Fishrot scandal broke and launched a compliance program to improve governance across all the group’s companies. But Jóhannsson declined to comment on detailed allegations in this article until an internal legal review was complete.

Credit: Fabian Plock (Alamy Stock Photo) Fishing boats in Luderitz harbor, Namibia.

Fees, Fees and More Fees

While there has been widespread reporting about similar schemes used by oil and mining giants in Africa, until now there has been little focus on one of the continent’s most precious natural resources — fish.

Maritime African countries are estimated to lose up to $1.6 billion a year in tax revenues through illegal and undeclared fishing, according to recent research. But Nick Branigan, chair of the North Atlantic Fisheries Intelligence Group, a network of international government agencies that works with the UN and Interpol on fisheries crime, said this figure is likely an underestimate.

“The problems of undeclared and illegal fishing in developing countries are magnified because multinational fisheries firms routinely strip operating profits out of developing countries and place these in low tax countries,” he said.

New findings by Finance Uncovered, showing Samherji may have avoided paying millions of dollars in taxes by moving its money between jurisdictions and reselling fish between countries, underscore the problem, he added.

One of the key ways in which Samherji appears to have reduced its taxable profits in Namibia was by sending hefty fees to its companies in other jurisdictions. Although Namibia’s corporate tax rate of 32 percent In 2012, when Samherji entered the market, Namibia’s corporate tax rate was even higher, at 34%. is standard for southern Africa, it is higher than in many European states and tax havens. The equivalent rates in the U.K., Cyprus, and Mauritius are 19 percent, 12.5 percent, and 15 percent, respectively.

Finance Uncovered’s analysis of company accounts, as well as leaked invoices and contracts, suggests Samherji’s Namibian entities paid N$93 million ($8.2 million) to group companies in the U.K. and Mauritius for management, intellectual property, and marketing.

According to emails found in the leaked documents, these payments appear to have been part of a plan to extract profits from Namibia. Stefansson, the whistleblower, told Finance Uncovered that neither the U.K. nor the Mauritius firm provided any services at all to the Namibian firms.

This is borne out by a 2014 email in which Samherji’s chief accounting officer, Ingvar Juliusson, wrote to Namibian lawyer Andrew Theunissen seeking advice on a new corporate structure.

“What we are looking into is channeling [sic] the royalties derived from our Namibian operation out of Namiba[sic] to Mauritius,” he wrote. “Can you please provide reccomentions [sic] on how to structure this and your advise on how to do this properly.”

Juliusson told the lawyer the royalties would be for “access to technical knowhow and etc. Advise on how to describe this would be welcomed.”

Credit: Wikileaks Part of an email exchange between Samherji’s chief accounting officer, Ingvar Juliusson, and a lawyer on how to describe the company’s desired corporate structure, in which large fees are sent offshore to Mauritius.

In March 2015, Samherji became the shareholder of a newly minted Mauritius company, Mermaria Investments. An agreement was drawn up that gave the Mauritius company rights to 5 percent of the net revenues of one of the companies Samherji part-owned in Namibia.

These payments, according to the agreement, were supposed to be made in exchange for “know-how, management experience and good management team, including staff, sales people, directors and others and for the use of the internationally established brands.”

According to invoices and payments records seen by Finance Uncovered, at least N$55 million ($3.7 million at historic rates) was sent to Mermaria Investments in Mauritius as “royalty payments” under the agreement.

Mauritius is a leading African tax haven that has played a huge role in tax dodging on the continent and beyond.

A similar set of internal agreements found in the Wikileaks files appear to have underpinned payments of N$38 million ($4.5 million at historic rates) in 2012 from a second Namibian company to Onward Investment Ltd, a Samherji firm registered in the U.K.

These agreements included a “management” fee equivalent to 5 percent total revenue and intellectual property licensing fees amounting to 50 percent of profit before tax.

Riva Jalipa, Policy Lead at Tax Justice Network Africa, says that companies frequently pay royalty or management fees to affiliated companies in low-tax jurisdictions like Mauritius to save taxes in countries where they generate the bulk of their profits.

She said multinational food companies that tried to minimize tax payments in their operating countries were “rigging the system.”

“Not only do they deprive governments of their tax revenue, they also get unfair advantages over local companies,” which are unable to send profits offshore.

Samherji said that royalty arrangements were commonly used by multinational entities, and the royalty payments were under consideration by the company’s finance team and external advisors. Its co-CEO, Jóhannsson, said Samherji’s companies had paid N$120 million in corporate income taxes over the eight years it had operated in Namibia and NAD $400 million in other payments to the state, such as withholding taxes and export taxes.

Finance Uncovered has also seen Samherji invoices that suggest its profits in Namibia were being deliberately eroded by selling the fish it was catching in African waters to its own trading company in Cyprus at what appear to be artificially low prices.

The documents, which show the amount at which Samherji sold its fish from Namibia to Cyprus, then from Cyprus to clients in the Democratic Republic of Congo, suggest these discounts were between 10 and 20 percent. The Cyprus company then sold the fish at market rates, thereby reaping higher profits in a country with a lower tax rate.

Based on publicly available accounts, Finance Uncovered estimates these discounts could have cost Namibian tax authorities $950,000 that year.

According to an expert in the field, a discount of even 10 percent would be far above the usual commission rates paid in the industry, which are usually in the range of 1.5 to 2.5 percent, and would be likely to raise questions. The expert said a 10 percent discount would be “very generous.”

Samherji said that the bulk of sales to Cyprus took place in 2012 and were justified on the basis that their customer base was not yet accustomed to doing business directly with Namibia. It said that in total the company’s trading with Cyprus was only 6 percent of the company’s horse-mackerel catch.

Samherji added that its commission arrangements were “in line with typical arm’s lengths agreements.” An “arm’s length” transaction, in tax terms, is one in which each party acts in their own best interests, rather than the interests of the group’s overall profits. Nonetheless, the Icelandic company said it was now investigating the arrangements between Cyprus and Namibia.

Markups Across Borders

Stefansson’s affidavit to Namibian law enforcement officers also describes how Samherji allegedly inflated the price its Namibian companies paid to hire and operate fishing vessels as a way of reducing its tax bills.

In 2014 one of the Namibian companies entered into a charter agreement for a vessel with another Samherji subsidiary, this one in Poland. The rate was set at $75,000 a day for the vessel and additional expenses like maintenance costs, fuel, and insurance.

Credit: Samherji The Heinaste, one of Samherji’s vessels in Namibia.

The contract does not state how this fee would be broken down into line items. But a business plan for the vessel created by Juliusson in 2014 suggests that the Polish subsidiary, Atlantex, would charge a 15 percent markup on the additional expenses, yielding a pre-tax profit for Atlantex of $242,854 a month.

According to Stefansson, these costs could easily have been paid from Namibia, without the markup. But instead, Atlantex’s profits were likely to have come directly out of the Namibian company’s bottom line — and shifted to Poland, whose tax rate of 19 percent was much lower than Namibia’s 33 percent.

Samherji denied that Atlantex made $243,000 a month on the contract. The company said that after operating the contract at $75,000 per day for four and a half months, the contract fee reduced to $55,000 and then to $35,000. The Polish company made net income of $111,000 on average for this whole period, equivalent to only a 6 percent markup, it said.

“Multinational companies use specific subsidiaries for specific transactions to minimize the spread of legal, tax and operational risk,” said Johannsson, the Samherji CEO.

He said that charging a mark-up on intra-company contracts was usually required by law, and added that many of the allegations were from “sources that are dedicated to harming Samherji and painting a distorted image of our operations.”

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