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Benchmarks Foundation Researcher Hassan Lorgat on FIFA’s systemic corruption

Benchmarks Foundation Researcher Hassan Lorgat says South Africa should not be blamed for the systemic corruption within FIFA. He says the US has no moral standing to pronounce on South Africa as it is using unfair means to create advantages for American companies around the globe. He also says ‘transfer pricing’ is legalised corruption that has cost Africa 1,3 trillion dollars in 11 years. Tim Modise

 

Hassan Lorgat is a researcher with Benchmarks Foundation and he’s going to talk to us about the evolving FIFA scandal as well as the transfer pricing – a contentious issue in mining here in South Africa, given the remarks made by former President Thabo Mbeki. Let’s start first Hassan, with the story of FIFA. You have an interesting take on what’s going on here. There’s a lot of excitement in the country and in the media. People are talking about the local football organisers having to be investigated etcetera, and that government was in the wrong, and you have a different take. Tell me why you differ with the way the story is being covered.

Well, firstly I expected a little bit more critical journalism where our media would be looking at all other corrupt organisations, not only the South African bid. I mean we have proof that Germany, even England and others, paid some monies to try and get the World Cup pushed to them. My problem really is that we are accused as a country of having paid $100m, but FIFA, registered as an NGO, is really, a corrupt – it presents the worst features of a corrupt corporation.

What I was lamenting was that we spend a lot of time looking at this ‘once off’ deal, whereas this whole system was corrupt there and we need to deal with it holistically. I mean the U.K. when they hosted, in England, the World Cup in 1966, Sir Stanley Rous and others were there, deciding, when no Africans had real say in it, so clearly these are forms of corruption. If you want to have discussions of corruption then let’s open it up.

Now looking at the way the American authorities went about it and the disclosures they made about South Africa. What is wrong with the way they are doing it? From their point of view they would say ‘they are protecting the integrity of their system’.

Well the one problem is that the Americans have taken the role of international policemen but they are looking at a soft target around sport. We are currently involved in negotiating a new treaty to regulate transnational corporations. In fact, it’s happening in July, in Geneva, but we know that the United States and a number of these groups are using exactly the practices that they are criticising that have been used in FIFA.

There are allegations from our Ambassadorial and other staff, of people being coerced to move away from supporting the treaty. These things are quite common, that people get brown envelopes they get taken on trips, not to support measures that will keep corporations to account, so for me, whatever is good for sport, must be good for the whole trading system, as a whole.

When we had the ‘arms deal’ in this country, we had to promise – there were promises of off-set deals, there will be jobs, and there’ll be this and that, and none of this happens, but this is exactly what happens in FIFA.

But why does it matter then, from your point of view, the way the FIFA scandal investigation is unfolding?

Well it matters in that it casts only Africans (once again) as being the villains. Germany, in its bid, it’s on record now, did some arms deal trading with Saudi Arabia because they had a vote. They also did some business with South Korea because they had votes, so clearly what is the difference between that, and a Diaspora Fund. I reject them all, so what I wanted the discussion to do is to bring in all the parties. Bring in the handball of Thierry Henry, where the Irish were paid money. It was a systemic fault, so when Qatar says that it did what was required by FIFA – they’re simply saying ‘those were the rules of the game’.

A few years ago, Tim, I was very active in inter-corruption struggles. In Germany and in some European countries, you could get a tax deduction for bribing an African official. This is a very recent change, where these things are wrong. Of course we accept it must be wrong because we want to live to a higher standard, but quite clearly, the discussions must go back further, and include all the parties.

Well, Germany, it was tax deductable to bribe an African, that’s what you say. Was it part of the law?

Yes.

I mean, how did it work? What was the logic behind it?

Well you could have it as a tax deduction because you’re bringing business to the country. You know that, yes it is facilitation, there are different words for that, but I think that that ban on this form of trading is probably ten years old, not longer than ten years.

Are you suggesting that corruption was legalised in Germany?

Well that’s right but, also Tim, the one point was that that tax deduction – now it’s regarded as being corrupt but it was not then. What I’m saying to you is that when the rules of FIFA are such. The system was corrupt. That meant that no African country could have got the World Cup playing on fair rules, because this is what the rule of the day was.

Right, let’s talk about transfer pricing, again, it’s an issue that’s not being discussed fully, in the country, but it rears its head now and again. Even former President Thabo Mbeki has spoken about it at the Pan African Parliament, here in Midrand, Johannesburg. But it does not gain traction. What is the story around transfer pricing actually?

Well you see, Tim, it’s quite interesting that we’re discussing these two items together. A few years ago one could not have a discussion about illicit financial flows because it was seen to be good for business, but come the financial crisis of 2008, we find that Africa and the rest of the world are beginning to mobilise the political resolve, but led by the G20. Who are now worried about tax transfers and base erosion, so there’s a study group there trying to look about how the resources that should be coming to the country are not coming to the country.

Incidentally, Tim, I was looking at Clem Sunter’s books about the scenario planning’s, in fact they were praising the idea of low taxation and part of the way – it was the norm in business to have paid taxes. If you could pay no taxes it would have been cool, so what’s happened? Come 2008 these countries realised that they’re losing a lot of money to tax havens and illicit financial flows, and now the political power is being mobilised at a global level.

In Africa, the African Union High Level Panel, chaired by Thabo Mbeki, has found that between one-point-two to one-point-three trillion dollars is lost from illicit financial flow into Africa.

This is over a period of time ?

From 2002 to 2013.

Okay.

Now, this translates to about $50bn per annum, Africa loses. Now this – many studies have shown equates to the foreign direct investments we get from other countries, like that. So really, if they help us, most of these tax havens are in their jurisdictions. I mean the study done by AIDC, the Alternative Information Development Centre, looking at Lonmin. Found that Lonmin had created a shadow company, a shell company, in Bermuda. The report, currently out on their website, is called the Bermuda Triangle looking at the Bermuda connection basically, showing how, with a small office of one or no people – money is being moved there.

The Lonmin Company that we talk about now, famous or infamous (if you like) after the Marikana killings, is registered as a U.K. company but it was found that they paid no tax in the U.K. – 99 percent of their workers are here. There were two or three of them in the U.K., so clearly this requires a strong political resolve.

Unfortunately, the capacity of our authorities, to mobilise both political courage and administrative capability, has been lacking. So they should be, in terms of Section 31 of the South African Income Tax Act, should be able to follow where the money goes. Where the transactions are? What gold, what coal, what ore is leaving the country? What its real values are? Where’s it going too? They have the infrastructure but they’re not implementing it. These are part of the issues where civil society groups, NGO’s, faith based organisations that they work for, are beginning to put pressure – to make sure that we go after the money.

But I think these companies can argue and say that they are not doing anything illegal. That it’s within the laws that they can transfer some of their profits offshore.

Yes, Tim, the argument get’s a bit circular because a few years ago the British Parliament, I think at least three years ago, had the Parliamentary Select Committee, Chaired by Margaret Hodge found that the Starbucks, Google, and such groups paid very little tax, less tax than a lady down the road, running a green grocery store. They were shamed by the public and they voluntarily paid more tax but their response was, “Listen, we did nothing wrong. We simply followed the law.”

But every time governments want to try and make the law tougher for them to pay more tax, to do the right thing in public. What you find, they start saying that this is not good for foreign direct investment – you are scaring business – you are scaring investors – you are scaring away people, so it becomes very circular.

They make sure that the law is weak and when the law is weak, they say, “Well, see, we only do what the law says,” so it becomes circular. Clearly they’ve got to do the right thing. How many workers you have? What is your responsibilities as a good, corporate citizen? Do you pollute the environment? These are the things that they have to do as being business.

But how is transfer pricing affecting South Africa and is it in anyway harming the communities in which the mining companies operate?

Tim, we work with poor communities. What we find is the externalisation of costs. I saw this morning that in Tunisia people have blocked a road where phosphate, phosphorous leaves out of a mining company. This is what communities say they are going to be doing this and I really warn this, because we do research with these communities.

They find that the road leaving a mine, whether it is gold, uranium, or whatever, is very, well tarred to the exit point, to take it out of the country, and they find that the mining communities, surrounding the mine, suffer ill-health, poor pollution, cracked homes. The costs are externalised. In fact, in Johannesburg, where we had acid mine drainage, the companies ran away from that problem and it was left to the Health Department and the Provincial Government to fix up the water pollution.

Clearly, they have to be good corporate citizens, and this is the good moment for our governments to act on these, who are breaking very basic, human rights violations. It’s bad corporate citizenship, but it is also a human right violation.

But in terms of, in the country sense, the fact that the rates transfer pricing – how is the country affected by that, I mean, what’s negative for the country’s fiscus?

Well you have less money coming into the fiscus, in terms of taxation, right. You have less money to build, according to the promises that you’ve given these poor communities, which is often captured by the social and labour plans, so there’s under-development there, and I think what we are doing – we are continuing the old patterns of apartheid, where the goods are taken out of these communities. In fact, even in North-West, most of the money of North-West is spent in the Gauteng Province, so I think what happens – it creates a lot more amity, and anger, and there’ll be a lot more violence. Marikana – we’ve often warned, in fact we published a study before Marikana happened to say that it will happen because of the social anger we pick up, in all our studies, where people don’t find that the corporations are good citizens. In fact, they regard them as bad neighbours.

So how do we change that?

Well, we are a faith-based organisation. We actually want good neighbourliness. We think business can play a role but they have to play by rules. Every time a business comes into a mining corporation that I know best, enters a mine, they parade what they will do for a community but five years down the line, the community does not see these benefits. In fact, what we see are negative consequences and I think that this creates social strife and we’re warning of a blowout.

There should be greater public investment. There should be greater political interest, in resolving these issues. Mining communities have no voice. They have less voice in the Mining Law, MPRDA, and it’s increasingly being decreased, and we really, really want to have a warning of social unrest.

All right, Hassan Lorgat thanks very much for talking to us.

Thank you Tim for having us.

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