Sun, 18 Feb 2018 11:55:36 +0000


A NEW investigative story (“Saturnia Panics”, Daily Nation, February 14, 2018) aimed at exposing the multiple identities and ownership of Saturnia,  a pension fund registered under Trust is believed to be a multi-employer scheme which handles contributions from about 142 employers.

But in failing to follow the transactions, talk to key members of the Board of Trustees and explore the company’s conflicts of interests, Saturnia’s multiple shell companies and financial practices, the Registrar of Pensions and Insurance Authority, Martin Libinga dodges and falls a long way short, as yours truly explains the truth about shell companies in this matter.

It is common knowledge that pension funds at Saturnia Regna Pension Trust Limited are administered and managed respectively by Benefits Consulting Services Limited and African Financial Services Limited, that are both allegedly owned by Munakupya Hantuba, the UPND leader Hakainde Hichilema and Valentine Chitalu the former chief executive officer for Zambia Privatization Agency (ZPA) through their holding company Menel Management Services.

Now, one wonders who owns Saturnia Regna Pension Fund, Saturnia Regina Pension Scheme, Saturnia Regina Trustees Limited and Saturnia Regna Pension Fund Registered Trustees Limited? Are these four entities shell companies? What is a shell company? For those who do not know, shell companies are the corporate entities which do not have any active business operations or significant assets in their possession. They neither manufacture anything nor render any service.

They are generally used to make financial transactions. Their assets, if they exist, only exist on paper and not in reality. So, the government ought to view them with suspicion as some of them could be used for money laundering, tax evasion and other illegal activities. The current Zambian Companies Act, though, appears to have not defined what a shell company is and what kind of activities would lead to a company being termed a ‘shell’.

The Panama Papers scandal has put shell companies and anonymous business entities back in the spotlight. More so that incidentally, UPND leader Hakainde Hichilema was among several world figures named in a huge scandalous leak of financial documents that revealed how the powerful and ultra-wealthy secretly invested vast amounts of cash in offshore tax havens.

Nevertheless, many in the world of business incorporation and compliance have long been aware of the dangers of totally anonymous companies, the multitude of opportunities for fraud and deceit, as well as the challenge of working through the chain of records in order to identify and prosecute criminals. What do Saturnia’s four multiple shell companies lead to in this regard?

In the past few months, dozens of commentators and thousands of regular citizens have asked: if there’s so much fraudulent activity conducted by shell companies, why allow them to exist in the first place? A fair question. But are there legitimate uses for shell companies and anonymous entities? It turns out there are. One of them is reverse merger. What is reverse merger?

A reverse merger is the acquisition of a publicly traded company that has usually lain dormant for a number of years. Because the shell company is already listed on the public market, purchasing the entity allows an investor to avoid going through the lengthy and expensive process of setting up an Initial Public Offering (IPO). In this case, buying a shell company is similar to buying a shelf corporation. The company has value because it already exists, and the purchase provides a significant shortcut. For new startups, the reverse merger can present major savings. Obviously, a reverse merger comes with possible pitfalls, such as an “unclean” shell that has a hidden history of lawsuits, fraudulent behavior, or unmet liabilities.

While on the other hand, shell companies are often discussed as being the cause of corruption, there are scenarios in which they can help avoid corruption. For example, there are numerous countries around the world that lack legitimate legal protection for both citizens and businesses. In these countries, it is not unusual for the assets of wealthy individuals to be seized by government officials. Often, this happens because the individual is seen as a political threat.

Entrepreneurs attempting to establish businesses in these nations may choose to hide their assets and wealth behind the screen of a shell company, thereby protecting those assets from being illegally seized. But, does this scenario exist to warrant Saturnia’s four multiple shell companies in Zambia? I don’t think so.

However, in our interconnected world, investors from multiple countries often come together and pool their capital for future business investments. Because these entrepreneurs come from different countries, all with different tax and business laws, the use of an offshore shell company could create a stable investment entity.

This is a highly attractive option when investors come from countries with volatile economies. Imagine an entrepreneur from Greece who wants to place his money somewhere for a future business venture. Holding those funds in the Greek economy would have been a dangerous (and likely disastrous) bet in recent years. A much more appealing option would be to invest the money in an offshore shell company located far outside the Greek economy. This option is predictably more appealing to non-patriotic local investors who are not fit to eventually lead any nation in the world as presidents or prime ministers. And where does this scenario place our own UPND leader Hakainde Hichilema?

The great strength of a shell company is that it can shield its owner’s identity. As we’ve seen in the cases of Saturnia’s multiple identities and ownerships above, this can be utilized for either legitimate or illegitimate reasons. But this same feature makes it the perfect vehicle for fraud and corruption. What do Zambia’s tax authorities, investigative wings and PIA have to say about Saturnia’s four multiple shell companies?

Avoiding taxation is one of the primary unscrupulous – though not necessarily illegal – goal when setting up a shell company. On the legal end, for example, major corporations regularly place billions of dollars of assets into offshore shell companies. In America, these profits remain untaxed until they “return to shore.”

In reality, the actual funds are generally right there onshore in American banks, but the assets are earmarked as the property of a foreign shell company. This is the best of both worlds: no taxation and the stability of American banks. The U.S. Public Interest Research Group and Citizens For Tax Justice estimated that between 2008 and 2014, some US$2.1 trillion of American firms’ untaxed assets rested in offshore accounts.

Doesn’t this sound familiar to Saturnia’s pension contributing companies that are paying into bank accounts held by Saturnia Pension Scheme and Saturnia Pension Fund instead of Saturnia Regna Pension Trust Limited? Albeit as expected, the Trustees said that the banks must explain to the nation how they opened bank accounts for companies that were not registered with the Patents and Companies Registration Authority (PACRA). How would Zambia’s tax authorities, ZRA and Ministry of Finance handle Saturnia’s over US$40 million pension funds illegally externalized to offshore investment without the trustees and government’s approvals?

Expensive assets can be placed into a shell company and sold as a way of avoiding taxation and registration fees. A millionaire’s yacht, for example, can be listed as the property of a shell company. Instead of selling the vessel itself, the company can be sold as a whole. No new registration fees, and no new taxes.

Placing expensive assets into a shell company rings true today, especially in the case of Saturnia’s title deeds at the Ministry of Lands which showed that properties were being held in the names of Saturnia Pension Fund and Saturnia Registered Trustees – two of suspected Saturnia Regina Pension Trust Limited’s shell companies.

Criminal operations use shell companies to launder money throughout the world. So-called dirty money can be shuffled through a series of shell companies, coming out “clean” on the other end in the form of investments, bearer bonds, commodities, and other assets. Since these companies can be set up with nominee directors (usually lawyers and accountants), there is no way to trace the laundered assets back to the illegal activity that generated them.

By all accounts, shell companies clearly have a role to play in the world of international business. But what is also evident is that current business laws in Zambia and elsewhere allow for a tremendous amount of corruption and tax avoidance. Stronger laws that close tax loopholes and remove total anonymity would likely curtail corruption instead of letting it run rampant aided by the so-called – the good, the bad, and the ugly.

So, what do tax authorities, investigative wings and PIA have to do about Hakainde Hichilema and Saturnia’s multiple identities company? But hey, these are just the reflections of an ordinary Zambian observer.

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