How The Elite Hide Their Wealth

Botswana's fracking scandal linked to Panama Papers

An energy company previously accused by minority rights groups and environmentalists of hydraulic fracking in Botswana’s central district appears in the Panama Papers’ ‘list of shame’, write Ntibinyane Ntibinyane and Vincent Matumo

Kalahari Energy Limited, together with more than 20 other companies, was accused of fracking in The High Cost of Cheap Gas, a 2013 documentary by UK-based filmmaker Jeffrey Barbee. The film, which uncovered incidents of fracking in the Central Kalahari game Reserve (CKGR), the second largest wildlife reserve in the world, was funded by the Open Society Initiative of South Africa.

Detailed documents, including the company’s minutes and share registers seen by the INK Centre for Investigative Journalism, show Kalahari Energy’s heavy reliance on tax havens and fiduciary agents that have been accused of assisting discredited individuals and companies hide funds in tax havens. According to email exchanges, Mossack Fonseca handled Kalahari Energy’s accounts and registrations in Panama and the British Virgin Islands. Leaked documents show that though registered in British Virgin Islands, the company’s secretaries and accountants, Cannon Asset Management Limited, are registered in Guernsey, another well-known tax haven.

By 26 July 2015, 23 companies and people using Botswana passports had invested in Kalahari Energy. The most prominent investor is Pula Capital, a company owned by Kagiso Thomas Mmusi and Louisa Lodovica Mmusi. Kagiso Mmusi is the former deputy treasurer of the Botswana Democratic Party and the son of the late Botswana vice president Peter Mmusi. Mmusi has refused to answer question as to whether as a shareholder he was aware of the dealings between Kalahari Energy and Mossack Fonseca.

Read the full response from Mossack Fonseca here

Efforts to reach Kalahari Energy executives have been unsuccessful. The company has neither an online presence nor a physical address in Gaborone and it is also not clear from the registrar of companies’ office whether the company is still in operation. According to a Scotland-based investigative journalism news outlet, The Ferret, the company took a knock after the release of The High Cost of Cheap Gas in 2013. According to The Ferret, there is evidence to suggest, “assets developed by Kalahari Energy may now be operated by a firm trading as KS Energy.” In fact, some of the same people involved with Kalahari Energy are now running KS Energy, according to information retrieved from Botswana’s registrar of companies and KS Energy’s website.

KS Energy general manager Same Makuku said that while KS Energy and Kalahari Energy were at one point part of the same group, in June 2014 they ceased to exist as sister companies. She denied that there are shareholding commonalities between the two companies. Makuku referred inquiries to Mokwaledi Ntsimanyana, a Kalahari Energy shareholder and senior executive. Efforts to reach Ntsimanyana have been unsuccessful. However, in 2013 Kalahari Energy admitted to fracking activities but denied that this was harmful to the environment. Ntsimanyana then told local media during a media tour of the drilling sites that international media reports on fracking in Botswana were malicious and only served to tarnish the company’s image.

Despite the mystery surrounding the existence of Kalahari Energy, in one of the most recent documents from the Panama Papers, dated 19 June 19 2015, one of the company executives stipulated on a wealth declaration form for Mossack Fonseca that the funds the company entrusted to the law firm were savings from “gas explorations in the Kalahari”. The amount was not specified.

Fracking Allegations

The High Cost of Cheap Gas film and photo exhibition exposed incidents of fracking in around 121 areas in Botswana.

The film showed that the government of Botswana had secretly given prospecting licences to the fracking companies without consulting the residents of the affected areas, something they had previously denied. According to the film, South Africa’s Sasol, Australian-based Tamboran Resources, Anglo American, Tlou Energy, Kalahari Energy, Exxaro and many more were drilling for coalbed methane without any public debate about the industry, particularly the serious threats such large-scale developments pose to the environment and communities. A week after the story broke, the Botswana government admitted that fracking had taken place and that 121 concessions had been granted over large areas of land.

In an interview with The Ferret, the filmmaker Barbee, said there was no doubt that Kalahari Energy and other exploration companies were involved in fracking. “At the time they were pumping out water from coalbed methane seams they had hydraulically fracked to test for thermogenic methane gas and told us that they had good gas returns, both at that site and in the south. Once we released the film at the end of 2013, outlining how drilling companies had not been required to file environmental management plans before drilling or follow other basic environmental protocols in Botswana, the government denied anyone had been hydraulically fracking in the country.”

When allegations of fracking first came to the fore minority right group condemned the practice. Keikabile Mogodu, the executive director of the Khwedom Council, a non-governmental organisation advocating for the rights of the San (or Basarwa) people, some of whom live within the Central Kalahari Game Reserve, said the practice was unwelcome, as they were not consulted when companies were given prospecting licenses by government. The Minister of Minerals, Water and Energy Resources, Kitso Mokaila, declined to comment on the controversy surrounding allegations of fracking in the CKGR. He maintained, however, that the government does not support fracking and has never supported the exploration method.

Botswana Loses Billions to Tax Havens

According to studies by international financial intelligence organ, Global Financial Integrity, Botswana has lost an average of P8.5 billion ($856 million) annually, between 2003 and 2012, in illicit financial flows. There was a marked spike in the recession years of 2007, 2008 and 2009. The outflows are characterised by tax evasion, trade misinvoicing in goods transactions, transfer mispricing in services and hot money flows to jurisdictions with higher interest rates or expected changes in interest rates. Africa, as a continent, is losing over $60 billion annually from illicit financial activity.

Offshore tax havens provide an unprecedented tax shelter, enabling rich citizens and corporations to escape unfavourable national tax systems. Wealthy tax evaders save millions, while public services and infrastructure in their home countries, as well as on the small island havens, remain drastically underfunded.

Questions thus naturally arise when businesspeople make use of entities in these jurisdictions to compose their corporate structure. Why would a company called Kalahari Energy, exploring for gas in Botswana, need to be registered in a tax haven thousands of kilometres away where the true shareholding is hidden by secrecy laws? Surely investors in Kalahari Energy have nothing to hide.

According to documents released by the International Consortium of Investigative Journalists detailing the dealings of Mossack Fonseca, more than 100 Batswana and companies domiciled in the country appear as shareholders or directors of offshore entities registered in secrecy jurisdictions and tax havens. The most prominent names include Judge Ian Stuart Kirby, President Ian Khama’s close associate and the President of the Court of Appeal, Botswana’s highest court, and Farouk Ismail, a multimillionaire who founded the Choppies retail chain.

This story was produced by the INK Centre for Investigative Journalism and its partner the Botswana Gazette, together with the African Network of Centers for Investigative Reporting and the International Consortium of Investigative Journalists.

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