How The Elite Hide Their Wealth

Community fights back against dubious diamond mine

A community in Sierra Leone continues to oppose a diamond mining operation in its city that has links to murky offshore shell companies and dubious global diamond dealings, write Silas Gbandia, Cooper Inveen, Will Fitzgibbon, Khadija Sharife and Michael Hudson.

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[Photo: Cooper Inveen / GroundTruth for ICIJ]
Gravel waste from the mine towers over Koidu in eastern Sierra Leone

Once or twice a week, as the sun sets on the city of Koidu in eastern Sierra Leone, residents pack their things and head to higher ground. A diamond mine is about to blow.

Some families leave behind boiling cooking pots, or are moved on by police and security forces, before the miners set off charges to blast away the dirt and rock that hide the diamonds. For some in this city of more than 100,000 residents, the explosions remind them of the mortar bombs that fell when Koidu was attacked by rebels during the West African nation’s civil war in the 1990s.

The earth shudders. Buildings crack. And Koidu residents’ lives go on as they have ever since an international mining conglomerate resumed digging in Koidu 13 years ago. “When the blasting is done during the dry season, dust and pieces of rock sometimes fly into the air,” said Bondu Lebbie, a 21-year-old mother of two who lives at the foot of the mine’s waste heap. “The dust leads to coughing, headaches.” She buys Panadol to dull the pain.

Lebbie’s story isn’t uncommon in places across Africa where mining and drilling operations extract oil, gas and minerals. Families who live near underground stores of natural wealth often struggle amid poverty and environmental hazards. Ventures that extract diamonds, oil and other valuable commodities shuffle billions of dollars around the globe with the help of shell companies in Panama, the British Virgin Islands and other offshore havens.

“Whether it’s dust, water contamination, loss of land or violence, nearly all of the costs of mining activities in Africa are borne by the communities,” said Tricia Feeney, executive director of the British non-governmental organisation Rights and Accountability in Development. “And all the benefits are going to this tiny cadre of wheeler-dealers – individuals or companies.”

Read the full response from Mossack Fonseca here

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[Photo: Cooper Inveen / GroundTruth for ICIJ]
An artisanal miner in Koidu shows off diamonds he hopes to sell to one of the town’s many diamond dealers

Protest Deaths

The Koidu diamond mine is operated by Koidu Limited, a company set up in the British Virgin Islands in 2003 for $750 by Mossack Fonseca, the law firm at the centre of the Panama Papers scandal. The documents show that Koidu Limited is owned by Octea Mining Limited, a company in turn owned by a series of offshore companies in the British Virgin Islands, Guernsey and Liechtenstein that are controlled by billionaire Israeli mining magnate Benjamin Steinmetz and his family.

Many of the diamonds blasted from the ground around the city of Koidu end up adorning engagement rings and pendants sold at Tiffany & Co., the luxury US jewellery store that loaned Koidu Limited tens of millions of dollars for rights to the stones. Koidu Limited has become one of West Africa’s most recognizable – and controversial – mining companies.

In 2007 and in 2012, local residents and workers protested the company’s working conditions and environmental impact. In both confrontations, police opened fire, killing two people in 2007 and two more in 2012, including a 12-year-old boy.

In 2015, Sierra Leone authorities threatened to remove Koidu Limited’s license, accusing the company of failing to meet loan repayments owed to the government and bankers, according to The Wall Street Journal. That same year, lawyers for the city of Koidu alleged in court that the company had dodged hundreds of thousands of dollars in local property taxes. Koidu Limited says it has spent millions in community development, including building a resettlement village and providing water access, public transport and a health clinic.

Koidu’s mayor, Saa Emmerson Lamina, led the court battle. He argued that road infrastructure had deteriorated and unemployment was high as a result of the mining company. “If we got that money, we would have been able to make some serious changes in the lives of our people, in agriculture, education and even social welfare,” he said.

He said he fears there will be further confrontations if the mining company doesn’t change its practices.

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[Photo: Cooper Inveen / GroundTruth for ICIJ]
Koidu was a rebel stronghold for much of Sierra Leone’s 11-year-civil war, and many of its buildings remain in disrepair.

Mayor Suspended

In 2016, months after the lawsuit was filed, the central government suspended Lamina from office amid allegations of financial mismanagement within Koidu. An audit found a handful of administrative infractions, including an employee who carried city checkbooks with him on holidays and about $8,500 in unaccounted payments to contractors and third parties. No specific charges were made against Lamina.

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[Photo: Cooper Inveen / GroundTruth for ICIJ]
Koidu mayor Saa Emmerson Lamina was suspended in February, while in the process of taking Octea to court in an attempt to have the company pay property taxes.

Lamina says the suspension is an effort to silence him. Media reports suggested that the order came from the office of President Ernest Bai Koroma. “The lawsuit did not go down with my political superiors,” Lamina told the International Consortium of Investigative Journalists (ICIJ).

A spokesman for the president told ICIJ the suspension was a “local council issue” and that the president’s office had no involvement.

Offshore Deals

Koidu’s diamonds first appeared in Mossack Fonseca’s correspondence in 2002, shortly after the end of Sierra Leone’s civil war, when records indicate that the Steinmetz family’s private foundation signed off on a deal to pay $1.2 million to buy half of the mining license issued by the national government for the Koidu mine.

Koidu Limited became one of Mossack Fonseca’s busiest mining industry customers, with hundreds of emails and attachments sent over more than a decade, including instructions for administrative tasks and the management of accounts at five banks in Sierra Leone and London, overseeing loans worth $170 million.

The Sierra Leone mining company is one of 131 companies set up by Mossack Fonseca that are connected to Steinmetz and the company at the top of his corporate empire, BSG Resources, according to the law firm’s internal files.

These companies include diamond mine operators, traders and polishers in Namibia, Botswana, Angola, Liberia and the Democratic Repulic of the Congo. One company, Diacor International Limited, reported producing a variety of diamonds, including some in “fancy colours”. Records indicate that Diacor booked more than $1 billion in sales each year from 2011 to 2013.

Steinmetz’s deals in Guinea, Sierra Leone’s northern neighbor, also garnered much attention from Mossack Fonseca.

In August 2014, authorities in the British Virgin Islands ordered Mossack Fonseca to provide hundreds of pages of correspondence, payments, meeting minutes, financial transactions and more from three companies connected to a criminal investigation into BSG Resources.

The inquiry related to allegations that people connected to BSG were being investigated in multiple countries for bribes paid to secure mining rights in Guinea. In documents later shared with Mossack Fonseca, BSG’s lawyers confirmed it was under investigation by authorities in Britain, Switzerland and the US. It also challenged the government of Guinea on the grounds that the government unlawfully stripped BSG of its mining rights.

BSG declined to answer specific questions for this article. The company said it “uses offshore companies and related structures as part of its legitimate and fiscally responsible tax planning” and discloses information when and where required. BSG told ICIJ that it had “no familiarity” with a number of the 131 companies that appeared connected to Steinmetz and BSG in Mossack Fonseca’s files.

One of the two demonstrators who died during the 2007 protest against Koidu Limited was Aiah Momoh, a 30-year-old father of three girls. His tombstone says he died “during a peaceful demonstration … against Koidu Holdings S.A. Limited for corporate abuse of community rights.”

While the company’s operations were briefly halted by the government, a commission of inquiry later cleared Koidu Limited of blame, saying the security officers who killed the protesters were not under the authority of the company.

“Aiah was taking care of us,” said his mother Sia Momoh. “I don’t pass by the junction where his grave is,” added Aiah’s sister Yei Momoh. “It is a constant reminder of our plight. Aiah was just all we had in this family.”

In 2015, the community took their grievances from the streets to the courtroom. After years of unheeded requests for payment, the Koidu city council sued Koidu Limited’s parent company Octea Limited, claiming that the company owed $684,000 in unpaid property taxes.

Lamina wrote in an affidavit that failure to pay taxes “deprived my community of the much needed resources to undertake development activities. … I believe the community that owns it [sic] resources cannot be deprived of benefiting from their own minerals and have to go cap in hand begging.”

Koidu Limited maintained that it was exempt from taxes but that it was committed to its corporate social responsibilities.

In April 2016, four days after the media release of the Panama Papers, Justice Bintu Alhadi of the High Court of Sierra Leone ruled that Octea and Koidu Limited were separate entities and that Octea was not technically the mine’s owner. As a result, the judge found Octea had no duty to pay property tax.

“The secrecy of tax havens and the complexity with which companies can arrange their businesses makes it difficult for developing countries to get a fair deal in the share of revenue from their natural resources,” says Tatu Ilunga, a former tax lawyer and senior policy advisor on tax for Oxfam America.

Lamina, who says that he believes central government doesn’t have the power to suspend him from the mayor’s office, continues to operate as if he is still mayor. He believes he will soon be reinstated and said the city plans to appeal the judge’s ruling in the property tax case.

“I started seeing myself as a lone ranger,” Lamina told ICIJ. “But, as it turned out, the support of the people in Koidu [is] encouraging in fighting for the cause.”

This story was produced by the International Consortium of Investigative Journalists, together with the African Network of Centers for Investigative Reporting

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