Top Madagascar shrimp co. moved millions among tax-haven shell companies

on 10/16/2018 at 11:56 pm

Aziz Ismail, 85, a French citizen born in Madagascar, bought into Madagascar’s shrimp business in 1973. His empire, known generally as Unima, now includes at least eight privately held companies in Europe and Africa that are mainly involved in seafood from Madagascar, where operations are centered.
Ismail has also owned a British Virgin Islands-based shell company called Ergia Limited since 2000. In the last decade, Ergia appears to have had financial transactions totalling several million dollars with another apparent shell company in Mauritius that has close ties to Unima, and with Unima companies in Europe.
Although owning and using offshore companies is generally legal, tax and law enforcement officials are increasingly scrutinizing transactions through tax havens like the British Virgin Islands and Mauritius. Tax inspectors from Madagascar and other experts said Unima’s use of multiple offshore companies raises the risk of lost taxes for one of the world’s poorest countries.
Files obtained from the now-defunct Panama-based law firm Mossack Fonseca as part of the “Panama Papers” were the basis for this investigation by Mongabay and the International Consortium of Investigative Journalists.

An influential shrimp magnate in Madagascar moved millions of dollars among shell companies based in offshore tax havens, raising the possibility that one of the world’s poorest countries is missing out on important tax revenues.

Aziz Ismail, 85, a French citizen born in Madagascar, bought into Madagascar’s shrimp business in 1973. His empire, known generally as Unima, now includes at least eight privately held companies in Europe and Africa that are mainly involved in seafood from Madagascar, where operations are centered.

Ismail has also owned a British Virgin Islands (BVI) shell company called Ergia Limited since 2000, according to files obtained from the now-defunct Panama-based law firm Mossack Fonseca. The files, which date from 2000 to 2016 and were leaked from Mossack Fonseca along with the rest of the “Panama Papers,” were the basis for this investigation by Mongabay and the International Consortium of Investigative Journalists.

In the last decade, Ergia appears to have had financial transactions with another apparent shell company in Mauritius that has close ties to Unima, and with Unima companies in Europe.

Although owning and using offshore companies is generally legal, tax and law enforcement officials in Africa are increasingly scrutinizing transactions through tax havens. Tax inspectors from Madagascar and other experts say the use of multiple offshore companies raises the risk of lost taxes for one of the world’s poorest countries.

“Monaco and the BVI are tax havens where there is no tax on profits or on transactions,” a Madagascar tax inspector, who asked not to be identified by name in order to speak freely, told Mongabay. “There are risks of tax evasion or profit shifting through this arrangement.”

“This is exactly how groups avoid taxes in developing countries like Madagascar,” Tovony Randriamanalina, a Malagasy researcher and doctoral student in international tax law at Université Paris-Dauphine who is familiar with Madagascar’s tax laws, told Mongabay.

A family business

Of Indian descent, the extended Ismail family has operated in Madagascar for five generations and is one of the country’s economic titans. Forbes last year ranked one of Aziz Ismail’s cousins as among Madagascar’s richest multi-millionaires. Ismail himself had a reputation for wielding political influence, albeit one that’s hard to verify. A former prime minister, Emmanuel Rakotovahiny, was criticized for receiving his support in the mid 1990s, according to La Lettre de l’Ocean Indian, a regional publication. In a book about business leadership, Amyne Ismail, who took over Unima’s management in 1998 when his father Aziz retired, wrote, “I’m of Indian origin and French nationality, and I gave my heart to Madagascar.”

Unima is the largest player in Madagascar’s $75 million a year shrimp industry. Every year, the company sends thousands of tons of wild and cultivated tropical tiger shrimp from trawlers and aquaculture farms to Europe, Japan and the United States.

Unima has earned some plaudits from international institutions. The United Nations referred to the company, which helps with initiatives such as providing bathrooms in disadvantaged primary schools, as a “success story” of sustainable development, and Unima’s shrimp farm in Madagascar was the first in Africa to receive certification from the Aquaculture Stewardship Council. Unima also proudly promotes a partnership with the international NGO World Wide Fund for Nature (WWF) on its website.

“I passionately believe in the future of Madagascar, and it is our role as wealth creators to contribute to its progress,” Amyne Ismail told a journalist in 2006.

However, Unima’s work catching wild shrimp around Madagascar, like that of a handful of other industrial trawling companies in the country, has been controversial. The vessels drag the seafloor with their nets — a technique called trawling that scientists have compared to clear-cutting a forest — and they work along the shore, putting them in direct competition with small-scale fishers. Trawlers are notorious for taking significant “bycatch” — fish that would otherwise be available to local people.

In the last 15 years, Madagascar’s shrimp stock has declined significantly. A shrimping area in northwest Madagascar, historically the best in the country, has collapsed, so that no trawlers even work there anymore. Unima had exclusive trawling access to that area between 1986 and 2000, a few years before the collapse. The cause of the collapse remains a subject of debate, with small-scale fishers blaming trawlers, and the trawling companies blaming small-scale fishers, who also use some destructive techniques. A 2012 paper in Marine Policy concludes that the trawlers threaten the availability of seafood for local people.

When a company profits from techniques that damage the environment, and its owners store some of those profits offshore, it can compound the impact on the home country, said Victor Galaz, an associate professor of political science at the Stockholm Resilience Centre of Stockholm University.

“If this is part of an aggressive tax planning scheme, it means loss of revenues for the country where the actual economic activities are taking place,” Galaz told Mongabay after being briefed on the Unima and Ergia transactions.

Galaz recently authored a paper, published in August in Nature Ecology and Evolution, outlining the links between tax havens and environmental degradation in global fisheries. It concludes that the tax haven issue should be “on the global sustainability agenda” because, among other reasons, money that might be put toward achieving sustainable development goals as tax revenue is instead being diverted to private accounts in tax havens like the British Virgin Islands. Loss of tax revenue would be particularly bad for Madagascar, where government programs are often underfunded and almost 80 percent of the population lives on less than $1.90 a day.

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How the shell companies operated

Documents leaked from the law firm Mossack Fonseca reveal some of the inner workings of Ergia, the Ismails’ shell company in the British Virgin Islands. Aziz Ismail and his son Amyne have always held two of the three directors’ positions at Ergia; the other slot has changed hands. In documents from the Panama Papers, Ergia is described as making income from Madagascar and Europe.

Though Ergia appears not to have had any employees or independent office, and therefore may not have been able to provide goods and services, it still received funds — or was, at least, owed money — from other Ismail-owned companies in Monaco and Mauritius.

For example, the Mossack Fonseca files include a 2014 contract under which Ergia agreed to perform one year of administration and management services and “strategic thinking” on the development of Unima Europe, based in Monaco. In exchange, Unima Europe would pay Ergia $1.32 million, according to the contract, which was signed by the father for Unima Europe and the son for Ergia.In a January 2016 email, Unima’s wealth managers asked Mossack Fonseca to transfer the $1.32 million owed Ergia to Unima S.A., another Ismail-owned company, in the tax haven of Luxembourg, where Ergia maintained a bank account.

Jason Braganza, an economist with the Nairobi-based nonprofit Tax Justice Network Africa, told Mongabay that if the 2014 consultancy agreement related to advice given for operations in Madagascar, “the immediate red flags here are that the companies are reporting revenues generated in Madagascar as being tax liable in BVI and Monaco.”

“This is tax avoidance 101,” he said. “This set up is typical of how several developing countries continue to lose millions of dollars in tax revenue that get stashed away in tax havens and high secrecy jurisdiction[s].”

In effect, the Ismails appear to have shuffled the money between companies they owned, from one country to another.

At the end of 2010, Ergia reported a loss of $7.92 million, the documents show. Ergia was at the same time owed $7 million by another apparent shell company, Ergia Maurice Ltd, which is based in another low-tax country, Mauritius, and has close ties to Unima.

Separately, in 2011, Ergia Maurice Ltd agreed to manage and provide consulting services to a Unima subsidiary involved in shrimp aquaculture in northwest Madagascar; Amyne Ismail signed the contract, of an unknown amount, for Unima, according to the news website Africa Intelligence.

The family’s activities appear mainly to have escaped scrutiny. However, in 2012, financial crime regulators in the British Virgin Islands contacted Mossack Fonseca, the Panama Papers law firm, about Ergia, demanding details about the company. The regulators did not, however, specify the reason for their inquiry. Nor did they respond to a request for information from Mongabay.

The Ismails and Unima did not respond to repeated requests for comment, including questions about why government regulators were interested in Ergia or why Unima’s Madagascar shrimp export business used offshore companies in the BVI and Mauritius.

Editor’s note: Versions of this story appear on the websites of the International Consortium of Investigative Journalists, where co-author Will Fitzgibbon is a reporter, and the French news outlet Le Monde.