The European Commission and big member states like France and Germany are planning a crack down on tax havens (while Britain is pretending to). So it might come as a surprise that the EU’s house bank, the European Investment Bank (EIB), is busily lending to companies established in tax havens.
Particularly notable is EIB lending for supposed development projects in poor countries. In reality, this ‘development assistance’ is a way to channel low-cost public capital to private equity firms that look for projects with juicy returns of 20 percent or more, before remitting the proceeds to low or no-tax and minimum transparency jurisdictions such as Mauritius.
For example, the EIB has recently (16 June) agreed a $15 million loan to Shorecap International Limited, a private equity outfit specialising in microfinance. The firm, which boasted in its 2007 report of an average 23 percent rate of return, is incorporated in the Cayman Islands.
Another beneficiary is Africap, a Mauritius-based investment company, which received €5 million from the EIB in 2007. Mauritius, a tiny Indian Ocean island with 1.3 million people, is a favourite haunt of so-called development funds, including Adlevo Capital, Africinvest Limited, GroFin and Leapfrog Investments. These firms alone have shared €65 million of EIB money in the last 12 months. Mauritius is the source of an extraordinary 44 percent of foreign investment in India – underlining the extent to which development assistance has become a tax avoidance scam.
The EIB also during 2008 agreed loans totalling €53 million for funds run by Aureos Capital Limited, also Mauritius-registered. Until it was sold to its managers at a knock-down price (an issue covered extensively in Private Eye magazine), Aureos was a joint venture between CDC (the UK’s development finance institution) and Norway’s development fund Norfund, which has imitated CDC’s strategy of channelling public money to funds registered in tax havens.
The difference between CDC and Norfund, however, is that the Norwegian government has now told Norfund to stop investing in tax havens. Counter Balance, a campaign group that has analysed EIB lending to tax dodgers, noted that Norway finally came round to following “the logic that development funds should not support tax evasion.” When will Britain, and the EIB, take the same approach?
Note: a version of this article was originally published in Private Eye. The Counter Balance group is campaigning for more openness on the part of the EIB, which remains a relatively non-transparent EU institution.