The Democratic Republic of Congo (DRC) is one of the poorest countries in the world. Of the country’s 67.8 million people, almost 9 out of 10 live on $1.25 or less per day. Yet it has an abundance of natural resources, producing more than half of the world’s cobalt and a third of the world’s industrial diamonds.
So if the country is harvesting so many valuable minerals, where are the profits going?
Phantom firms play a big role in helping corrupt government and business officials make money from dodgy deals. These fake companies – which only exist on paper and whose owners are entirely anonymous – enable money to be siphoned out of countries and into private bank accounts while the owners remain anonymous. In fact, in just 5 business deals between 2010 and 2012, the DRC government has lost an estimated $1.36 billion by selling their shares in local mines to phantom firms for prices far beneath their assessed value. It’s hard to find out why these shares were underpriced so significantly, but one possibility is that government officials received kickbacks from the profits of the deals.
Some estimates place the DRC’s total loss from similar deals involving phantom firms at $5.5 billion. That’s $5.5 billion that could have been spent on government programs to improve lives and boost the economy.
The DRC isn’t the only country in Africa being damaged by phantom firms. Several prominent African leaders have also used government funds to buy extravagant mansions listed using phantom firms. Saadi Gaddafi, the son of former Libyan dictator Muammar Gaddafi, used a phantom firm called Capitana Seas Ltd., located in the British Virgin Islands, to buy a £10m mansion in London.
Phantom firms also helped Teodoro Obiang, the son of Equatorial Guinea’s president and one of the country’s two vice presidents, spend $300 million of allegedly corrupt money on luxury homes, cars, and most unusually, Michael Jackson memorabilia. Meanwhile, most of Equatorial Guinea’s population remains mired in poverty.
This kind of corruption is making donor countries hesitant to send foreign aid to governments of countries whose citizens truly need it.
That’s why ONE is campaigning for a global crackdown on phantom firms. If information about who owns companies and trusts is made public, it will be easier for citizens to track the profits made from their countries’ natural resources and challenge corruption.
Billions of dollars lost to fraud could be spent on local, African-led solutions to improve education, health services and infrastructure, and create jobs. The people of the DRC, Libya, Equatorial Guinea and elsewhere across Africa should be benefiting from their countries’ natural wealth.
To see more of ONE’s work on these issues, visit our transparency page.