One of the world’s largest coffee traders, which supplies beans to Nescafé and Maxwell House, is accused of using a British tax haven to avoid paying millions of pounds to the developing countries from which it buys.
Campaign groups and charities have accused Volcafe — which provides the beans for one in every seven cups of coffee drunk — of employing financial tricks to deprive some of the poorest parts of the world of much-needed revenue. The company denies any wrongdoing, but British MPs are calling for an investigation.
Alex Wijeratna, of the development agency Action Aid, said: ”Coffee farmers we work with in Latin America hardly make ends meet and tax revenues are vital to improving local roads, schools and training schemes. If corporations won’t act responsibly, we urgently need tougher laws.”
British newspaper The Observer has uncovered confidential documents in Switzerland detailing how a ”ghost” company in Jersey is used to shield profits.
Volcafe runs operations across Central America, Asia and Africa, with subsidiary companies in countries such as Colombia, Peru, Nicaragua, Guatemala, Rwanda and Indonesia. Last year it sold more than 10-million sacks of coffee worldwide and is in the process of being bought by the London-based commodities trader ED&F Man.
The papers reveal a hidden world in which Volcafe transfers millions of dollars from its subsidiaries in the coffee-producing countries to a ”phantom” operation in Jersey called Cofina. It is a complex structure in which Volcafe buys beans from small cooperatives in developing countries at the market price, say 80 cents a pound of coffee.
It then ”sells” the raw coffee to Cofina in Jersey at a similar price. Cofina sells this on to customers such as Nestlé and, in the past, Starbucks. By trafficking the beans through the tax-haven island, the bulk of Volcafe’s profits are made there, which means it pays minimal tax to the developing countries.
The Observer has seen confidential details of Cofina’s 1998 accounts showing that while most of Volcafe’s subsidiaries in developing countries made marginal profits and paid no tax, Cofina sold $408-million-worth of coffee and made a gross profit of $27-million. The firm paid no tax because the profit was booked in Jersey.
Yet Cofina does not really exist: it is just a postbox operation with one or two administrative staff. The beans Volcafe buys from farmers are delivered straight from the coffee countries to the end customers such as Nestlé.
Company documents reveal that the firm goes out of its way to keep everything top secret. Volcafe employees are told to identify themselves as staff of Cofina, although they are not. One document states: ”You should program your fax machine in a way that your name does not appear on faxes dispatched in the name of COF [Cofina].”
Andreas Missbach of the Bern Declaration in Switzerland — which campaigns against financial secrecy and has studied the documents — said: ”Many firms use such offshore companies to minimise tax, but in this case the company appears to be using extreme measures. It wants to hush up the trade through Jersey and one has to ask why.”
Liberal Democrat MP Norman Lamb is to call for an investigation into the use of British tax havens by international companies. He said: ”It offends decency and morality for an operation like this to exist. It ought to be outlawed and I believe it is in breach of international ethical guidelines for the treatment of developing countries.”
Volcafe robustly denies the charges. Its chief executive, Paul Moeller, maintains that the purpose of the Jersey operation is to protect profits from sharp price swings. To ”hedge” against losses if the price collapses, Volcafe trades on the futures markets in New York or London.
”This overseas hedging is a necessity to survive as an exporter, but authorities do not permit transfer of foreign exchange to cover such hedge losses at futures markets, therefore it must be done offshore,” Moeller said.
He added: ”Local authorities ensure that all exporters sell at going market prices by setting daily minimum export prices which are published and must be strictly adhered to, otherwise no export permit is obtained.”
Moeller also said that 1998 was an exceptional year. Most years the company makes a profit of about $7-million and occasionally it makes a loss. — Guardian Unlimited Â