TAX AUTHORITIES ARRESTED FOR CORRUPTION

C O N F I D E N T I A L KINSHASA 002072 SIPDIS TREASURY FOR LKOHLER E.O. 12958: DECL: 12/20/2015 TAGS: EFIN KCOR EINV ECON PGOV CG SUBJECT: TAX AUTHORITIES ARRESTED FOR CORRUPTION Classified By: Econoff W. Brafman for Reasons 1.4 b/d. ¶1. (C) Summary: The GDRC's tax authority is grappling with a high-level scandal that also implicates several large enterprises. In October, Congolese authorities arrested the director of the national tax authority, Direction Generale des Impots (DGI),plus other DGI officials and businesspersons in connection with a tax credit scheme. Since the arrests, the DGI has begun demanding restitution from several large businesses who participated, whether wittingly or not, in the tax credit scheme. The Presidency is now overseeing an investigation of this matter. End summary. ¶2. (C) The week of October 10, Congolese authorities arrested the DGI director general and two other high-level DGI officials on charges of embezzling as much as USD 10 million from the GDRC by creating fictitious GDRC tax credits and profiting from their sale. For several years, a DRC company, Cabinet Lumiere, has arranged the transfer of GDRC tax credits from small and medium private enterprises to large companies which wanted to pay their tax bills with discounted credits. Some of these tax credits may have been legitimate (note: from small and medium companies that had overpaid their tax bills and held tax credits because the GDRC was unable to refund their money),but others had allegedly been created out of thin air by individuals at the DGI. Originally the National Security Police made the arrests pursuant to an order from the President's office, but judicial authorities are now overseeing the legal process. The Public Auditor (Cour des Comptes) is conducting an investigation of the scheme and has already released some findings, including statements that the amount embezzled was close to USD 30 Million and that the sale, purchase, and use of tax credits is strictly illegal. ¶3. (C) Following the arrests, the GDRC began demanding restitution from companies that participated in the scheme by paying their taxes with discounted credits. The Managing Director (MD) of a large American-owned company operating in the DRC told EconCouns that his company and many others believed the practice was legal and have used the method for years. (Note: Officials at SEPCongo, the majority state-owned oil and gas distribution company, told EconCouns that it had used discounted tax credits since 2003; two SEPCongo officials spent days in National Security Police custody before being released and later detained again in connection with the tax scheme's investigation. End note.) A SEPCongo board member told us that he believes that while Sepcongo's highest official likely was unaware of any illegal activity, other SEPCongo officials knowingly participated in the scheme illegally. He also said that managers of the other companies who participated were either very naive or intentionally ignorant. Comment -------------- ¶4. (C) While companies which participated in the scheme claim innocence, most established businesses in the DRC know that something that seems to good to be true probably is. Thus, even if the businesses did not deliberately violate any laws, they may have been willfully ignorant. In any case, and whatever the motivation for the crackdown, any step taken to rein in corruption is a welcome move. End comment. MEECE