COMMODITIES switzerland’s most dangerous business BERNE DECLARATION (ED.) Preface by Karin Lissakers, The Revenue Watch Institute ‘Commodities – Switzerland’s most dangerous business’ paints a searing and detailed picture of one of globalisation’s biggest winners, a powerful industry whose dealings often take it into dangerous areas. In the last decade Switzerland has emerged as one of the world’s dominant trading hubs for commodities, handling from 15 to 25 per cent of world trade. All the world’s largest trading houses operate partly or mainly out of this seemingly peaceful and innocent country. But while these powerful companies experience an unprecedented boom, the population of many resource-rich developing countries remain mired in poverty. This book tackles the question of why? By means of research and reportage, Berne Declaration (BD) digs down to uncover the historical roots of Switzerland‘s role as a trading hub, scrutinises scandalous business practices and their political contexts, goes down a copper mine in Zambia, and exposes the leading Swiss companies and players in this discreet industry. The book reveals how commodity deals are financed and how taxes are avoided, provides insights into the social and environmental consequences for producing countries, and suggests how greater justice can be achieved in a business which is worth billions and upon which we all depend. BERNE DECLARATION (ED.) COMMODITIES switzerland’s most dangerous business EDITORS BERNE DECLARATION TRANSLATION FROM GERMAN HE TRANSLATIONS, LEICESTER www.HETranslation.co.uk ReVIEW SIMON PARKER, ZURIch BOOK DeSIGN & TYPESETTING DANIELA TRUNK, ZUG 2012, ZURIch THIS BOOK IS ALSO AVAILABLE IN PRINT IN GERMAN AND FRENCH GERMAN VeRSION TITLE ROHSTOFF – DAS GEFÄHRLICHSTE GESCHÄFT DER SCHWEIZ PUBLISHED BY SALIS VERLAG AG, ZURIch www.salisverlag.com EDITING OLIVER CLASSEN, ZURIch PATRIck SchÄR, BASEL PROOFREADING INA SERIF, FREIBURG IM BREISGAU BOOK DESIGN & TYPESETTING DANIELA TRUNK, ZUG ISBN 978-3-905801-50-7 ISBN 978-3-905801-51-4 (E-BOOK) 2011, ZURICH FRENCH VERSION TITLE SWISS TRADING SA. LA SUISSE, LE NÉGOCE ET LA MALÉDICTION DES MATIÈRES PREMIÈRES PUBLISHED BY EDITION D’EN BAS, LAUSANNE www.enbas.ch ISBN 978-2-8290-0413-1 2011, LAUSANNE BERNE DECLARATION (BD) AUTHOR TEAM (in alphabetical order) Thomas Braunschweig . Trade policy programme Thomas Chappot . Research assistant Oliver Classen . Media director Fabian Jucker . Research assistant Olivier Longchamp . Private finance programm Andreas Missbach . Tax expert and joint managing director Urs Rybi . Commodities and corporate accountability programme ACKNOWLEDGEMENts // EXTERNAL WRITERS Lorenz Kummer . Commodities expert at SWISSAID Alice Odiot . Co-director of the documentary film ‘Zambie: à qui profite le cuivre?’, 2011 PHOTOGRAPHERS Audrey Gallet . Co-director of the documentary film ‘Zambie: à qui profite le cuivre?’, 2011 Meinrad Schade . Winner of the Swiss Photo Award 2011 PUBLISHERS THANKS Berne Declaration (BD) is an independent non-governmental organiza- A generous bequest enabled Berne Declaration (BD) to publish this book . tion formed to combat the root causes of poverty by promoting more equitable and sustainable relations between Switzerland and the Berne Declaration (BD) would like to thank its colleagues at Revenue developing world . We are committed to global justice and address issues Watch (RWI), in particular Karin Lissakers and Alexandra Gillies, for of trade policy, commodity production and trade, the politics of food, their generous support for this English edition . finance and fair trade . As part of a worldwide network of human rights www .revenuewatch org. groups, environmental and development organizations, the BD promotes a more equitable and humane route to global development . Finally, the publishers would like to thank Getty Images and Keystone To this end, we carry out investigative research, run public campaigns to for their kind cooperation . raise awareness and undertake successful advocacy work in Switzerland and on the international stage . Founded in 1968, Berne Declaration (BD) today has a staff of 22 in its Zurich and Lausanne offices, and boasts a membership of 22’000 individuals, who finance over 80 per cent the organization . www .evb .ch/en CONTENts // PREFacE// Commodity Hub Switzerland: Crucial for more Transparency .......................................................12 01// INTRODUctiON Welcome to Switzerland, the commodity carousel: “Warning: risk of dizziness!” ....................................... 18 02// BIG PictURE The nature and importance of commodities in world trade ............................................................ 26 03// COMMOditY TRadiNG Tools and Mechanisms ................................................. 44 04// HistORY Home of the traders: Switzerland's rise to a commodity hub ................................................... 56 05// ZUG 14// TAX AVOidaNCE Central Swiss idyll: appointment in Rich country .......... 74 ‘Transfer pricing’ & Co: tax avoidance as a business principle .................................................... 256 06// ZAMbia “This is Baghdad, just without war.” ............................ 84 15// GREY AREas Corruption and conflict zones: from ‘Kazakhgate’ 07// GLENCORE to ‘Oil for Food’ ....................................................... 290 Big, bigger, Glencore: discreet commodity 15.1// S udan and Congo: danger pay for giant at the crossroads ............................................ 112 for opportunists ............................................. 294 15.2// ‘Kazakhgate’ or the art of corruption ............... 304 08// XstRata 15.3// U zbek child labour for the global Mining made in Switzerland: Xstrata cotton boom .................................................. 310 in the “Super Cycle” ................................................ 148 15.4// T he UN in Iraq: ‘Oil for Food’ means ‘Cash for Saddam’ ......................................... 314 09// GOLD Swiss Goldfinger: frighteningly beautiful 16// INTERVIEW conflict metal .......................................................... 166 “Commodity trading involves considerable risks for Switzerland”: Professor Mark Pieth in conversation .... 320 10// ON thE hiGH SEas ‘Crude’ business idea: Trafigura's waste odyssey ....... 176 17// DistRibUtiON Unregal ‘royalties’: resource curse and 11// GENEVA distribution issue ..................................................... 330 Geneva, the oil Mecca: the “Jet d'Eau” gushes black gold .................................................... 200 18// ALTERNatiVES Ideas and initiatives: shedding light 12// AGRicULTURAL TRadE on the dark deals .................................................... 358 Soft commodities: the blooming after-harvest business ................................................................. 230 19// CONCLUsiON What now? Implications and demands ....................... 376 13// SPECULatiON The other casino: high-risk speculation ..................... 246 AppENdiX// Illustrations ............................................................. 388 References ............................................................. 390 Endnotes ................................................................ 400 COMMOditY HUB SWitzERLAND: CRUciaL FOR PREFacE // MORE TRANspaRENCY Karin Lissakers President, Revenue Watch Institute ‘Commodities: Switzerland’s Most Dangerous Business’ by Berne Decla- ration (BD) sheds light on the role of Swiss companies in the natural resource sector and commodity trading in particular, areas which have hitherto escaped close scrutiny and understanding . Aside from a few high profile scandals such as the Iraq Oil-for- Food prosecutions, traders have largely operated under the radar with limited external understanding of their business practices . However, this appears to be changing, thanks in part to the public listing of Glencore, rising commodity prices, and penetrating research such as this book . ‘Commodities’ sheds light on several aspects of this vast, powerful and global business . Firstly it provides a primer on how commodity trading works . The early chapters situate trading within the broader natural resource sector and global economy, and trace the emergence of Switzerland as the hub of trader activity . It explains the relationship between paper and physical trading, and breaks down the stages through 12 | Commodities Preface | 13 which deals are made . Such explanations are difficult to glean from operations have attracted controversy in the past . Still others, such trade publications and press reports, and will be valuable to audiences as Trafigura’s offload of toxic materials in Cote d’Ivoire, suggest how not steeped in industry affairs . What stands out from this review is the weak regulatory environments can sometimes offer attractive business size of the transactions in question and the scale of Swiss involvement . opportunities . These anecdotes provide data points which are not yet For example, Swiss companies conduct 35 per cent of global oil trading; connected, but they certainly make a strong case for further study . Glencore alone trades volumes that top 25 per cent of total world trade Finally, the authors call for greater transparency . By the time this in several minerals, including zinc, copper, lead and thermal coal; and recommendation is made, the reader is well convinced that the activities Geneva-based companies sell up to 50 per cent of Kazakh and 75 per of trading companies – be they Swiss or otherwise –