Malawi Says Fair Trade Gemstone Co. Owes $309.6B In Taxes

A gemstone company that bills its products as fair trade and responsibly sourced owes Malawi’s government $309.6 billion in unpaid taxes related to ruby ​​and sapphire extraction, according to a letter shared with Law360 on Tuesday.

Washington-based Columbia Gem House owes unpaid taxes and interest on rubies and sapphires extracted by a subsidiary, Nyala Mines Ltd., according to the July 26 letter addressed to CEO Eric Braunwart from Malawi Attorney General Thabo Chakaka-Nyirenda. According to Chakaka-Nyirenda’s letter, the $309.6 billion represents unpaid taxes on minerals Nyala extracted from Chimwadzulo Mine in Malawi’s Ntcheu District.

The letter claimed Nyala and Columbia Gem House when they “evaded the payment of taxes” also committed money laundering and other similar offenses. The two firms breached fiduciary duties to the Malawian government by failing to disclose all income realized from investments and when they engaged in “trade mispricing and improper transfer pricing techniques in the exploitation of ruby ​​and sapphire from Malawi,” the letter said.

The government added that it retains the right to criminally prosecute the two companies and any individuals involved in the alleged tax evasion.

Natasha Braunwart, brand manager for Columbia Gem House, said Tuesday that the Vancouver, Washington-based company doesn’t own Nyala Mines or any other entity in Malawi and that it hadn’t received the letter in question.

“Columbia Gem House is not, and never has been, an owner of Nyala Mines or any other entity in Malawi, nor a signatory to any lease agreement with the government of Malawi,” Braunwart said.

The company’s website touts its fair trade practices, saying it works with governments, nonprofits and other gem miners and cutters around the world “to ensure safe workplaces, fair wages, ethical sourcing and environmentally responsible gem mining.”

“Neither we nor the US Embassy in Malawi have received the July 26, 2022 letter ostensibly drafted by Malawi Attorney General, Thabo Chakaka-Nyirenda,” Braunwart said Tuesday. “It is our understanding that it is normal protocol for an embassy to receive such correspondence from a foreign government which again, raises further concerns.”

The Malawian Ministry of Justice did not have an immediate comment.

According to Chakaka-Nyirenda’s letter, rubies and sapphires from Chimwadzulo Mine are sold to the world market by Nyala Mines Ltd. through Columbia Gem House in the US The letter said the American company sends the Malawi-mined rubies to China for cutting and polishing, then back to the US, where they are marketed through Trigems — a retail outlet for Columbia Gem House owned by Eric Braunwart . Braunwart is described as the founder of Columbia House on the company’s website.

The government said in 1994 that it issued a 10-year mineral exploration license for Chimwadzulo Mine to a company called Mineral Exploration Pty Ltd., which changed its name to Nyala Mines Ltd. and retained the same shareholders after the license expired.

“It is Malawi’s position that you dishonestly changed the name of the mining company … to disguise the origin of the company … so that the new name of the company sounded local to avoid suspicion and detection,” the letter said.

The government also charged the company with dishonestly exporting the minerals, saying it unjustly enriched itself by failing to pay applicable taxes and royalties to Malawi’s government, “and consequently you have become a constructive trustee for the state of Malawi.”

Between Aug. 25, 2008, and July 30, 2013, Nyala Mines paid more than 604,000 kwacha ($592) in taxes, according to the letter. Over the same period, each year the company exported around 300 kilograms of sapphires and 150 kilograms of rubies and padparadscha, a rare type of pink sapphire, according to the letter.

The letter said Nyala Mines sells untreated rubies for $20,000 per carat at a minimum, which means it grossed about $9 billion in sales each year from the gems. The government said it estimates the company also grossed $15 billion in sales each year from sapphires.

According to Chakaka-Nyirenda’s letter, the companies are liable for a 15% collection cost charge calculated based on the $309.6 billion in unpaid tax liabilities and interest. If they fail to pay the sum requested, or fail to indicate how they intend to pay, the government will begin civil litigation, the letter said.

–Editing by Neil Cohen.

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