adminAfrica is losing more than $50bn every year in illicit financial outflows as governments and multinational companies engage in fraudulent schemes aimed at avoiding tax payments to some of the world’s poorest countries, impeding development projects and denying poor people access to crucial services.
The Guardian reports that a report released by the African Union’s high-level panel on illicit financial flows and the UN Economic Commission for Africa (Uneca) showed illegal transfers from African countries have tripled since 2001, when $20bn was siphoned off. In total, the continent lost about $850bn between 1970 and 2008, the report said. An estimated $217,7bn was illegally transferred out of Nigeria over that period, while Egypt lost $105,2bn and SA more than $81,8bn.
Trade mis-pricing, payments between parent companies and their subsidiaries, and profit-shifting mechanisms designed to hide revenues are all common practices by companies hoping to maximise profits, the study said. Former SA president Thabo Mbeki, who chairs the panel, said: ‘‘The information available to us has convinced our panel that large commercial corporations are by far the biggest culprits of illicit outflows, followed by organised crime.
“We are also convinced that corrupt practices in Africa are facilitating these outflows, apart from and in addition to the related problem of weak governance capacity.’’ Criminal networks engaged in drugs and human trafficking, animal poaching, and theft of oil and minerals also contributed to money leaving the continent. Reducing these losses requires urgent and co-ordinated action, the report said, calling for renewed political interest in fighting corruption, increased transparency in extractive sector transactions and a crackdown on banks that aid fraudulent transfers.
The report was compiled following a vast consultative process undertaken by the high level panel across Africa, Europe and the US over the last two years. Polity reports that while illicit financial flows are a global problem, their impact on the continent is monumental, thereby representing a significant threat to Africa’s governance and economic development. It says the level of illicit financial outflows from Africa exceeds the official development assistance to the continent, which stood at $46,1bn in 2012.
The report has raised questions about the AU’s abilities to curb fraud evasion and other means of corporate profit hiding and has also sparked interest in holding multinational corporates, which are mainly responsible for the capital outflow, accountable for their actions, says a Mail & Guardian report. Questions have also been raised about whether the AU has the necessary clout internationally to lobby for the necessary reforms. These would have to involve more corporate transparency, as well as tax reforms in offshore tax havens where illicit outflows inevitably end up.
David Lewis, director of Corruption Watch in SA, says there are a range of measures that can be put in place by the private and public sectors to stop illicit flows. There are also a number of voluntary initiatives that corporates can endorse that would not require further legislation, according to Lewis.
Transparency International, partnering with Corruption Watch, runs a campaign called Unmask the Corrupt and one of the demands of the campaign is that there should be a public register of the beneficial ownership of companies, for example, information on who really owns nominal shares. Lewis says companies who do not disclose beneficial ownership publicly should not be admitted to public tender.
Peter Vale, professor of humanities at the University of Johannesburg, says it is unlikely that the AU would have the necessary clout to force real change at the UN. But it is also unlikely that the matter would ever reach the UN Security Council. The only way the practice could potentially be curbed is if it reaches the attention of the World Bank or the International Monetary Fund, he says.
The problem isn’t unique to Africa. Taken together, developing nations lost nearly $1trn through illicit channels in 2012, according to the Washington-based research and advocacy group Global Financial Integrity in a report in The Wall Street Journal. But economists say Africa suffers most because its governments lack the institutions and expertise to spot and stop capital flight.
They say in some countries, regulation is too decentralised — Nigeria alone has 12 agencies with some responsibility for stemming illicit flows – offering wide regulatory and enforcement cracks for those who want to exploit them. And Africa’s 54 countries have little capacity to exchange information or help each other pursue potential tax dodgers.
‘‘There should be an automatic exchange of tax information among African countries,’’ the report says.
New Partnership for African Development (Nepad) CEO Dr Ibrahim Mayaki said illicit flow of finances from Africa is an indication of a deficit in proper governance of resources. Mayaki said public education is very important so that citizens are aware of what goes on as well as the impact of these flows. He said the study is part of efforts by the AU to improve ownership and governance of resources. The high level panel is conducting country and sub-regional consultations with international actors and is expected to submit the final report by March 2014.
Scores of mining contracts in Democratic Republic of Congo have, meanwhile, not been made fully public. Reuters reports that according to US democracy watchdog the Carter Centre and three Congolese NGOs, 62 contractual documents for the 17 mining projects it reviewed were not made fully available to the public even though the ministry of mines is required by law to publish them.
Among the projects mentioned in the report were Mutanda Mining, a copper and cobalt project in south-eastern Congo owned by Glencore and Israeli billionaire Dan Gertler’s Fleurette Group.
Three amendments to Mutanda’s original contract were not published, it said. Pieter Deboutte, who sits on the Mutanda board, said it was the responsibility of the government to publish the contracts.
A senior official at the ministry of mines who was provided with an advanced copy of the report was not available to comment.
The Extractive Industries Transparency Initiative (EITI), which audits disclosure of payments by mining companies to governments, has lauded Congo’s progress on transparency, particularly in publicising project owners.
But Elisabeth Caesens, who oversaw research for the Carter Centre, said: ‘‘We’ve found that contrary to public perception, and contrary to what the most recent EITI DRC report 2012 claims, there’s a whole range of mining contracts missing: not a single project had all of its contracts published.’’ Jeremy Mack Dumba, the EITI national co-ordinator in Congo, acknowledged that EITI’s review was not perfect but said that it had been published with the approval of the NGOs.—Reuters.
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