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Anxiety over rising illicit financial flows in Africa

Anxiety over rising illicit financial flows in Africa

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The rising menace of illicit financial flows, IFFs, otherwise known as ‘dirty money’ in the continent of Africa, was one of the hotly debated issues at a week-long conference in Kigali, Rwanda, where speakers after speakers attempted a prognosis of the crisis vis-à-vis its debilitating ills just as they sought a call to action aimed at strengthening the continent’s governance system to build domestic resource mobilisation, reports Ibrahim Apekhade Yusuf just back from Kigali, Rwanda

To any discerning mind, at the centre of Africa’s crisis of underdevelopment is the issue of poor governance process, poor resource mobilisation and corruption at various levels, which is why very many people are agreed that there is indeed a need for a paradigm shift in the way things are being done to get the continent’s growth and development back on an even keel.

Little wonder, organisations like the African Tax Administration Forum (ATAF), which is at the forefront of advocacy, aimed addressing economic independence for the continent through domestic revenue mobilisation has continued to raise its voice above the din as far as Africa’s development is concerned.

Interestingly, in keeping with its avowed aims and objectives ATAF in collaboration with the Rwanda Revenue Authority (RRA) organised the second Media Engagement and Training of African journalists on tax-related matters.

Over 60 selected media practitioners from across 22 African countries, including Nigeria converged in the City of Nyamata, Rwanda for a week-long workshop to discuss their role in addressing emerging tax issues that is affecting the continent’s development.

IFFs pose clear and present dangers

Dr Phenyo Butale, a member of Botswana Parliament, who set the tone for the discussion at the conference impressed on Africans, the need to manage her resources, noting that the problem of illicit financial flows (IFFs) and their costs for African economies has always been a development issue of major concern for African policy makers, more so now in the context of the African Continental Free Trade Area (AfCFTA).

What IFFs is all about

IFF refers to money illegally earned, transferred or used. It means any flow of money in violation of the laws in their origin or during their movement or use.

IFF has diverse origins, such as laundering of proceeds of crime, abuse of power by politically exposed persons (PEPs), market or regulatory abuse by multinational corporations, trade record falsification and tax evasion.

Others are the ability to shift profits from source countries to tax havens, thus denying the source country of tax revenue; weak international cooperation and information sharing, such as on beneficial ownership and tax records of multinationals, and opacity of records and information on what companies pay to governments in extractive and natural resource industry.

Africa suffering from IFFs

Citing the outcome of the Panama Papers, a giant leak of more than 11.5 million financial and legal records exposes a system that enables crime, corruption and wrongdoing, hidden by secretive offshore companies, Butale, currently, parliamentary finance committee member, which he has chaired on numerous occasions in pursuit of financial discipline, revealed that over 140 politicians in Africa were involved in IFFs across the world, fueling fears that the problem of IFFs was more of an insider-abuse and not entirely perpetrated by external forces.

On how much has been lost through IFF, the erstwhile journalist said, the latest estimates from ECA indicate that, over the period of 2000 to 2015, Africa lost $80 billion yearly through illicit financial flows from commercial activities alone.

This, he said, is in addition to around $27 billion estimated net annual losses through other channels. Taken together, this represents about $100 billion annually, which represents around four per cent of the continent’s GDP.

He underscored the fact that the transfer of assets cannot be successful without the collaboration between the countries that they are transferred from and the international financial institutions in the countries that receive them.

According to him, Africa cannot achieve its Sustainable Development Goals (SDGs) if it continues to lose money that way. Rather, its economic development will continue to be sabotaged.

He said there was the need enthrone transparency and accountability in governance, and to have the political will to tackle weak and compromised regulatory structures, poor governance structures and reckless tax incentives that encourage IFF.

The most effective way to limit IFF is for both developed and African countries to increase financial transparency and be willing to enact and enforce policies that deter cross-border tax evasion, establishment of shell companies, strengthening of anti-money laundering laws and practices, and improving transparency of the operations of multi-national companies, the lawmaker further admonished.

African countries, he stressed, must demand the highest standards of governance and disclosure from their governments. “As African countries, have the primary responsibility to fight corruption and the compromise of our regulatory institutions, so that the predicate condition that makes IFF possible is not easily available.”

IFFs an ill wind that blows no good

It is however instructive to note that a new analysis of illicit financial flows (IFFs) due to trade misinvoicing in 148 developing countries demonstrates that trade-related IFFs appear to be both significant and persistent features of developing country trade with advanced economies. As such, trade misinvoicing remains an obstacle to achieving sustainable and equitable growth in the developing world.

This update, titled ‘Illicit Financial Flows to and from 148 Developing Countries: 2006-2015,’ is the latest in a series of Global Financial Integrity (GFI) reports which provide country-level estimates of the illicit flows of money into and out of 148 developing and emerging market nations as a result of their trade in goods with advanced economies.

According to the GFI report, on average, trade misinvoicing is equivalent to 18 percent of total trade with advanced economies among all developing countries.

In addition to updating the estimated IFFs GFI has presented in the past, this report widens the scope of its research and uses a more detailed database published by United Nations (UN) Comtrade along with updated measures from the International Monetary Fund (IMF) data it has used previously. This report presents estimates of IFFs based on both data sets.

While the Comtrade data set is more detailed, not all countries provide their trade data to the UN and therefore are not represented in this analysis. Many of the 44 nations that do not report trade transactions to the UN are small states; however a few non-reporting countries have substantial economies including Kenya, Nigeria and Venezuela. Trade-related illicit flows for these nations (and the other 41 countries not reporting to the UN) can be found in the report using the IMF’s Direction of Trade Statistics (DOTS) data set.

Thumbs up for ATAF

Thankfully, he expressed delight in the fact that ATAF and Pan African Parliament have come together to collate a strategy that will help harmonise legislation in order to address some of the key issues affecting taxpayers within the continent.

Speaking earlier, Aimable Kayigi Habiyambere, RRA Commissioner of Domestic Taxes, said, as a member of the ATAF Council, Rwanda shares with ATAF the common vision of building strong revenue authorities in Africa, as a key strategy towards domestic resource mobilisation through its many capacity-building initiatives, ATAF has helped several African tax administrations, including RRA, improve their revenue collection performance over the three years.

Without a doubt, Habiyambere explained that there are unresolved issues such as digitalization that still need to be unpacked, which is why partnering with continental media remains central to our strategy to promote equitable development for the benefit of our citizens.

According to him, taxation in Africa faces a number of challenges which has an impact on delivering to its agenda. “I believe that this engagement will inform you about the progress we are making–challenges and intervention required to close the gap in implementing tax policy,” Habiyambere said.

He also named the challenges as tax evasion, non-voluntary compliance, public perception on taxes, taxing the digital economy which seems to be the future of the globe.

Habiyambere said as a member of the media, “you have a critical role to play in helping us to tackle these challenges that we are facing–because you have the power to change the public perception and to increase voluntary compliance, reduce tax envision and help us handle challenges attached to the digital economy.”

Echoing similar sentiment, Mary Baine, Director of ATAF Tax Programmes said, “The era of globalization is upon us, and we can no longer ignore the fact that Africa’s much-needed tax base is being eroded simply through unrecorded revenue. Our continent, now more than ever, needs all the resources if it is to promote its social-economic growth and the wellbeing of its populations. We see the media as partners in our journey to advance the discourse on tax and development.”

Ms. Baine said revenue administration and ATAF attach seriousness to the engagement because the media has a role in educating the public and therefore, as partners, “we thank you and hope to continue this engagement in the near future.”

She also used the occasion to recognise the African Development Bank (AfDB) as key partner in making sure that the engagement was successful.

The public, according to her, rely on the media for information and it is “our opinion that this engagement will enable the media not only to unpack some of the more complicated issues that have to do with tax but, in turn, give them an opportunity to engage with practitioners about what is going on globally, including the fight against illicit financial flows, that will complement the work of tax administrations.

She said the global development goal or the SDGs has tax as a key player or the revenue mobilization as a key contribution to the development of the world.

According to Ms. Baine, the African development agenda, which is known as the agenda for 2063, clearly states that the collection of domestic revenue as a key component of the development agenda of Africa and, as such, it is important for everyone to play their role. We hope that this engagement will make clearer what the media can do to impact this.

“We at ATAF consider that this relationship will help the beneficiaries (the public) to understand their tax obligations as well as their responsibilities and their rights, but also help the African agenda through advocacy,” Ms. Baines concluded.

ATAF engagement, ATAF boss, said, is intended for participants, who are drawn from both public and private media institutions to delve into the conversation around how media can unpack the significance of tax issues, and how simplifying these matters can allow citizens to better understand their obligations and their contribution to development in their countries as well as their role in holding states accountable.

Call to action

One of the ways to address the challenge of IFFs, according to Butale is the need for the leading lights in the continent to galvanise action towards reviewing the laws currently operating across the countries within the various regions of the continent.

As a corollary he hinted of by plans by the Pan African Parliament, to design legislation in that regard. Specifically, he said, as part of enhancing the role of the media in information gathering and dissemination, the Pan African Parliament, will wade into the lingering crisis that has bedeviled the passage of the freedom of information bill across countries of the continent.

In the view of Ms Baine, another way to address the menace of IFFs is to ensure the enforcement of the Addis Tax Initiative, which, she said aligns with the aims and objective of the Sustainable Development Goals of ensuring domestic tax mobilisation for Africa as encapsulated in the AU Agenda 2063.

Besides, the ATAF boss stressed the need to strengthen anti-money laundering instrument, tax information exchange, country-by-country reporting, and legislation on beneficial ownership amongst other measures within the continent.

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