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Untold story of illicit financial flows in Africa

Untold story of illicit financial flows in Africa

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With over $1.4trillin lost to illicit financial flows in Africa these past three decades, it is anybody’s guess why the continent’s economy has remained in a parlous state. Ibrahim Apekhade Yusuf just back from Johannesburg, South Africa, report on outcome of panel discussions to address the menace.

Africa is cash strapped, no doubt. But the irony however is that monies meant for sustainable economic development find its way out of the continent as a result of nefarious activities of some unscrupulous individuals who circumvent the system.

Enter illicit financial flows.

Channels through which funds are literally smoked away mixed with factors. One man who should know is Logan Wort, Executive Secretary, African Tax Administration Forum (ATAF). He spoke with our correspondent in Johannesburg, South Africa, during a week-long media engagement workshop and training for journalists drawn from 24 African countries.

Citing a report by the African Union and Economic Commission for Africa, Wort said most of the money that gets lost in African countries is due to a mix of those factors.

Paired into specifics, Wort said about $50 billion to US$80 billion annually is lost annually. Specifically, he said, corruption by government officials that includes theft, bribery and other forms of abuse, contributes 5% of total losses.

Besides, he said, criminal activities including drug trafficking, money laundering, racketeering, counterfeiting, human trafficking, illegal arms dealing, and smuggling of contraband, fraud in the financial sector constitute 30 % with the remaining 66% due largely to corporate behaviour and a big part of that is tax avoidance and tax evasion. Tax avoidance is bigger loss than tax evasion.

Bribes amongst state officials breaks down the legitimacy of the state, erodes confidence of the taxpayers and as a result revenue dries up, he stressed.

Media dialogue to understand IFFs

The week-long event facilitated by Fiona Musana of Uganda and moderated by ATAF Communications Manager Romeo Nkoulou Ella, was intended to bridge the gap between revenue authorities and journalists to ensure a proper understanding of how things work as far as illicit cash flows is concerned.

ATAF believes that when citizens are better and adequately informed (through the media) they tend to become tax compliant which would ensure revenue growth to facilitate national development.

The engagement, among others, focused on how Africa is addressing priority tax issues at the local and international levels and how the media can positively impact the work of tax administrations.

Another session led by Thulani Shongwe and Frankie Mbuyamba focused on trends in taxation and what matters for Africa. In their deliberations, the presenters shed light on the work of ATAF on international tax, domestic resource mobilization, illicit financial flows, base erosion and profit shifting. This session highlighted key aspects that the continent faces in the struggle to finance their own budgets from revenue and taxation. The presentation also sharpened understanding on the significance of the media in relation to taxation and self-financing African States and the role of ATAF in taxation.

A panel discussion explored the opportunities and challenges facing reporting on tax matters in the African media. The panelist comprised main stream reporters and communication officers of tax authorities sought to explore the changing nature of the media landscape in Africa, looking at diverse issues such as mobile technology use, access and liberalization of the media sector. They also assessed the current state of tax reporting in African media and examined impediments to reporting on taxation including: resourcing of newsrooms, training for the media, access to reliable information, the increase of citizen journalism. The panelist comprised Djimet Wiche Wahili, Vusie Norman Dlamini, Wahab Atanda Gbadamosi, Ceyrano-Patrick Obiang and Sara Jerving.

There were also deliberations on what would make news in taxation. This discussion brought to the fore the challenges media faces in attaining tax-related information on one hand the bureaucracies and policies that bar communication officers of tax authorities from releasing some information to the media. It also focused on whether reporters are reporting stories on taxation rightly.

Panelists comprising Salome Kitomari, Yusuf Ibrahim Apekhade, Alain Paul Sene, Rochete Libombo,  Prosper Ndlovu shared experiences on challenges faced readers/viewers, editors and owners of media houses. This session was aimed at fostering mutual relationship between reporters and spokespersons of tax administrations.

There were group discussions on challenges tax administrations face in dealing with journalists and how those challenges can be averted. From the discussions amongst various groups, it was realised that there is the need for reduction in the bureaucracies tax administrations have to go through before releasing information to the media. Media practitioners have to prove themselves trust worthy that they would use information attained from tax administration responsibly without distortion. There were calls from group members for the simplifying of tax jargons when communicating to members of the media to enable them also clearly inform their audiences.

The discussion triggered the extreme importance of maintaining professionalism, objectivity with significant contribution to state building and the formation of a network of reporters who would build interest and focus on reporting on taxation in their respective countries.

ATAF’S view of IFFs

According to ATAF, several actions legal or otherwise, geared at not paying all the tax due include but not limited to trade mispricing (falsification of the price, quality and quantity values of traded goods to avoid duties and levies.

Echoing similar sentiments, Mary Baine, a member of ATAF Secretariat, she said, the predicament posed by tax evasion is well phrased by Everest-Phillips who states that “effective states require effective, efficient, and equitable tax systems. Creating the commitment of citizens not to evade taxation is a political process central to state building; cajoling elites to pay taxes has always been an essential step to any state becoming effective. Bad governance manifests itself through an unjust tax system and rampant tax evasion.”

The latter, she stressed, becomes or remains a trigger for or indicator of political instability. Tax evasion, corruption and criminality as the main drivers of illicit capital flows are at the same time “both causes and effects of the fragility of state institutions, and in this sense, are challenges to state legitimacy.”  Citing a report by Everest-Phillips who drew an important correlation between tax evasion and corruption, she said, tax evasion undermines the funding of the state and therefore, the legitimacy associated with the state through the delivery of public services. Corruption in turn, affects the moral legitimacy of the government and criminality becomes a challenger to the legitimacy of the government.  It is evident that good governance is an essential element to addressing IFFs and remedies should therefore be more than “technocratic solutions.”

A further consideration, she noted, “Is whether the country can demonstrate that it has a sound framework of measures which can help to prevent and combat corruption. Such measures include good governance principles, respect for transparency, high ethical and professional requirements, efficiency of the judiciary and the enforcement of judicial decisions.  These elements point to the level of state building and are important because significant weaknesses or shortcomings in these areas are obstacles to the effective implementation of the FATF recommendations.”

A clarion call to stem IFFs

It is however instructive to note that a consortium on IFFs with African organisations with vision to curb the menace of IFFs is being spearheaded by some eminent persons within the continent chief among which include the Thabo Mbeki Foundation, Pan African Lawyers Union, African Development Bank, United nations Economic Commission for Africa, to mention just a few.

In the last few years, the consortium through its High Level Panel Report has been able to review the salient issues bordering continent, especially in her quest to manage wealth emanating from the continent to reduce dependence on overseas aids.

Way forward

Luxembourg is one of few European countries with a dedicated law on whistle-blowing, but it is considered too narrow. In this instance the whistle-blower is not considered as such, because the law in Luxembourg is limited to corruption offences and the information he revealed did not show blatant corruption. In addition, the law only protects whistle-blowers against dismissal, not against prosecution.


The post Untold story of illicit financial flows in Africa appeared first on The Nation Nigeria.

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