Illicit financial outflows rise in Africa
THE African continent has been under the surveillance for Illicit Financial Flows (IFF) for quite some time now.
The report prepared by the former South African President, Mr Thabo Mbeki, who chaired the AU High Level Panel on IFF in early February 2015, clearly states that the multinational companies (MNCs) are responsible for 60 per cent of the illicit financial flows from Africa.
He 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.”
It will therefore, not be surprising to note that particularly in Africa, the multinational companies have often engaged in illegal schemes, such as, trade mispricing, incorrect invoicing, transfer pricing (payment between parent and subsidiary companies), and profit shifting mechanisms that cleverly hide their revenues.
These arrangements help such big companies to avoid the payment of taxes to the poorer countries, delay the forthcoming development projects, and as a result, deny the poor people their access to essential services.
The report declared that “an African President informed the Panel that a multinational corporation in his country had never paid taxes over 20-year period because it consistently reported making losses.”
“He was certain that this could only have been due to profit shifting, since no business entity could remain in operation if it were making losses for such a long time.”
A recent study conducted by the Global Financial Integrity asserts that the Illicit Financial Flow (IFF) is growing at a rate of about 9.4 per cent per year.
The magnanimity of the issue is thus confirmed by the mere percentage of this illegal flow of funds, which raises serious threats to the world’s economy, especially to that of the African continent.
Oxfam, an international confederation of 17 countries, working in about a hundred countries, also estimated that Africa is losing nearly half of the global $100 billion of the annual illicit financial flow.
These facts and the report are worrisome to say the least. The main agenda of the report was to discuss about the growing threats from extremist groups, poverty, and instability.
The fact that a report was prepared, assured the Heads of States that the continent is on the right track for the first time in many years.
To resolve the issue of Illicit Financial Flows, the first and foremost step can only come from the government’s active participation in this matter.
It is further encouraged that everybody practices transparency in financial transactions, which requires proper policies, laws, and regulations relating to such transactions to be in place.
Also, the African countries need to reach out to the G-20, which is an international assembly of the governments and central bank governors from 20 major economies. G-20’s role in this regard would be to arrange for greater transparency and tighter oversight of international banks and financial centers that enable such flows.
However, following these resolutions are not as simple as they sound. A number of countries are involved in this misconduct, and therefore, the follow-through of orders become all the more difficult.
It has been learnt that the European governments, especially Luxembourg and Netherlands, refuse to share any tax related information, as they come under the tax secrecy jurisdiction.
Thus, if this jurisdiction someday decides to become transparent, it would expose a number of multinationals that are hiding their revenue information and avoiding to pay the income, import, and export taxes.
