Nigeria,
the world’s seventh largest producer of hydrocarbon, accounts for about
68.1 per cent of the total revenue Africa is losing annually as a
result of illegal transfer of revenues abroad.
The report of the
Thabo Mbeki High Level Panel on Illicit Financial Flows from Africa
adopted on Sunday by African Union Heads of State and Government at
their summit in Addis Ababa, Ethiopia said about $40.9billion (about
N6.87trillion) of an estimated $60billion (about N10.08trillion) lost
through such transfers from Africa are traced to Nigeria.
The funds are stolen through corruption, tax evasion and illegal transfer of profits by multinationals, the AU said.
Nigeria,
which produces an average of 2.3million barrels of oil daily as the
leading hydrocarbon producer in Africa, is being ravaged by poverty and
underdevelopment.
The report also identified Egypt and Morocco as
the other countries with the largest estimates of illicit financial
flows statistics of $28.2billion and $20.3billion respectively.
Cumulatively,
Nigeria and Egypt topped the list of ten African countries by illicit
financial transfers between 1970 and 2008, with $217.7billion (about
N36.57trillion), or 30.5 per cent, and $105.2billion (about
N17.67trillion), or 14.7 per cent respectively, while South Africa had
$81.8billion (about N13.74trillion), or 11.4 per cent.
Concerned
by the high losses through these illegal transfers, which was identified
in 2011 as one of the threats to the inability of most resource-rich
countries in Africa to meet their millennium development goals, MDGs,
the AU at its 4th Joint African Union Commission/United Nations Economic
Commission for Africa, AUC/ECA, Conference of African Ministers of
Finance, Planning and Economic Development constituted the Mbeki Panel
to review the underlying issues stalling Africa’s accelerated and
sustained development objective.
At the presentation of the
report on Saturday, the panel gave a set of recommendations that would
guide African leaders in checking the growing threats of the menace to
the continent’s economy, including the activities of extremist groups,
instability, and poverty.
Part of the recommendations included a
system that would allow automatic exchange of tax information among
African countries and globally to check illegal profits shifting by
multinational corporations to subsidiaries in tax haven or secrecy
jurisdictions.
In its 15-point findings, the panel noted that
ending illicit financial flows is a political decision by the various
governments as it involved issues of abusive transfer pricing, trade
mis-invoicing, tax evasion, aggressive tax avoidance, double taxation,
tax incentives, unfair contracts, financial secrecy, money laundering,
smuggling, trafficking and abuse of entrusted power.
The
interrelationships of these issues, it stated, conferred a technical
character requiring transparency across all aspects to ensure access to
information and the right to obtain such information.
The Panel,
which noted illegal profits shifting by multinational corporations as
one of the biggest single source of illicit outflows in the continent,
advised countries to ensure that the automatic exchange of tax
information be subject to national capacity, to maintain the
confidentiality of price-sensitive business information.
The
dependence on natural resource extraction, it noted, makes African
countries vulnerable to illicit financial flows, pointing out that there
was need to pay attention to activities in the sector in an effort to
check illicit financial flows in Africa.
“African countries need
to acquire the capacities and technology to monitor extraction of their
natural resources better and to negotiate contracts more effectively,”
the report said.
According to the report, tax incentives were not
usually guided by cost-benefit analyses, as such African countries
grant a host of tax incentives, such as tax holidays, investment
allowances, tax rate reductions and administrative discretion in order
to attract foreign direct investment, FDI.
Considering the effort
needed in asset recovery and repatriation, the report said regulations
and mechanisms were needed to ensure that financial establishments and
banks identified and refuse to accept illicit financial flows, rather
than relying on self-regulation by banks.
Money laundering, the
panel noted, continues to require attention from the governments, with
weak national and regional capacities impeding efforts to curb illicit
financial flows.
Noting the impediments of incomplete global
structure for tackling illicit financial flows, the report stressed the
need for financial secrecy jurisdictions to come under closer scrutiny,
challenging the AU to lead the effort to initiate measures to block all
avenues for illicit financial flows, considering that the sources were
from within the continent.
The Panel recommended that African
governments engage with non-African private and public actors involved
in developing mechanisms, policies and laws adopted by intergovernmental
organisations and governments outside the continent that facilitate the
flow of illicit funds out of Africa.
Considering that the bulk
of illicit financial flows, such as trade mispricing and transfer
pricing, are trade-based, the Panel asked African countries to develop
laws and regulations that make it illegal for operators to
intentionally, incorrectly or inaccurately state the price, quantity,
quality or other aspects of trade in goods and services while moving
capital or profits to another jurisdiction, or manipulate, evade, or
avoid any form of taxation, including customs and excise duties.
Besides,
the panel recommended that all agencies involved in revenue collection
in Africa must ensure that all big and small corporations were not only
registered for tax purposes, but also ensure that no corporate
registration was approved without proof of tax registration.
While
ensuring that the databases of the companies’ registration offices and
the tax authorities were linked, the Panel urged African States’ customs
authorities to proactively use available databases containing
information on comparable pricing of world trade in goods to analyse
imports and exports, while identifying transactions that required
additional scrutiny.
On transfer pricing, the Panel asked
national and multilateral agencies to ensure that data on trade pricing
on goods and services in international transactions were made available
according to accepted coding system categories.
African
countries, it said, should, as a matter of urgency, establish and equip
transfer pricing units in revenue in accordance with global best
practices and ensure that multinational companies operating in their
domains provided the units with a comprehensive report on their
disaggregated financial reporting on a country-by-country or
subsidiary-by-subsidiary basis.
It said countries and companies
operating in extractive industries in the continent should not only join
voluntary initiatives like the Extractive Industries Transparency
Initiative, EITI, but also demand beneficial ownership information
during company incorporation or trusts registration.
Again, the
panel called for the establishment of independent institutions and
agencies of government, like financial intelligence units, anti-fraud
agencies, customs and border agencies, revenue agencies, anti-corruption
agencies and financial crime agencies charged with responsibility of
preventing illicit financial flows.
All such agencies, it said,
should render regular reports on their activities and findings to the
national assemblies, while central banks and financial supervision and
regulatory authorities must compel banks and non-financial institutions
to ensure mandatory reporting of transactions that may be tainted with
illicit activity.
To check corruption in the system, the panel
urged African governments to assist financial institutions by regularly
publishing the lists of politically exposed persons, PEPs, as well as
any asset declarations information filed by them.
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