Bil­lions lost from fraud and tax avoid­ance

Lesotho Times - - Business -

LON­DON — Africa is los­ing more than $50 bil­lion (M543 bil­lion) 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.

Il­le­gal trans­fers from African coun­tries have tripled since 2001, when $20 bil­lion was si­phoned off, ac­cord­ing to a re­port re­leased by the African Union’s (AU) high-level panel on il­licit fi­nan­cial flows and the UN eco­nomic com­mis­sion for Africa (Uneca).the re­port was praised by civil so­ci­ety groups as the first African ini­tia­tive to ad­dress il­licit out­flows from the con­ti­nent.

In to­tal, the con­ti­nent lost about $850 bil­lion be­tween 1970 and 2008, the re­port said. An es­ti­mated $217.7 bil­lion was il­le­gally trans­ferred out of Nige­ria over that pe­riod, while Egypt lost $105.2 bil­lion and South Africa more than $81.8bil­lion.

Trade mis­pric­ing, 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.

Nige­ria’s crude oil ex­ports, min­eral pro­duc­tion in the Demo­cratic Repub­lic of the Congo and South Africa, and tim­ber sales from Liberia and Mozam­bique are all sec­tors where trade mis­pric­ing oc­curs.for­mer South African 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 co­or­di­nated 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.african and non-african gov­ern­ments and the pri­vate sec­tor — in­clud­ing oil, min­ing, bank­ing, legal and ac­coun- tancy firms — were all in­volved in schemes de­signed to laun­der money and avoid pay­ing cor­po­rate tax, ac­cord­ing to the study.

More than $1 tril­lion was si­phoned off glob­ally through il­le­gal schemes be­tween 2007 and 2009, the re­port said, not­ing that lost African rev­enues com­prised 6 per­cent of that to­tal. But the au­thors cau­tioned that poor data and com­pli­cated laun­der­ing net­works could make the amount much higher.

“Il­licit fi­nan­cial flows from Africa range from at least $30bil­lion to $60bil­lion a year,” the re­port said. “Th­ese lower-end fig­ures in­di­cated to us that in re­al­ity Africa is a net cred­i­tor to the world rather than a net debtor, as is of­ten as­sumed.”

But ef­forts to stop funds reach­ing ter­ror­ist groups, such as Nige­ria’s Boko Haram and So­ma­lia’s al-shabaab, have led to im­proved anti-money laun­der­ing in­sti­tu­tions in many African coun­tries, the re­port said. This in­cludes pass­ing leg­is­la­tion de­signed to stop il­licit flows, cre­at­ing fi­nan­cial in­tel­li­gence units and mon­i­tor­ing bank­ing ac­tiv­i­ties.

The re­port called for the UN to crack down on Euro­pean and US firms that en­gage in tax avoid­ance and money laun­der­ing.

Joseph Stead, se­nior eco­nomic jus­tice ad­viser at Chris­tian Aid, said: “This is the first time that African coun­tries have spo­ken out so strongly and in uni­son about how th­ese fi­nan­cial crimes are hurt­ing their peo­ple. That is a big deal. “From now on, it will be much harder for the Or­gan­i­sa­tion for Eco­nomic Co-op­er­a­tion and Devel­op­ment and other rich coun­try group­ings to ar­gue that tax dodg­ing, cor­rup­tion, money laun­der­ing and so on are not a top pri­or­ity for African gov­ern­ments.”

Gov­ern­ments that “turn a blind eye” to il­licit out­flows are forc­ing their poor­est cit­i­zens to forgo hos­pi­tals, schools and en­vi­ron­men­tal pro­tec­tion, said Sipho Mthathi, Ox­fam’s ex­ec­u­tive direc­tor for South Africa. — Guardian

A party po­lit­i­cal bill­board along a La­gos high­way. Nige­ria’s crude oil ex­ports are of­ten mis­priced, ac­cord­ing to a new re­port.

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