It is up to Zuma and successors to take steps to end losses
Africa “loses billions of dollars [that] would otherwise be utilised to develop the continent…. Money laundering, tax evasion and tax avoidance, corruption, and transfer pricing by multinational companies are some of the biggest challenges to economic grown and stability.”
Illicit financial flows and the loss of public revenues needed by African governments for better provision of education, healthcare, housing and other critical public needs is not a new problem. However, the above quote does not come from an opinion writer or private advocacy group; these words of alarm are those of President Jacob Zuma, from his September 20 address to the UN General Assembly.
Zuma identified illicit flows as a top priority, ahead of more predictable calls for greater UN efforts to advance collective security, humanitarianism and sustainable development. He also correctly complained that they “undermine the integrity of the global financial system, efficient tax collection and equitable allocation of resources”, prompting him to call upon global leaders and “developed countries in particular” to act on their “historic and moral obligation to … eradicate the scourge of illicit financial flows from the continent”.
At a luncheon for Zuma and other African leaders on the same day, US President Donald Trump seemed to vindicate Zuma’s concern by declaring: “Africa has tremendous business potential. I have so many friends going to your countries trying to get rich. I congratulate you, they’re spending a lot of money.”
Trump’s own alleged involvement with money laundering and other possible illicit financial dealings are being investigated by US Special Counsel Robert Mueller.
Zuma praised the UN for passing a resolution on this issue, which he called a “preliminary step towards a global architecture to tackle the scourge and impacts of illicit financial flows”, adding: “SA reaffirms its commitment to co-operation between the UN and regional and subregional organisations, particularly the African Union.”
But Zuma neglected to mention the important work already undertaken by the High-Level Panel on Illicit Financial Flows from Africa, under the joint auspices of the AU and the UN’s Economic Commission for Africa, chaired and led by Thabo Mbeki. In its 2015 report Track It! Stop! Get it! Mbeki’s panel estimated that Africa has in the past 50 years lost more than $1-trillion to illicit financial flows. Current annual outflows are likely to exceed $50bn, with SA responsible for about 25%.
Mbeki and Zuma rightly blame major corporations for over- and underpricing international corporate transactions. These claims are based on analyses of government and IMF trade statistics, and are consistent with the analyses of highly reputable nongovernmental organisations such as Global Financial Integrity (GFI), but deal mostly with illicit outflows. In April, GFI published data on incoming monies, in Illicit Financial Flows to and from Developing Countries: 2005-2014.
A politically potent illustration of this for SA was a report two weeks ago that investigative journalists from AmaBhungane and Scorpio had uncovered amid leaked Gupta e-mails that a contract for heavy cranes that Shanghai Zhenhua Heavy Industries delivered to the Durban container terminal in 2012 and 2013, had allegedly been overpriced by $11m. Such kick-backs and bribes must also be stopped.
If Zuma and candidates to succeed him in 2019 are serious about curtailing illicit financial flows domestically and setting an example for Africa and globally, practical, inexpensive steps could be easily taken immediately.
SA could call for the relaunch of the AU/UN High Level Panel and lobby other African governments to support this effort, reasserting its regional leadership under the banner “African solutions for African problems”.
A CONTRACT FOR CRANES THAT SHANGHAI ZHENHUA HEAVY INDUSTRIES DELIVERED HAD ALLEGEDLY BEEN OVERPRICED
National policy tools are already available if South African leaders really want to tackle the problem of illicit financial flows. These include legislative actions to outlaw illicit transfer pricing, inflows and outflows.
SA could make better use of global trade databases to identify, rectify and prevent abusive transfer pricing.
Steps could also be taken to ensure greater transparency in financial transactions so that the ownership of entities engaged in financial transactions are known and can be held accountable.