April 27, 2024
Tackle Illicit Financial Flows, government told
AFRICA is losing an estimated US$50 billion a year from illicit financial flows (IFFs) through a variety of methods, from tax evasion and deliberate mis-invoicing, the United Nations Commission for Africa (UNECA) has said.
Allan Mukungu, the UNECA officer-in-charge of Economic Governance and Public Finance Section, said this money which is being siphoned out by multinational corporations could be used to develop the mineral-rich continent.
Africa remains one of the poorest continents in the world, with analysts blaming its underdevelopment on corruption, illicit financial flows, lack of good corporate governance and sheer incompetence among other ills.
Fradreck Kunaka
“African countries must establish comprehensive governance frameworks for tackling illicit financial flows,” he said during an online conference hosted by Trust Africa.
“These must be underpinned by comprehensive policy and up to date laws and regulations that provide IFFs combating agencies with broad mandates and the legal basis to enforce IFFs curbing efforts, sensitization programmes for the public and for relevant duty bearers and inclusive governance frameworks to oversee and guide IFFs cubing programmes in a collaborative and coordinated fashion,” he said.
He added that the continent should establish an apolitical dispute settlement and trade facilitation authority to promote regional efforts to curb corruption, tax motivated and trade-based IFFs and money laundering.
“African countries should also establish a mutual administrative assistance legal instrument at a regional level, interoperable with national systems and international standards for mutual support in efficiently settling disputes and enforcing action on trade mis-invoicing, tax fraud, money laundering and corruption,” Mukungu said.
Although the continent, under the leadership of the African Union (AU), has been following the issue of IFFs at the highest level through the appointment of the High Panel led by former South Africa president Thabo Mbeki, several governments have failed to aggressively investigate and prosecute money launderers and companies that evade tax.
Speaking during the same event, Briggs Bomba, Trust Africa’s programmes director, said corruption contributes five percent to IFFs while criminal activities and corporate contribute 30 percent and 65 percent respectively.
He said the most vulnerable sectors include the telecommunications, the financial services sector and extractive sector with gold being the most vulnerable value chain accounting for 77 percent of all losses to IFFs.
Recently, Fidelity Printers and Refiners (FPR) general manager Fradreck Kunaka said Zimbabwe is losing 1,5 tonnes of gold every month due to leakages — a situation that has once again shone the light on rampant corruption and poor prices affecting the sector.
Experts said a raft of cumbersome taxes, including refining and royalty payments totaling nearly 18 percent, could be one of the major reasons why people continue to smuggle gold.
Bomba expressed concern over loopholes in the taxation system.
“We are dealing with an archaic international taxation architecture which traces back to a century, this is way out of date and presents a challenge for us in terms of advocating for a new arrangement. The main imperative back then was to design a taxation regime that addressed tax jurisdiction questions on an industrial era TNCs revenues,” he said.
Specific tax regimes for multinational enterprises have been introduced, for example, by the United Kingdom and Australia with diverted profits taxes and by the US with its base erosion and anti-abuse tax.
“IFFs severely undermine domestic resource mobilisation or sources of development finance to achieve Sustainable Development Goals (SDGs). IFFs are correlated to low government spending on key socio-economic areas and they foster dependency on external sources of development,” Bomba said. He added that poor coordination across multiple institutions make it difficult to fight IFFs.
“We have terrible coordination within our countries and a plethora of institutions that are dealing with issues that touch on IFFs whether its ministry of finance or the ministry of mineral resources. The lack of coordination across our government institutions is one of the reasons why we are not making progress and that’s why we need an all of government approach to tackling the problem we are dealing with,” he said.
“The issue of beneficial ownership registries is another cause of concern. We continue to have our countries allow transactions to take place where the beneficial owner is unknown and I think this is something that should be a thing of the past.”
African countries have been heavily relying on limited FDI and unpredictable donor aid to raise resources for the continent’s development, yet, for every dollar of development aid that comes to the continent, ten dollars have left in the form of IFFs, tax evasion and avoidance as well as corruption.
