‘Africa loses $50b yearly via tax avoidance, fraud’

AFRICA’S money that could be used to improve lives and reduce poverty is leaving the continent through illicit financial flows defined as money illegally earned, transferred and used.

As the Chairperson of the ‘High Level Panel on Illicit Financial Flows from Africa,’ the former South African President, Mr. Thabo Mbeki, will present the Panel’s Report to the Pan African Parliament in Midrand, South Africa tomorrow, May 21, 2015.

Considering the rapid population growth of the past two decades resulting in the largest youth population in the world, and that in 2010 about 414 million people compared to 290 million in 1990, lived on less than $1.25 a day, these Illicit Financial Flows (IFFs) are a huge drain and a hindrance in addressing the developmental needs of the African people.

This money, usually made from laundering proceeds of crime, abuse of power, market or regulatory abuse with a considerable portion emanating from tax abuse, comes from commercial and criminal activities, and abuse of entrusted power through corruption.

Companies may hide wealth, avoid taxes and dodge custom duties through transfer pricing and trade mispricing. “Underreporting of profit and misinvoicing of services are also common practices.

Criminals make their money by keeping transactions from view of law enforcers through trafficking of people, drugs and arms, smuggling of oil and minerals.”

“Illicit financial flows will always thrive in environments where governance and regulatory structures are weak. When states do not possess the technical and human capacity to address sophisticated crime syndicates, money will leave the continent. The destination is most likely a tax haven or a state with financial secrecy jurisdiction making it impossible for African governments to demand those funds returned to the country of provenance,” the report says.

The AU Convention on Preventing and Combating Corruption and the African Peer Review Mechanism are some of the methods African governments use to put fetters on the IFFs. They also try to recover frozen assets through global initiatives though “access to information by African countries is made conditional”, the report states.

With less capital at their disposal, African governments become weakened and are hard pressed to deliver appropriate infrastructure.

Their control of domestic fiscal policies is reduced. Without IFFs, Africa’s capital stock, according to the report, would have expanded by 60 percent. The rate of domestic investment to GDP would have risen from 19 percent to 30 percent, potentially creating more growth and jobs.