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Nigeria, haemorrhaging from organised illicit financial flows

By Kingsley Jeremiah,
09 June 2019   |   4:22 am
Nigeria, and indeed Africa is haemorrhaging in an organised crime, which is aided by the elites, multinational companies and modern technologies.

Crude oil

Nigeria is losing about $18b yearly to Illicit Financial Flows (IFFs), especially through the oil and gas sector, but the Federal Government and the international community are paying less attention. KINGSLEY JEREMIAH writes on the development and the way out.

Nigeria, and indeed Africa is haemorrhaging in an organised crime, which is aided by the elites, multinational companies and modern technologies. Though blessed with huge resources, the management of these natural endowments has become the leading cause of the challenge confronting the nation, and the continent.

While the continent has found it difficult to add value to most of its resources by processing them before export, a large chunk of the earnings from crude resources sadly still find their way into private pockets through these illicit financial flows.

For instance, the United Nations in a report titled Illicit Financial Flows and the Problem of Net Resource Transfers from Africa: 1980–2009, says between 1980 and 2009, nothing less than $1.2t to $1.4t left Africa in illicit financial flows. This figure is half of the current Gross Domestic Products (GDP) of the continent.

IFFs are regarded as illegal movements of money or capital from one country to another. This move classifies this movement as an illicit flow when funds are illegally earned, transferred, and/or utilised across an international border. Africa’s current loses to IFFs reportedly outweigh the continent’s aid and foreign direct investment as the prevailing development is further worsened by trade underpricing, mis-invoicing, oil theft and smuggling, weak regulations and enforcement.

In Nigeria, a report released earlier this year by the Nigeria Extractive Industries Transparency Initiative (NEITI) and Trust Africa indicated that Nigeria loses between $15b billion and $18b yearly to illicit financial flow, and over 92 per cent of the crime is reportedly committed in the oil and gas sector.

While over three-fifths of global trade happening in multinationals companies involves, over-invoicing or underpricing trade deals, transfer pricing and use of offshore financial and banking centres and tax havens have been noted as windows for IFFs.
With oil and gas related products accounting for about 92 per cent of Nigeria’s total merchandise exports, the Partnership for African Social and Governance Research (PASGR) in a report noted that oil-exporting countries like Nigeria are vulnerable to illicit financial transfers.

In 2015, the Economic Commission for Africa reported that the United States accounted for 29.0 percent of IFF from Nigeria, Spain accounted for 22.5 percent, France, 8.7 percent, Japan 8.5 percent, and Germany 7.7 percent. The five countries, which contributed 76.4 percent of total illicit financial flows from Nigeria from 1970 to 2008, were the key destinations of Nigeria’s oil products at that time.

Considering the absence of Automatic Exchange of Information (AEI) agreements between destination countries where the proceeds of tax evasion and other IFFs are lodged, most stakeholders believe that tax evasion remains a key avenue for illicit financial flows.

While past and present governments have overlooked reform in the oil and gas sector, as well as the natural resources body like the Nigerian National Petroleum Corporation (NNPC), most experts insisted that poor governance of such institutions usually makes governance bodies a key source of illicit financial flows, particularly with poor governance structures that would enable citizens to monitor government earnings and processes.

How Public Officials, Informal Sector, Multinational Companies Aid IFFs
TO most stakeholders, players in the oil and gas sector, including oil marketers, public office holders, multinational companies, concentration of exports in a few products and destinations, increase in prices of commodities, illegal or small-scale mining of resources, product smuggling, bunkering other factors aid illegal flow of fund through mis-invoicing and trade mis-pricing thereby shortchanging the masses.

Just recently, the Presidency through a senior presidential assistant and Chairman of the Special Panel on Recovery of Public Properties, Okoi Obono-Obla said the Federal Government was investigating multinational giants, including Mobil Oil Producing Nigeria for allegedly shortchanging the federation in the payment for oil blocks it acquired and remittance of taxes.

An Italian expert, Don Hubert had analysed one of Nigeria’s most controversial and lucrative oil blocks OPL 245, stating that the Malabu deal from onset was designed to shortchange Nigeria, as the agreement took out areas that were meant to generate revenue for the country.

The Federal Government had said that Mobil allegedly shortchanged the country by acquiring an oil block for $2.5b, but remitted only $600m into the Federation Account and is yet to pay the balance of $1.9b.As critical as financial crimes are, the Federal Government has failed to put necessary regulation and technologies in place to prevent loses, a situation, which most experts believe is deliberately created to benefit of a few private and public sector powerhouses.

For instance, the Federal Government’s reliance on International Oil Companies (IOCs) to determine the quantity of oil production has over the years created window for crime, which is negatively affecting the country’s crude earnings. While the petroleum industry earned $276.642b (N84.6t) in the last five years, only N8.41t of the sum was spent on budget from 2013 to 2017. The nation’s total budget within the period under review was N28.147t.

The Federal Government’s actual share of oil-related revenue was N1.99t in 2013; N1.98t in 2014; N1.64t in 2015; N820b in 2016 and N1.98t in 2017.The administration of President Goodluck Jonathan approved the Weight and Measures Act 2014, a legislation that was aimed at reducing corruption in the sector through the introduction of computerised metering system of oil wells under the Ministry of Industry, Trade and Investment in 2015, but experts are of the view that the act is not properly enforced as the country reportedly lost about $64m (about N2t) between the second quarter of 2015, and the first quarter of 2017 because of poor metering of oil wells.

Chair, Transparency International Nigeria and Executive Director, Civil Society Legislative Advocacy Centre (CISLAC), Auwal Musa believes that the government is only paying lips service, thereby allowing IFFs to flourish, particularly as transparent and accountability mechanisms are receiving little or no attention.

With billions of dollar currently being staked on payment of subsidy under a monopolised import by the state-run Nigeria National Petroleum Corporation (NNPC), Musa said: “We fought subsidy regime, but the amount the country has lost to NNPC’s under-recovery is alarmingly unbelievable, while the government plays a nonchalant role in this situation as if it does not know what is happening.”

Considering growing trends like oil bunkering and smuggling of petroleum products, the former President/Chairman of Council, Chartered Institute of Bankers of Nigeria, who is also the Dean, College of Postgraduate Studies, Caleb University, Prof. Segun Ajibola believes that upsurge in the activities of militants in the Niger Delta, as well as rent seekers, made up of the powerful forces in the country were aiding IFFs.

Like Ajibola, Nigeria Natural Resource Charter’s Expert Advisory Panel member and founding Executive Director of the African Centre for Leadership, Strategy & Development (Centre LSD), Dr. Otive Igbuzor specifically believes that influential Nigerians were in support of illegal financial flows.

Talking about oil bunkering, Igbuzor said: “It cannot happen without aiding and abetting from inside. This is why every effort must be made by security agencies and communities to deal with this menace.”The Director of the Centre for Democracy and Development (CDD), Idayat Hassan, who shares a similar view, insists that multinational organisations, as well as developed countries that are the beneficiaries of the illicit financial flows were encouraging the development.

While oil bunkering, oil smuggling and illegal refining of crude oil happen in broad daylight across the country, the Technical Adviser to NEITI, Dauda Garuba corroborated other stakeholders’ views, insisting that powerful forces were behind the development.“If you want to deal with the challenge of illegal oil bunkering, look beyond the small boys and girls refining fuel in the creeks, majority of whom are working for highly placed Nigerians,” he said.

Multiple International Laws, Treaties, But Little, No Effect
WHILE countries have enacted accountability and anti-corruption laws to checkmate companies affiliated with them in their dealings, most of the companies still flout these laws, a report by the Nigeria Natural Resource Charter (NNRC) has revealed. There are so many laws and treaties binding on companies and countries in order for them to be accountable and transparent, especially in avoiding corruption/fraud cases, but the regulations have failed more than they have worked.

For instance, in 1977, the United States enacted the Foreign Corrupt Practices Act (FCPA) with the aim of making it “unlawful for certain classes of persons and entities to make payments to foreign government officials to assist in obtaining or retaining businesses.”

The United States in 1998 amended and enforced the anti-bribery provisions of FCPA on foreign firms and persons who cause, directly or through agents, an act in furtherance of such a corrupt payment to take place within its territory.According to the NNRC, efforts by home governments of extractive companies to combat corruption by companies domiciled in their territories has seen the introduction of some far-reaching initiatives aimed at curtailing bribery, illicit financial flows, tax evasion, and at encouraging financial information disclosure.

Such move included the Kleptocracy Asset Recovery Initiative established in 2010, which aided the arrest of former governor of Bayelsa State, Solomon Diepreye Alamieyeseigha, recovery of assets stolen by former military Head of State, the late Gen Sani Abacha, as well as a lawsuit against former Petroleum Minister, Diezani Alison-Madueke.

The NNRC equally lauded the Anti-Money Laundering Directive (EU) No. 2015/849 of European Union, Ordinance No. 2016-1635 of France, beneficial ownership regulations by the US, the Corporate Transparency Act of 2017, as well as other important conventions and frameworks.

It, however, noted that though Nigeria has shown support for most of these rules, actual in-country use has been very poor. Indeed, while there appears to be so many regulations and laws, CDD’s Hassan noted that the regulations do not specifically address the situation, as others only exist on paper without enforcement, while the international community may not act promptly seeing that some of the advanced countries benefit directly or indirectly from the crime.

The National Coordinator of Publish What You Pay Nigeria, Peter Egbule said some of these laws and regulations were prone to compromise since human were behind them.“The fact is, we do not put people who are interested in the growth and survival of the country in the right place, we are just wasting our time. Systems are prone to manipulations. There are some people who believe that they own the country. Until we have a system where the institutions are stronger than individuals and people are answerable to their crimes, we won’t go anywhere,” Egbule stated.

Chartered Institute Of Forensic and Investigative Professionals Of Nigeria (CIFIPN) pro tem President, Dr. Victoria Enape believes that the Federal Government is not only relying on the wrong approach to tackle IFFs, but was equally failing to demand justice or take advantage of the laws and treaties.

“Most of the people perpetrating IFFs have their ways because they get smarter by day. That is why we must advance our technologies to catch up with them because as you move towards apprehending them, they develop smarter techniques. With that, they rubbish extant regulations. With these measures in developed countries, crimes are still high, that is why we must move fast. We need to plan ahead and cannot continue to do same thing, in same way and expect the best results. What we have been doing over the years is to run after people, but we need to change that to forensic approach,” she said.

Why Buhari’s Anti-corruption War Is Not Reducing IFFs
MOST stakeholders insist that corruption is only a fragment of IFFs. Therefore, mechanisms to address these illicit financial flows (which are more getting more sophisticated) should be different from what is currently being deployed in the country.
Enape, whose organisation is currently seeking a piece of legislation that will bring in forensic experts in the fight against IFFs noted that fraudsters have gone sophisticated thereby outsmarting obsolete techniques that are still being deployed in places like Nigeria.

Enape said: “This is one of the reasons why our association seeks to collaborate with the NNPC. By the time forensic is introduced through technology, we will track fraudsters. No matter how small or big fraud may be, forensic will be able to detect. Without forensic, it will be difficult to fight IFFs because you cannot use analogue to fight digital.

“People cannot be prosecuted without evidence, and the evidence has to be substantial. For people to be charged to court, we need admissible evidence in a court of competent jurisdiction. People, who are involved in these acts, easily destroy evidence because that is the key thing. This is the more reason why forensic and investigation experts are needed. Without doing the right things, even when you see people with money stolen and transferred into another country, you wont be able to prosecute them without concrete evidence. This is why people who are involved in high profile fraud cases are walking freely on the streets.”

Garuba equally said that no matter how relentless the war against the crime is, the desired results could only be feasible within a democratic space, where rule of law is the norm, adding that preventive measures such as investment in technology is needed in the fight against financial crimes.

Ending Smuggling Of Petroleum Products May Remain A Mirage
NIGERIA is currently consuming about 55 million litres of petroleum per day. With the current landing cost of around N180 per litre, a princely sum of N1. 149, 385t is estimated to go into the payment of subsidy on petrol imported into the country this year. The Senate two weeks ago said N11tn was paid as subsidy to oil marketers in the last six years.

While this trend is alarming and described by the Vice President for Sustainable Development, World Bank, Laura Tuck, as anti-poor, oil marketers are reaping off the masses by diverting the products got on discount to other countries as part of a booming illegal cross-border trade. Smuggling of products is one of the key means of illicit financial flows.

In the wake of premium motor spirit scarcity in the country last year, a task force coordinated by the military arrested some marketers, who were smuggling products to other countries. The growing rate of such activity led to a pact between the NNPC, the Nigeria Customs Service, and the Department of Petroleum Resources.

“The negative economic impact of smuggling is that it is undermining Nigeria’s economic growth as a huge amount of money is spent in terms of under-recovery. This huge loss is draining the treasury. Remember, these are monies that could be used to develop several critical sectors of the economy,” the Group Managing Director of NNPC, Dr. Maikanti Baru said.

That notwithstanding, most stakeholders have little faith in the ability of these government agencies to deliver on their expectation. Even though they noted that the plan is in the right direction, some experts slammed the approach as childish and another means of wasting taxpayers money.

Musa, said: “In this civilised era, you can’t be chasing people with guns. We have not seen any strategy in place than the traditional way of chasing the so-called smugglers. Things have evolved, you only need software to track and not another task force to deal with smuggling.”Enape also shared Musa’s view, adding that since fraudsters have gone sophisticated with digital technologies, the collaboration alone may not address the situation.

But Egbule thinks, “that the collaboration is good, but there are some fundamental things that needed to be done, and that cannot be done by individuals or separate agencies. It has to be led by the Federal Government and in that case, there has to be a unification of our system. The intention is good, but the implementation seems not to be feasible.”

While Hassan expressed doubts over the workability of the plan, Prof. Ajibola noted that public office holders, who undermine processes and frustrate projected objectives, have infiltrated the Nigerian system. He therefore insisted that without sincerity of purpose and total lack of compromise by those charged, the pact would come to naught, adding that, “smugglers are daring because most nearby countries rely on Nigeria for survival, most often through large-scale smuggling, especially of petroleum products.”

To Garuba, smuggling of products is just one out of the multiple leakages confronting the oil and gas sector. He said while it is good to address the problem, the current approach by government agencies does not suffice for a problem that has eaten deep into the system.

Impacts Of IFFs On Nigerians
NIGERIA like other African countries is currently faced with a plethora of challenges propelled by leakages such as IFFs.
Currently, the country’s total debt profile has risen to N24.387t even as the number of poor Nigerians rose to 91 million, while unemployment figure settles at 20.9m. The Securities and Exchange Commission (SEC) recently said the country’s infrastructure deficit would hit $878b by 2040.

In 2030, the country’s population is expected to reach 263 million, a huge increase of 44.1 per cent from 2015. This will make the country one of the fastest growing countries in the world. With this development, leakages such as IFFs will further increase the country’s poverty level, cripple economic growth, increase debt profile, worsen the health system, education, security challenges and indeed widen inequality and make Sustainable Development Goals (SDGs) impossible.

Considering that the education sector, for instance, has been in a shambles with about 23, 000 lecturers leaving with Africa every year for greener pastures, and Nigeria accounting for the bulk of this number, the country’s current illicit financial flows of $18b about twice of the N3.90t, being allocated to education in past 10 years out of total budget of N55.19t.

In the face of depleted foreign reserves and a poriferous education sector, the Pro Chancellor, Crawford University, Prof. Oye Ibidapo-Obe, recently said that Nigerians were spending a whopping N1t annually to pursue university education abroad.

This information was corroborated by a former Chairman, Senate Committee on Tertiary Institution and Tertiary Education Trust Fund (TETFund), Senator Binta Masi, who said Nigeria currently spends over $2b annually as capital flight on education abroad. With another revelation by the an associate Professor at the University of Toronto, Canada, Oyedele Adeyi, who disclosed that about $1.5t was spent in 2016 by parents to send their wards to universities in foreign institutions, Nigeria could be losing far more to the poor state of the education sector alone.

While the Permanent Secretary, Federal Ministry of Health, Abdullahi Mashi, recently pointed out that the country’s health sector has a yearly deficit hovering around $10b (N3.06t), in infrastructure gap, the figure is almost half of the loses to illicit financial flows.

Just last month, the former Minister of State for Health, Dr. Osagie Ehanire, disclosed that Nigeria is spending over $1bn annually on medical tourism. Asked to enumerate the implications of IFFs on the country’s economy and the masses, Dr. Igbuzor said the development leads to loss of government revenue through tax evasion, promotes illegal activities and criminality, gives opportunity for people to steal the resources of the country through illegal resource exploitation, slows down economic growth and development, leads to physical harm to persons and property; brings about social tension, conflict and violence among others.

To Prof. Ajibola, IFFs deprives the nation of the much-needed resources for development while the masses suffer because of government’s inability to provide the basic amenities. He added that the prevailing situation is responsible for the current economic state of the country, as well as the failing infrastructure in major sectors of the nation’s economy.

Although addressing illicit flows featured as a major point on President Muhammadu Buhari’s agenda, Enape said the phenomenon is already going out of hand, and therefore demanded an advanced approach, as perpetrators evolve new techniques to avoid being tracked.

Garuba said: “The implications of IFFs are huge. It drains the country; it kills the spirit of patriotism and undermines development. Above all, it exposes citizens to a state of squalor and underdevelopment as much as it bruises their psyche and confidence to stand up with their supposed peers in the comity of nations.”

Possible Way Forward
IN proffering solutions, Garuba advised the Federal Government to invest in technology, promote inter-agency collaboration; build capacity on changing trends and dynamics for those genuinely committed to fighting IFF. It should also ensure close monitoring and analysis of trends, as well as demonstrable patriotism and enforcement of the law by way of sanctions and punishment for offenders.

Musa shares Garuba’s views, and advises stakeholders be sincere, sign appropriate laws, put necessary facilities in place to curb lapses and loopholes that fuel IFFs in the country.“The way forward is to continue the national fight against corruption; implement the provisions of the anti-money laundering laws; implement treaties and conventions that Nigeria has signed with other countries, and apply maximum sanctions against those found guilty of the offence. Most importantly, the environmental challenges in the Niger Delta and the security problems across the nation should be addressed head long,” Prof. Ajibola added.

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