Dr. Fabian Ajogwu is a Senior Advocate of Nigeria (SAN) and head, Kenna Partners law firm. He has authored several commercial law books. The lawyer, who has handled high profile national and international cases with emphasis on aviation, defence, energy and financial services sectors, expressed concern over the disappearance of about $854 billion from Africa between 1970 and 2008. In this interview with Assistant Editor BOLA OLAJUWON, Dr. Ajogwu bares his mind on the implication of the report of the High Level Panel on illicit financial flows from Nigeria and other African countries, chaired by former South African President, Thabo Mbeki.
As an international commercial lawyer and a senior advocate, what is your position on the illicit financial flows report released by the High Level Panel on Illicit Financial Flows from Nigeria and other African countries? What do you think is responsible for poor enforcement against such financial flows?
Your question goes to the root of theHigh Level Panel on Illicit Financial Flows, which report was submitted to the African Union (AU) on January 31 and headed by highly-respected Thabo Mbeki, former President of South Africa. Now, before we get to the issue of the regulatory framework, it’s important to understand first and foremost that the issue of Illicit Fund Flows is wider than samples taken from anyone source. It just means that money is removed from a system in a way that is designed to, not have it tracked – be it for tax evasion purposes, under-declaration of revenues, outright theft, money laundering and corruption. There is a wide range of reasons why there is illicit fund flows. Now, when we understand that it is a wide range, we now look at why is it happening? In that report, the origin was stated to date back to the 1960s when a whole lot of African nations were gaining their independence.
There were already illicit fund flows from those areas administered by the colonial masters, and the emphasis was on driving revenues out to the colonial centre-points, rather than the territories. I am giving you this background because of its importance to answering your question. The legal framework of money flows, appropriation of capitals and financial transparency were essentially all common laws inherited legal frameworks that had developed over the years. So, you can see why starting from the 60s, they were not sufficient enough to deal with the different ways in which money can be illicitly moved. That is the basis from where I would like to approach the question. You must also agree that crime is always ahead of the law. You make the law today, people find loopholes; and then you have to block it to find another one. Then, they create a whole new one that you never thought of, and you have to legislate on it. The truth is that most African countries, Nigeria inclusive, have been lagging behind in being able to tackle those illicit fund flows. This lag behind varies – some lag way behind, some are trying and close to breakthrough.
So, the truth is that, countries that were affected, their statistics are mind-boggling. We are looking at about $854 billion that has disappeared from Africa between 1970 and 2008. I am making these points in an objective manner in order to avoid finger-pointing exercise, as to who was responsible. So, clearly, we are not even talking about the lifetime of the present administration. We are talking of 70s to 2008 – that is what the High Level Panel (HLP) on the flows covered.
Now, what is the make-up of this? You will see that Nigeria has the largest – $89.5 billion, followed by Egypt ($70 billion); Algeria ($25.7 billion; Morocco ($25 billion) and South Africa being the least, ($24.9 billion). Looking at this, you will find something very disturbing. The funds have gone out in a quicker pace than the development assistance coming into the country. Yes, Africa receives aids, but the money leaving Africa is in the ratio of 2:1. So, for every $1 Africa is given as aid, $2 has disappeared outside Africa through illicit fund flows. The question that comes to mind is: what is the legal framework? Much of this fund flows would depend on the sector that is largest in relevance to that country. So, for South Africa, it might be through mineral resources. In Nigeria, it could be crude oil or gas.
Why is the menace so pronounced in national mono-economy?
It happens more in a mono-economy country because the more no value is added to such resource, the easier for it to disappear. It’s easier to dig out five tons of gold and declare four, than for a processed product that has gone from person to person and can be tracked.
When you put this into consideration, we now look at the legal framework of those countries. And of course, governance and determined leadership to stop it would drive the regulatory framework to tackle the problem. If you look at what has happened, much of that illicit fund flows from the report sparked from year 2000 to 2008; it was the highest. In fact, more than half occurred within that period. What occurred during those periods is that the average inflow from West Africa and Central Africa jumped due to the fact that if five buckets of crude oil were stolen and were worth $10 dollars each, the global price of commodity doubled within that period. So, instead of $10 in five places, it became $20 in five places. It looks like it went straight from $50 to $100.
However, what is important to the African person is that, this is the resource that could have been used to develop Africa to be like much of Europe and America. What have we done about this? This happens through sophisticated mechanisms; it happens through major purchasers of these natural resources, resulting in under-declaration and in some instances, non-declaration at all. If you talk about diamond theft, it is rarely the small individual, who has the sophistication to go through the process of mining it; that individual lacks the sophistication of finding the buyers, who will pay the prevailing market value for it.
There is a lot of multinational inputs into the fund flows through sophisticated mechanisms such as special purpose vehicles, operating in grasp scrape land, where there is little or no demand for financial transparency and reporting, schemes such as shareholder loans and inter-company pricing, paying for what you are not getting for instance, and being billed for franchise and royalty fees on expired franchise that are no longer useful. In addition to blatant theft of it, it is important to stress that these things go together and now come to the point of what do you then do in terms of blocking this?
The legal framework has to be toughened to bring it from what it used to be to what is actually happening now. Take for example, Nigeria has been singing the Petroleum Industry Bill (PIB) song for nearly a decade. While we are discussing the good idea, it is not yet alive. You can be talking about all the good things you plan to do for your children in the next 10 years, if you don’t do them, they become discussions. It is also possible that the complication and attempt to build a giant elephant out of the PIB may not work. Maybe they should have segmented them into practicable and durable bit of legislation. The absence of this framework has more or less enabled a free-for-all ground, where all of these gaps are exploited by individuals, companies, state corporations and multinationals in taking out funds illicitly from Africa, amounting to $850 billion or thereabout. I think that this is an important area that one needs to tackle and countries should look at what HLP has submitted and not look at it as indicting documents, but as useful documents for reflection.
Is there any need for new legal framework to bring about decency?
First of all, states need to articulate the steps that must be taken in imposing documents. It is not for short-stock angle debate. It is a big problem. Approaches should be articulated on how to deal with the problem. It is not ‘one cap fits it all’; different states have different problems on how their funds are moved out illicitly. Once we find that out, the HLP needs to be localised now that the report has been received. One of the things that must be done is working towards harmonising our laws, to be able to block these loopholes, to be able to block the issues of theft, to be able to deal with the issues of corruption and also to be able to tackle the issues of under-declaration and non-declaration of resource trading.
In terms of the largest illicit fund areas, it is non-declaration or under declaration of resource trading. You may call it crude theft, mineral theft and inter-companies arrangement that deprive the state of what is due. Now, having said that, the question may then be, how do you deal with the issue of corruption? For instance, different countries have progressed on this topic.
The existing legal framework is that a man is innocent until proven guilty and that is a very hard legal framework with which to fight corruption. If you look at the United Kingdom (UK) Bribery Act, you now have guilt by inference. So, if we find you with $10 million, the presumption is that it is proceeds of crime. You will have to explain how you came about the $10 million. If you can prove that 50 per cent of it was inherited, what about the remaining half? If you show that your salary amounts to $1 million, good. What about the other $4 million? If you can’t account for it, therefore, it is concluded that it is a proceed of crime. It will be impounded and you will also pay for it. The current system we have in Nigeria is that somebody has to first of all prove that there is a $10 million stolen or taken from somewhere, and you can sit back while the prosecution labours and sweats to prove beyond reasonable doubt. I say this because it is not difficult to introduce a doubt in criminal prosecution, except the case is clean, clear and iron-cast. Rarely are cases that way. So, the state at best fights corruption with one hand or two hands tied behind. This is quite different from whether a particular administration is pursuing anti-corruption or not. The legal framework as it stands today does not help fight this effectively.
In guilt by inference system, it places the burden on you to explain the source of your money, which is an easier way to tackle corruption. Legal framework deals with resource trading and transparency of it. Rendition of returns deals with for instance, from where you take, to where you deliver. If we can regionalise some of those laws in the legal framework, it would help. I talked about dealing with corruption by switching from proof beyond reasonable doubt model to guilt by inference in corruption and financial crimes cases only (not the entire criminal system); we need to have a stronger financial framework for financial reporting, so that companies, who do inter-companies, multinationals, and swaps of money that you don’t see, there would be a standard for doing that. I believe that if all these factors are dealt with, I am very sure that we would have cut down our illicit fund flows significantly by more than 60 to 70 per cent.
How can the country deal with the global aspect of the illicit funds flows?
One of the objectives of the illicit funds flow HLP is simply to track it, stop it, and retrieve it. So, we have not been able to do all three. What has happened from the first point is on an awareness that so much has gone. Now, the next step will be to track the specifics of where these funds have gone. The third will be while we are tracking it, we must simultaneously stop more from being taken. Because when you want to revive somebody who is bleeding from an accident, you don’t just go looking for blood from the blood bank to give him more infusion, you will also try and stop the bleeding whilst getting more to put in. Both efforts must go on. You need to stop the bleeding because the person may not even be alive to receive the blood.
Therefore, we need to stop the bleeding of Africa. In terms of tracking, we need to be able to go with some of the leads from the panel report and look into those areas I mentioned earlier – from the resource trade, corruption, inter-company, bills and pricing, especially in the multinationals. Now, once we find that, we should then be able to work in collaboration with different jurisdictions; because sometimes, people render differently. We would then be able to work within that framework to harmonise what actually one has lost. The next approach should be to be able to get the money back.
Those, who are the core people, should be brought to book to face the wrath of the law, because this deprived generation of Africans of wealth that should be used for its development. If, for instance, we are able to achieve it, reinvesting part of those returned will strengthening the mission of getting back more and blocking the leakages.
Today, information is scanty, but there has to be commitment from the different states, especially Nigeria, to getting that information through an organised way. It is possible with a bit of effort to get bodies like Transparency International (TI), United Nations Office for Trade and Financial Crimes, Global Financial Integrity and a host of others, who are committed as non-profits to help with this. They should be worked with in partnership to try and stem the tide of illicit funds flows, in addition to changing and tightening out regulatory framework.
What is your take on the repatriation of more Abacha loot?
Well, it should be understood that in those periods, almost $40 billion left our shores on accounts of trade mispricing; under-declaration of customs duties, importation and so on. Yes, there should be a political will plus the legal framework to repatriate such loots. In a critical democracy where the three arms of government are independent acting as checks and balances on the other, the legal framework will need to be driven by legislative arm. They would make the laws, there has to be political will, strength and courage to implement those laws. There has to be integrity on the third arm to interpret the laws and find guilty people who are in breach of the laws. The three working together would produce the results we desire. So, no one arm can deal with the problem alone; co-operation between the three arms is needed. In terms of how to go about actualising this, we do need to have a discussion on the subject as to how to get it.
You will notice that a country like the United States (U.S.) for some bribery off-shore get a $100 million fine. There is no reason why we shouldn’t index that; and if you are found guilty and have to pay fines for something you done there, here you will pay 1.5 times of that. So, for every $100 million you pay in the U.S., you will pay $150 million here.
There is no reason why we should not do that here because, if a person is paying for crimes committed here and not even in the U.S., but because they have legislated their Foreign Corrupt Practice Act, they are able to sanction firms and individuals. We need to also be able to have a track on offshore tax-shelters, where people set up businesses solely to avoid tax or to just not declare the true returns that they make. You will see that transfer pricing, using phony companies to maximise profits, bad ethics, dishonest officials, corruption and all of those things add up to the illicit outflows. We need to be able to strengthen the fight against official corruption, by having simpler ways of reporting them, whistle-blowing and of dealing with those things in a manner that is not burdensome; and also strengthening of our prosecution mechanisms. With time, we will be able to deal effectively with the issues of corruption and illicit funds transfers.
Are there specific areas you can cite in the Nigerian laws that must be amended or fine-tuned?
Yes, the ‘prove beyond reasonable doubt theory’. We still approach financial crimes and corruption as we would approach theft of a car or murder. They are all classed as criminal offence. In criminal offences, there is burden of proof beyond reasonable doubt, and it is embedded in the constitution. The Constitution of the Federal Republic of Nigeria says every man is presumed innocent until proven guilty. In corruption cases as you would find in the UK Bribery Act, as an illustration, we can have something similar because the principles they address are not different from the principles that we face. If they come across $10 million with you, instantly it is impounded - it is the proceeds of crime; you then prove us wrong. That is the big loophole being exploited here and that hampers the fight against corruption, which is why you see that sometimes somebody is arrested is put in two trial and they can’t prove him guilty.
A number of financial transactions go with sophistry done on i-Pad and phones. You can transfer millions from your i-Pad and there would be no trace and there would be no boxes of money being moved. So, we do need to bring our legal framework, fast-forward it a bit to 2015 by bring it from where it is in the 60s and 70s and bring it here. Again, our statutory books still prescribe fines in figures. For instance, ‘anybody who does this is guilty and liable upon conviction to a fine of N2, 000’. It is like pressing pause on your remote control. Two thousand naira in 1999 is not N2, 000 in 2015. The time value of money also applies to penalties, whereas N2, 000 in the 70s and 80s may be $3, 000. Extrapolate it to today; you may then be talking about almost N600, 000 frozen in the statutory book and it remains N2, 000 in 2015.
These are practical issues that don’t require any genius to deal with, but the willingness of our lawmakers to tackle, of the Executive to enforce and of the Judiciary to interpret. If we do this, we should have a better society but to ignore it and not deal with it leaves us exposed to what Mbeki rightly said and I always like to repeat him, he says “seizing these opportunities will be difficult, squandering them would be unforgivable and indefensible.”
There is now an opportunity for African states, Nigeria inclusive, to look at the big question of illicit fund flows, and I think that even though it’s difficult, we should seize the opportunity now. The solution does not appear to lie in looking at the West for help, but should come from Nigerians and indeed Africans. Help from the West will usually come in the form of aid and policy conditionality, with its own price tags. Nigeria should ensure that democracy and the rule of law (with the necessary checks and balances) remain. It should embark on judicial reforms, transparency and accountability in government, strong institutions of restraint (e.g. a strong legal system, civil service, financial system, etc.) In doing so, Nigeria and indeed Africa will be able to harness its competitive advantage in making the best of its natural and human resources, in encouraging manufactured exports and gearing for the transition from the primary to the secondary sector of economic development. It will check and reverse the illicit fund flows. Nigeria’s problem and indeed Africa’s problem is for it to solve – No one owes us a living.
