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  • Combating illicit financial flows

    Combating illicit financial flows

    By Zacch adedeji

    Illicit Financial Flows through tax evasion, profit shifting, money laundering, and trade mis-invoicing do not merely represent financial wrongdoing. They constitute a structural drain on our economy, depriving us of the resources needed for inclusive development. Each unaccounted dollar undermines governance, erodes trust, and translates into lost infrastructure, inadequate public services, and deepening inequality.

    The scale of these flows, especially through aggressive tax avoidance by multinationals exploiting opaque global arrangements, continues to threaten Nigeria’s fiscal stability. Like many other resource-constrained nations, we lose billions annually through these illicit conduits—making this conference not just a policy dialogue, but a national imperative.

    Under President Bola Ahmed Tinubu’s Renewed Hope Agenda, we have entered a new era of fiscal reform. The recent assent to four tax reform bills on June 26, 2025, signals this administration’s strong commitment to overhauling our tax system, modernising the legal framework, and institutionalising transparency in revenue collection. But legal reform is only a starting point. To deliver on its promise, we must reinforce enforcement, optimise digital compliance, and build public trust through fairness, predictability, and strategic communication.

    At the Federal Inland Revenue Service, we are responding with a deliberate, multi-dimensional strategy. First, we are championing voluntary compliance by promoting taxpayer education and simplifying systems. Our goal is to foster a culture where compliance is driven by trust, not fear.

    Second, we are harnessing technology and intelligence. We have launched an ambitious digital transformation programme, including the establishment of a Tax Intelligence and Automation Department. With real-time analytics, integrated third-party data, and anomaly detection, we are building a tax system that is proactive, smart, and secure. This is not just about digital infrastructure—but digital vigilance.

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    Third, we recognise that combating IFFs demands collective action. As the designated coordinating agency under the Proceeds of Crime Act (2022), FIRS has established the Proceeds of Crime Management and Illicit Financial Flows Coordination Directorate. This unit is leading implementation efforts, supporting asset recovery, and coordinating with law enforcement, the judiciary, private sector actors, and international development partners.

    We are also reviewing Nigeria’s Double Taxation Agreements (DTAs), some of which—due to outdated clauses—may inadvertently enable profit shifting. I have personally initiated renegotiations with several jurisdictions to align our treaties with present economic realities and to close loopholes that facilitate capital flight.

    Let me be clear: criminal networks adapt quickly. Whether through secrecy jurisdictions, the manipulation of beneficial ownership, or digital innovations, illicit actors continue to outpace traditional enforcement. Our response must therefore be agile, intelligence-led, and globally coordinated.

    We must go beyond dialogue. This must yield concrete action—real-time data exchange across institutions, robust enforcement mechanisms, and strengthened accountability frameworks. Only through unified effort can we plug the gaps that enable IFFs and reclaim the fiscal space necessary for national development.

    The time for incremental steps is over. Let’s mark a decisive shift in Nigeria’s stance against illicit flows—a moment where we stood together to defend the integrity of our tax system and the promise of shared prosperity.

    As Executive Chairman of FIRS, I reaffirm our unwavering commitment. We will continue to lead with purpose—serving as a catalyst for reform, a convening force for collaboration, and a vigilant steward of Nigeria’s fiscal sovereignty.

  • Africa loses $40bn annually to illicit financial flows in extractive sector – ECA official

    Africa loses $40bn annually to illicit financial flows in extractive sector – ECA official

    Africa is losing approximately $40 billion every year to illicit financial flows (IFFs) in the extractive sector.

    This is considered a development that continues to erode the continent’s economic potential and deepen social and developmental disparities. 

    This revelation was made by Mr. Antonio Pedro, Deputy Executive Secretary of the United Nations Economic Commission for Africa (ECA), during a high-level panel at the closing session of the 2025 African Dialogue Series (ADS) in New York.

    Mr. Pedro attributed the staggering financial losses to structural deficiencies within the continent’s economic framework, rooted in a legacy of colonial-era practices. 

    He described the extractivist economic model—where raw materials are exported with minimal value addition—as a major obstacle to sustainable development and inclusive growth across Africa.

    “Exporting raw materials is essentially exporting jobs, and this is a luxury Africa cannot afford,” Pedro stated. 

    He noted that the continent must generate at least 20 million jobs annually to meet the needs of its burgeoning youth population. Yet, the continued reliance on the raw export of natural resources without adequate local processing hampers job creation and industrial expansion.

    He warned that beyond the financial impact, IFFs perpetuate economic injustice, denying African citizens access to critical public services and infrastructure. 

    Pedro linked the issue directly to the broader demand for reparatory justice, arguing that IFFs effectively drain the continent of resources that should support healthcare, education, and industrialisation.

    The high-level policy dialogue was organised by the UN Office of the Special Adviser on Africa and the African Union Permanent Observer Mission to the United Nations, in partnership with several UN agencies including the ECA. 

    This year’s ADS focused on “Justice for Africans and People of African Descent Through Reparations” and served as a platform for global leaders and stakeholders to deliberate on structural barriers hindering Africa’s development.

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    Pedro noted that Africa is not without solutions. He pointed to continental policy instruments such as the African Mining Vision and the African Green Minerals Strategy, which advocate for resource-based industrialisation and the retention of value within local economies. According to him, the challenge now lies in implementing these frameworks effectively to ensure that Africa’s mineral wealth leads to tangible benefits for its people.

    He also called for reforms to the global financial and governance systems, which he said currently enable capital flight and profit-shifting by multinational corporations operating in Africa. According to Pedro, there is an urgent need for African countries to develop a unified stance on these matters and push for reforms at international forums.

    “Transformational change will only come when our mineral, trade, industrial, energy, and infrastructure development policies are aligned and implemented coherently,” he said. “We must also ensure that our international engagements reflect our collective interest as a continent.”

    Pedro urged mining companies, local communities, financial institutions, and governments to work together in bridging the perception gaps around the benefits of extractive activities. He argued that “cooperation is critical to ensuring that mining serves as a catalyst for sustainable development rather than a source of division and disenfranchisement.”

    He concluded by stressing that tackling systemic issues that allow IFFs to thrive—alongside the implementation of reparatory measures—will not only bring justice to the continent but also unlock Africa’s full economic potential.

    “As we advance, prioritising sustainable development and tackling the systemic problems that perpetuate IFFs, along with reparatory measures, is a crucial step to achieving justice for Africa. In doing so, we have the potential to unlock Africa’s true capabilities and promote a more equitable global system,” Pedro said.

  • Anxiety over rising illicit financial flows in Africa

    The rising menace of illicit financial flows, IFFs, otherwise known as ‘dirty money’ in the continent of Africa, was one of the hotly debated issues at a week-long conference in Kigali, Rwanda, where speakers after speakers attempted a prognosis of the crisis vis-à-vis its debilitating ills just as they sought a call to action aimed at strengthening the continent’s governance system to build domestic resource mobilisation, reports Ibrahim Apekhade Yusuf just back from Kigali, Rwanda

    To any discerning mind, at the centre of Africa’s crisis of underdevelopment is the issue of poor governance process, poor resource mobilisation and corruption at various levels, which is why very many people are agreed that there is indeed a need for a paradigm shift in the way things are being done to get the continent’s growth and development back on an even keel.

    Little wonder, organisations like the African Tax Administration Forum (ATAF), which is at the forefront of advocacy, aimed addressing economic independence for the continent through domestic revenue mobilisation has continued to raise its voice above the din as far as Africa’s development is concerned.

    Interestingly, in keeping with its avowed aims and objectives ATAF in collaboration with the Rwanda Revenue Authority (RRA) organised the second Media Engagement and Training of African journalists on tax-related matters.

    Over 60 selected media practitioners from across 22 African countries, including Nigeria converged in the City of Nyamata, Rwanda for a week-long workshop to discuss their role in addressing emerging tax issues that is affecting the continent’s development.

    IFFs pose clear and present dangers

    Dr Phenyo Butale, a member of Botswana Parliament, who set the tone for the discussion at the conference impressed on Africans, the need to manage her resources, noting that the problem of illicit financial flows (IFFs) and their costs for African economies has always been a development issue of major concern for African policy makers, more so now in the context of the African Continental Free Trade Area (AfCFTA).

    What IFFs is all about

    IFF refers to money illegally earned, transferred or used. It means any flow of money in violation of the laws in their origin or during their movement or use.

    IFF has diverse origins, such as laundering of proceeds of crime, abuse of power by politically exposed persons (PEPs), market or regulatory abuse by multinational corporations, trade record falsification and tax evasion.

    Others are the ability to shift profits from source countries to tax havens, thus denying the source country of tax revenue; weak international cooperation and information sharing, such as on beneficial ownership and tax records of multinationals, and opacity of records and information on what companies pay to governments in extractive and natural resource industry.

    Africa suffering from IFFs

    Citing the outcome of the Panama Papers, a giant leak of more than 11.5 million financial and legal records exposes a system that enables crime, corruption and wrongdoing, hidden by secretive offshore companies, Butale, currently, parliamentary finance committee member, which he has chaired on numerous occasions in pursuit of financial discipline, revealed that over 140 politicians in Africa were involved in IFFs across the world, fueling fears that the problem of IFFs was more of an insider-abuse and not entirely perpetrated by external forces.

    On how much has been lost through IFF, the erstwhile journalist said, the latest estimates from ECA indicate that, over the period of 2000 to 2015, Africa lost $80 billion yearly through illicit financial flows from commercial activities alone.

    This, he said, is in addition to around $27 billion estimated net annual losses through other channels. Taken together, this represents about $100 billion annually, which represents around four per cent of the continent’s GDP.

    He underscored the fact that the transfer of assets cannot be successful without the collaboration between the countries that they are transferred from and the international financial institutions in the countries that receive them.

    According to him, Africa cannot achieve its Sustainable Development Goals (SDGs) if it continues to lose money that way. Rather, its economic development will continue to be sabotaged.

    He said there was the need enthrone transparency and accountability in governance, and to have the political will to tackle weak and compromised regulatory structures, poor governance structures and reckless tax incentives that encourage IFF.

    The most effective way to limit IFF is for both developed and African countries to increase financial transparency and be willing to enact and enforce policies that deter cross-border tax evasion, establishment of shell companies, strengthening of anti-money laundering laws and practices, and improving transparency of the operations of multi-national companies, the lawmaker further admonished.

    African countries, he stressed, must demand the highest standards of governance and disclosure from their governments. “As African countries, have the primary responsibility to fight corruption and the compromise of our regulatory institutions, so that the predicate condition that makes IFF possible is not easily available.”

    IFFs an ill wind that blows no good

    It is however instructive to note that a new analysis of illicit financial flows (IFFs) due to trade misinvoicing in 148 developing countries demonstrates that trade-related IFFs appear to be both significant and persistent features of developing country trade with advanced economies. As such, trade misinvoicing remains an obstacle to achieving sustainable and equitable growth in the developing world.

    This update, titled ‘Illicit Financial Flows to and from 148 Developing Countries: 2006-2015,’ is the latest in a series of Global Financial Integrity (GFI) reports which provide country-level estimates of the illicit flows of money into and out of 148 developing and emerging market nations as a result of their trade in goods with advanced economies.

    According to the GFI report, on average, trade misinvoicing is equivalent to 18 percent of total trade with advanced economies among all developing countries.

    In addition to updating the estimated IFFs GFI has presented in the past, this report widens the scope of its research and uses a more detailed database published by United Nations (UN) Comtrade along with updated measures from the International Monetary Fund (IMF) data it has used previously. This report presents estimates of IFFs based on both data sets.

    While the Comtrade data set is more detailed, not all countries provide their trade data to the UN and therefore are not represented in this analysis. Many of the 44 nations that do not report trade transactions to the UN are small states; however a few non-reporting countries have substantial economies including Kenya, Nigeria and Venezuela. Trade-related illicit flows for these nations (and the other 41 countries not reporting to the UN) can be found in the report using the IMF’s Direction of Trade Statistics (DOTS) data set.

    Thumbs up for ATAF

    Thankfully, he expressed delight in the fact that ATAF and Pan African Parliament have come together to collate a strategy that will help harmonise legislation in order to address some of the key issues affecting taxpayers within the continent.

    Speaking earlier, Aimable Kayigi Habiyambere, RRA Commissioner of Domestic Taxes, said, as a member of the ATAF Council, Rwanda shares with ATAF the common vision of building strong revenue authorities in Africa, as a key strategy towards domestic resource mobilisation through its many capacity-building initiatives, ATAF has helped several African tax administrations, including RRA, improve their revenue collection performance over the three years.

    Without a doubt, Habiyambere explained that there are unresolved issues such as digitalization that still need to be unpacked, which is why partnering with continental media remains central to our strategy to promote equitable development for the benefit of our citizens.

    According to him, taxation in Africa faces a number of challenges which has an impact on delivering to its agenda. “I believe that this engagement will inform you about the progress we are making–challenges and intervention required to close the gap in implementing tax policy,” Habiyambere said.

    He also named the challenges as tax evasion, non-voluntary compliance, public perception on taxes, taxing the digital economy which seems to be the future of the globe.

    Habiyambere said as a member of the media, “you have a critical role to play in helping us to tackle these challenges that we are facing–because you have the power to change the public perception and to increase voluntary compliance, reduce tax envision and help us handle challenges attached to the digital economy.”

    Echoing similar sentiment, Mary Baine, Director of ATAF Tax Programmes said, “The era of globalization is upon us, and we can no longer ignore the fact that Africa’s much-needed tax base is being eroded simply through unrecorded revenue. Our continent, now more than ever, needs all the resources if it is to promote its social-economic growth and the wellbeing of its populations. We see the media as partners in our journey to advance the discourse on tax and development.”

    Ms. Baine said revenue administration and ATAF attach seriousness to the engagement because the media has a role in educating the public and therefore, as partners, “we thank you and hope to continue this engagement in the near future.”

    She also used the occasion to recognise the African Development Bank (AfDB) as key partner in making sure that the engagement was successful.

    The public, according to her, rely on the media for information and it is “our opinion that this engagement will enable the media not only to unpack some of the more complicated issues that have to do with tax but, in turn, give them an opportunity to engage with practitioners about what is going on globally, including the fight against illicit financial flows, that will complement the work of tax administrations.

    She said the global development goal or the SDGs has tax as a key player or the revenue mobilization as a key contribution to the development of the world.

    According to Ms. Baine, the African development agenda, which is known as the agenda for 2063, clearly states that the collection of domestic revenue as a key component of the development agenda of Africa and, as such, it is important for everyone to play their role. We hope that this engagement will make clearer what the media can do to impact this.

    “We at ATAF consider that this relationship will help the beneficiaries (the public) to understand their tax obligations as well as their responsibilities and their rights, but also help the African agenda through advocacy,” Ms. Baines concluded.

    ATAF engagement, ATAF boss, said, is intended for participants, who are drawn from both public and private media institutions to delve into the conversation around how media can unpack the significance of tax issues, and how simplifying these matters can allow citizens to better understand their obligations and their contribution to development in their countries as well as their role in holding states accountable.

    Call to action

    One of the ways to address the challenge of IFFs, according to Butale is the need for the leading lights in the continent to galvanise action towards reviewing the laws currently operating across the countries within the various regions of the continent.

    As a corollary he hinted of by plans by the Pan African Parliament, to design legislation in that regard. Specifically, he said, as part of enhancing the role of the media in information gathering and dissemination, the Pan African Parliament, will wade into the lingering crisis that has bedeviled the passage of the freedom of information bill across countries of the continent.

    In the view of Ms Baine, another way to address the menace of IFFs is to ensure the enforcement of the Addis Tax Initiative, which, she said aligns with the aims and objective of the Sustainable Development Goals of ensuring domestic tax mobilisation for Africa as encapsulated in the AU Agenda 2063.

    Besides, the ATAF boss stressed the need to strengthen anti-money laundering instrument, tax information exchange, country-by-country reporting, and legislation on beneficial ownership amongst other measures within the continent.

  • Curbbing corruption and illicit financial flows

    The Chairman of the Africa Union High Level Panel on Illicit Financial Flows (IFFs) and former South African President Thabo Mbeki, in 2015, reported in the findings of the panel, that the African continent was annually losing a staggering $50 billion, due to illicit financial outflow.

    In the report, Mr. Mbeki estimated that about 40 per cent of this illicit outflow of funds was from Nigeria, and came in different forms including corrupt business practices, tax evasion and transfer of profits by multinationals.

    To state that this is very worrisome is to state the very obvious. At the recently concluded African Union (AU) High Level Panel on IFFs inter-ministerial meeting held in Abuja, Mbeki said the loss has increased exponentially from $50 billion to about $80 billion annually.

    Indeed, this estimate may well be short of reality as accurate data does not exist for all financial transactions out of Africa. This increase in illicit financial flows indicates a serious breakdown of international borders and barriers facilitated by innovative schemes and practices of the financial sector operators.

    Globalisation has turned the world into a global village with broken down borders. Yet, the advent of technological advancement such as online transfers and a range of e-payment platforms, informal IOUs/Halawa Schemes, and crypto currencies among others, have made the movement of funds and assets from one jurisdiction to another so very easy.

    It is estimated that over $40 billion (about N30.6 trillion) was fraudulently transferred out of Nigeria in the last five years through various sources, such as money laundering, tax avoidance, corruption, tax evasions, illegal mining activities, drugs and human trafficking.

    Unfortunately, illicit financial outflows are facilitated by some international tax havens that permit creation of disguised corporations – shell companies, anonymous trust accounts, and fake charitable foundations which in most cases are cover for corruption, terrorism financing tax evasion and money laundering.

    The complex nature of corruption and money laundering investigations generally require assets recovery efforts beyond domestic borders. Where stolen assets have been stashed abroad, successful tracing and recovery of such assets often depends on assistance from foreign jurisdiction which makes international cooperation essential for the successful recovery of assets.

    The issue of a concerted need for international collaboration particularly on the part of African countries formed the thrust of the Eighth Commonwealth Regional Conference for Heads of Anti-Corruption Agencies in Africa, which was hosted by the Economic and Financial Crimes Commission (EFCC) in May this year at the Transcorp Hilton, Abuja.

    On the part of the EFCC, a lot of work has been done in creating a robust international framework for tackling corruption and illicit financial flows in Nigeria. There are a number of multilateral treaties or instruments which Nigeria is a signatory that requires countries to cooperate with one another on matters bothering on investigations, asset confiscation and returns.

    Nigeria has agreement with several countries including the Swiss, UK, UAE and the U.S. just to mention a few for the return of stolen assets and successes have been achieved, especially with the Swiss authorities in repatriation of about $322 million Sani Abacha money back to Nigeria. Agreement to this effect was signed recently at Global Forum on Asset Recovery (GFAR), which took place in December 2017 at Washington DC U.S.

    In the same vein, the United Kingdom returned assets worth $85 million from the controversial $1.3 billion Malabu oil deal which revolves around “OPL 245” believed to be the most valuable oil field in West Africa in a case that is being described as the largest corruption scandal ever witnessed in global oil industry involving Malabu Oil & Gas and oil giants Shell and ENI. Efforts are ongoing for the recovery of hundreds of millions of dollars of the Abacha loot stashed in financial institutions in London, Paris, Jersey and Liechtenstein.

    Recognising the adverse effects of corruption on the African Continent, the AU Heads of States and Governments declared 2018 as African Year of Combating Corruption under the theme “Winning the Fight Against Corruption: A Sustainable Path to Africa’s Transformation”.

    To further emphasize the resolve to fight against graft in the continent, the leaders endorsed President Muhammadu Buhari of Nigeria as its Anti-Corruption Champion that will lead the continent’s war against corruption in 2018 and beyond.

    No doubt, for there to be successes in combating IFFs, there must be a resolute and firm political will, which has been evident on the part of Mr. President. This is made obvious in his tremendous support given to the EFCC in its enforcement activities, which has contributed in no small measure to the successes so far achieved.

    Nigeria has been at the forefront of sponsoring resolutions on asset recovery and return and IFFs which have been adopted at various conferences of states parties of the United National Convention against Corruption (UNCAC).

    In terms of domestic efforts in curbing IFFs, the EFCC has recorded tremendous success in its enforcement activities by the number of money laundering and corruption cases undergoing investigations and proceedings in court. Progress has been recorded in strengthening the anti-money laundering legal framework and the compliance regime. But, monitoring the movement of cash outside the financial sector remains a major challenge due to the country’s predominantly cash-based economy. Recently, cross border physical cash movement has been on the increase. To curb this menace, the EFCC set up an interagency task force.

    The Money Laundering Act 2011 (As Amended) provides for the total forfeiture of funds that are not declared to the Nigerian Customs at the entry and exit points of the country. The EFCC has therefore confiscated large sums of money at our airports and land borders and several offenders have been arrested, prosecuted, convicted and the cash forfeited to Federal Government.

    The agency has also recorded significant convictions from 2015 to date. While conviction records stand at 703 over the same period, about 35 was in respect of cross border cash movement involving forfeiture of about $28.5 million to the government. The success recorded is as a result of cooperation and synergy that exist between the EFCC and sister agencies such as the Nigerian Customs Service and the National Drug Law Enforcement Agency.

    EFCC is also prosecuting an international bribery case, involving Malabu Oil & Gas, Shell and Nigeria AGIP Oil, bothering on bribery of Nigeria officials for the allocation of oil well in the Niger Delta.

    The recently introduced whistle blower policy which provides for monetary reward for whistle blowers is a wonderful tool that has assisted the commission. Such successes include: $43.8 million discovered in Ikoyi; Lagos; N40 million abandoned at Kaduna International Airport; 250 million discovered in a ware house at Balogun Market in Lagos and $9.8 million discovered in Kaduna at a building belonging to a former GMD NNPC.

    The commission has effectively utilised legislations on conviction and non-conviction-based asset recovery to recover billions in cash and assets linked to military generals and other politically exposed persons – domestically and abroad.

    The agency is prosecuting not less than 16 former governors and ex-top government officials for money laundering and related offences with convictions recorded this year in the cases of former governors Jolly Nyame and Joshua Dariye (both former governors) for procurement and money laundering offences.

    Between 2015 to last month, the commission recovered over N794 billion made up of interim and final recoveries for third parties, corporate organisations, government agencies and individuals.

    Recoveries have also been made in real estates, vessels, automobiles, machinery/equipment, shops, petroleum products and other perishables.

    EFCC’s desire to curb IFFs further led to the establishment of a dedicated special tax investigation team to work closely with officials of the FIRS and the Revenue Mobilisation and Fiscal Commission in identifying and prosecuting culprits who have evaded tax. The synergy between the commission and these agencies have led to the recovery of N27,712,334,455.64 between January to December last year.

    However, a lot still has to be done by countries in the area of asset tracing, recovery and return by putting in place the necessary legal and institutional framework for repatriation of stolen assets. More resources have to be dedicated to the legal and technical expertise to handle complex and costly cases involving developing countries.

    On the continental stage, the need for African anti-corruption agencies to collaborate and synergize more than ever to ensure maximum cooperation devoid of complex technical policy and legal intricacies, cannot be overemphasized.

    There must be a robust international legal framework for combating IFFs and enduring assets recovery regime in Africa. Traditional challenges militating against effective international cooperation must be surmounted.

  • ATAF, African parliament sign MoU on tax, financial flows

    In its quest to strengthen tax legislations in Africa and combat illicit financial flows (IFF), the African Tax Administration Forum  (ATAF) has signed a Memorandum of Understand (MoU) with the Panafrican Parliament (PAP) at the Kigali Convention Centre in Rwanda.

    The Executive Secretary of the African Tax Administration Forum (ATAF), Mr Logan Wort and the Speaker of the Parliament Hon. Nkodo Dang, signed a five-year MoU to formalise cooperation between their respective institutions on tax policy and tax administration reforms on the continent.

    Prior to the signing, Mr Wort was invited by the Hon. Speaker to make a presentation on the correlation between Illicit Financial Flows (IFFs) and Taxation and the collaborative role that their two institutions can play in addressing this issue on the continent.

    These included capacity building and tax education for members of parliament through ATAF, a stronger advocacy role for members of parliament on tax issues and domestic resource mobilisation in national, regional and continental fora, in line with the African Union’s Agenda 2063, and the role of parliamentarians in enacting sound national tax legislations, as well as collaborative tax research initiatives between PAP and ATAF.

    ATAF, which has been endorsed by the African Union as the African voice on tax matters, considers sound domestic tax legislations and the development of expertise on tax treaties key conditions for the implementation of effective tax reforms on the continent. It therefore, views the PAP as a critical strategic partner given the oversight and advocacy roles of the parliament.

    The MoU comes just days after the fifth Ordinary General Assembly of ATAF in Gaborone, Botswana, where participants explored ways to move Africa beyond aid and is viewed by both signatories as a significant step towards stemming illicit financial flows, improving domestic resource mobilisation and funding Africa’s development.

    The African Tax Administration Forum (ATAF) is an organisation which was established by African revenue authorities in 2009, in order to improve the performance of tax administrations in Africa. ATAF believes that better tax administration will enhance economic growth, increase accountability of the state to its citizens, and more effectively mobilise domestic resources.

    Now in its ninth year of operation and headquartered in Pretoria, ATAF seeks to Improve the capacity of African tax administrations to achieve their revenue objectives, advance the role of taxation in African governance and state building, provide a voice for African tax administrations and develop and support partnerships between African countries and development partners.

  • Battle against illicit financial flows gets more bite in Nigeria

    No fewer than 114 companies are on the verge of losing choice properties in highbrow areas, including Abuja, Federal Inland Revenue Service (FIRS) Chairman Tunde Fowler says in a renewed battle against illicit financial flow. The real estate is believed to have become a haven to invest funds siphoned from developing countries. Assistant Editor NDUKA CHIEJINA reviews the measures being taking by the Federal Government curb and possibly to eliminate illicit financial flow in Nigeria.

    Africa and Nigeria appears spurred to tackle illicit financial flow. Illicit financial flows (IFFs) are illegal movements of funds or capital from one country to another.

    Global Financial Integrity (GFI) classifies “this movement as an illicit flow when the funds are illegally earned, transferred, and/or utilised.

    Some examples of IFFs include:

    • A drug cartel using trade-based money laundering techniques to mix legal money from the sale of used cars with illegal money from drug sales;
    • An importer using trade misinvoicing to evade customs duties, Value Added Tax (VAT), or income taxes;
    • A corrupt public official using an anonymous shell company to transfer “dirty” money to a bank account in the United States (U.S.);
    • An human trafficker carrying a briefcase of cash across the border and depositing it in a foreign bank; or
    • A terrorist wiring money from the Middle East to an operative in Europe.

    GFI in its report estimates that in 2013, $1.1 trillion left developing countries in IFFs. “This estimate is regarded as highly conservative, as it does not pick up movements of bulk cash, the mispricing of services, or many types of money laundering.”

     

    Effects of IFFs on

    developing countries

     

    It is a fact that $1.1 trillion is a huge amount of money to drain out of developing countries.  The 2013 GFI report discovered that “even after accounting for all types of financial flows (both legitimate and illegitimate) — including investment, remittances, debt forgiveness, and natural resource exports —Africa is a net creditor to the world.”

    Aside from the damage done to the economies of African countries, “the overall capital outflows, IFFs have a terrible, subversive impact on governments, victims of crime, and society. They facilitate transnational organised crime, foster corruption, undermine governance, and decrease tax revenues” the GFI report said.

     

    What can be done about IFFs?

     

    GFI believes that “the most effective way to limit IFFs flows is to increase financial transparency.”

    It believes that developing countries, like Nigeria, should enact policies to among others things, detect and deter cross-border tax evasion; eliminate anonymous shell companies; strengthen anti-money laundering laws and practices; work to curtail trade misinvoicing; and improve transparency of multinational corporations.

     

    Where does the funds end up?

     

    GFI reported that “every dollar that leaves one country must end up in another. Very often, this means that illicit financial outflows from developing countries ultimately end up in banks in developed countries like the U.S. and United Kingdom (UK), as well as in tax havens like Switzerland, the British Virgin Islands, or Singapore. GFI research suggests that about 45 per cent of illicit flows end up in offshore financial centres, and 55 per cent in developed countries.”

    This, the report noted, “does not happen by accident. Many countries and their institutions actively facilitate — and reap enormous profits from — the theft of massive amounts of money from developing countries.”

    GFI believes that developed countries have a responsibility alongside developing countries to curtail the flow of illicit money.

     

    Global efforts

     

    The United Nations (UN) adopted to fight IFFs in 2015 with a resolve that African countries must have a firm grip on their Domestic Resource Mobilisation (DRM) by strengthening customs, internal revenue agencies and make legislations that curtails IFFs.

    As calls for governments to reconsider the tax incentives granted to some individuals and businesses in Nigeria intensified, one of the continent’s tax bodies cited inappropriate use of tax incentives and exemptions as one of the reasons DRM has not been optimised across Africa.

    African Tax Administration Forum (ATAF) Executive Secretary Logan Wort made this assertion in Abuja in September 2017 at the third International Conference on Tax in Africa.

    Mr. Wort said: “ATAF recognises that some of the key reasons DRM is not optimised across the continent is due to: low savings rate that equals low economic activity; illicit financial flows; inappropriate use of tax incentives and exemptions and weak tax administrative systems and capacities.”

    The ATAF, he said, will assist member countries to address these challenges in some broad areas, which he listed as: implementing the basics of any revenue administration such as completing a taxpayer register; functioning audit unit and recovery processes; embedded in legislation that provide certainty; tax base broadening initiatives; improving tax administration capabilities; strengthening tax policy and providing a platform for African countries to voice matters at regional and international level.

    Improving tax administration capabilities he noted “means that numerous country programmes and technical assistance missions are aimed at enhancing the capacity of revenue administrations in specialist areas such as detecting and dealing with transfer pricing abuses; exchange of information; development of legislation that closes loopholes that are prone to abuse; the use of compliance risk management practices to ensure optimisation of resources; and to identify areas of revenue leakage and non-compliance.”

     

    The Nigerian onslaught

     

    The DRM is taking a central role in the efforts to tackle IFFs, Vice President Yemi Osinbajo said last year “as donor fatigue is now only too evident.” What he meant was that “free money is drying up and Nigeria now needs to plug all avenues of revenue leakages and boost internally generated revenue.”

    Prof Osinbajo noted that VAT, often seen as the tax of the future, needs a review of its processes for effectiveness and efficiency in its administration.

    In the area of Corporate Income Tax (CIT), Osinbajo said: “It is in the spotlight as more manufacturing industries take root in the continent, similarly, there is a growing service sector consisting of the financial, telecommunications and real estate sectors.”

    As part of efforts to check IFFs out of the country, the Federal Government has hired a leading international asset tracking and investigation agency – Kroll – to trace and track illicit flows and assets from Nigeria to wealthier countries.

    Former finance Minister of Mrs. Kemi Adeosun made the disclosure at the Platform for Collaboration on Tax (PCT) Conference at the UN in New York.

    Mr. Adeosun said: “The IFFs are driven by the desire to hide illicit wealth, hide the proceeds away from the public eye and law enforcement agencies and also conceal the ways and means by which illicit wealth was created. This makes it difficult to trace the associated money flow.

    “As part of open government partnership, Nigeria has included in the national action plan a commitment to establish a public register of beneficial owners. To this end, the Corporate Affairs Commission (CAC), the custodian of Nigeria’s company register, is pursuing relevant amendments to the Companies and Allied Matters Act to comply with global standards.”

    Advocating more responsibility on the part of destination countries of IFFs, the minister advised that beneficial ownership registers should be established to allow authorities track money in financial investigations involving suspect accounts or assets held by corporate vehicles.

    Besides, she said that Nigeria has signed the Multilateral Competent Authority on Common Reporting Standards, which allows for exchange of financial account information.

    According to her, Nigeria is expected to effect the first exchange by 2019 as soon as the domestic legal framework was completed.

    Mrs. Adeosun lamented that IFF was a problem that urgently requires global focus and actions towards the realisation of significant developmental progress for Nigeria and other developing countries.

    She expressed concern that “developing countries, including Nigeria, collect significantly lower taxes, as a percentage of Gross Domestic Product (GDP), than wealthier states. This is partly because the income and wealth being created, is taken out of the country illegally, without being taxed.”

    Quoting the report of former South African President Thabo Mbeki’s High-Level Panel on IFFs, Mrs. Adeosun said Africa loses $80 billion annually to IFFs, with a significant percentage of the loss coming from Nigeria.

    As part of measures to tackle IFFs, the minister called for the tightening of Nigeria’s tax codes and tax laws that encourage tax avoidance as well as strengthening of the tax system to make it more efficient.

     

    Why anti-IFF battle must be won

     

    Last week in Abuja, former President Mbeki warned against taking IFF as problem that can be solved exclusively by Africa, stating that the continent needs “the whole world to engage Africa to help her resolve the issues around IFF. Africa needs capacity building and intervention to boost the capacity. Having identified the problem and the nature of the problem Africa now requires the expertise to effectively confront and overcome the menace of IFF.”

    Mbeki lamented that “the poor part of the world is subsidising the rich part of the world this has to stop.”

    The former South African leader, now serving as United Nations Economic Commission for Africa’s (UNECA’s) High Level Panel on IFFs Chairman, said that Africa loses about $80 billion annually through IFFs.

    He said the huge amount came from proceeds of commercial transactions through multinational companies, criminal activities and corruption.

    Mbeki said: “Illicit financial flow poses developmental challenges to the continent, in terms of draining hard currency reserve, reduced tax collection, deepening income gap, depleting investment and weakened governance.”

    He stressed the need to strengthen institutions like the revenue service agencies, customs services and the legislation to enable them to better tackle incidences of money laundering as well as other forms of IFFs.

    Between February 2018 when Adeosun spoke at the UN on IFFs and October of the same year, Federal Inland Revenue Service (FIRS) Executive Chairman Babatunde Fowler shocked the audience when he revealed that Nigeria accounts for 40 per cent of IFF from Africa.

    He defined IFF as “a broad term that can be translated into a number of different things but not limited to cross-border laundering of proceeds of crime, funding of terrorism, theft of state assets, private sector bribery and most importantly, the abuse of taxation.”

    Mr. Fowler, who serves as ATAF Chairman and United Nations International Tax Experts Committee First Vice Chairman, described the nature of IFFs in Nigeria to include: payments of expatriates staff emolument and remuneration and failure to declare for personal income tax purposes such emoluments to the relevant tax authorities in Nigeria; laundering of funds (often sourced illegally) through real estate transactions to acquire property in choice locations outside Nigeria; Illegal transfer of money out of Nigeria, via unapproved channels; mispricing of goods and services transferred between interrelated locally-based companies and individuals to offshore-based entities and individuals; profit shifting – for instance through excessive interest payments on foreign and locally-sourced loans and mis-invoicing of imports and exports.

     

    FIRS’s strategies of curbing IFFs

     

    Fowler stated that the FIRS had devised strategies to fight IFFs. These strategies, he said, include:  transfer of pricing regulation to address tax revenue losses through transfer mispricing of goods and transfer.

    He said that the FIRS has put in place transfer pricing regulations in 2012 and established a functional Transfer Pricing Unit focused on ensuring that taxable persons report sales and profits in Nigeria in adherence with globally acceptable standards of arm’s length principle for tax purposes.

     

    Trend analysis to the rescue

     

    FIRS has developed an in-house capability for trend analysis on banking transactions of taxpayers – to provide early warning on transactions that might be a potential for illicit outflow.

     

    Exchange of Information

     

    There must be the establishment of a functional Exchange of Information (EoI) unit in FIRS to oversee an effective system of exchange of tax information with Nigeria tax treaty partners. EoI units also set up at State Boards of Internal Revenue (BIR) to ensure a nation-wide framework for effective exchange of information on taxpayers.

     

    Base erosion and profit shifting

     

    Nigeria joined the inclusive framework on Base Erosion and Profit Shifting (BEPS) in 2016 and committed to implement the minimum standards, as means to improving tax administrative effort to combat erosion of our tax base.

     

    Automatic exchange of information

     

    Nigeria has signed onto the Multilateral Competent Authority Agreement (MCAA) for the automatic exchange of financial account information with other countries. This will ensure that Nigeria shall have international support in identifying and tracing funds illegally taken out tax residents and invested abroad from which they periodically derive passive incomes (interest, dividends, rent, etc.) from sources outside Nigeria.

    All these measures aimed at curbing IFFs, Fowler revealed, has led to a boost in revenue generated by the FIRS.

    According to him, the total collection of N3, 916.97 trillion from January to September, 2018 is an increase of N1, 019.3 trillion over collection for the same period in 2017.

     

    Benefits of curbing IFFs

     

    Fowler gave a breakdown of the record of debt payments received by the FIRS with the total debt recovered From January 2017 to August 31st 2018 put at N3, 631,949,050. That meant that from November 2016 to December 2017, the total tax collected was N1.9 billion and from January 2018 till date, N1.731 tillion has so far been received.

    Other benefits, he said, include: issuance of notification of tax obligation to CIT, non-compliant companies that own properties and identified non-filers for Abuja with 2,672 Demand Notices, 653 those now filing, total payments for Demand Notices for Abuja Properties N2.983 billion.

    Interestingly, 114 companies claimed they were unaware of land allocated to them but upon inquiries at the Abuja, Geographic Information System (AGIS), it was discovered that the lands in question were actually allocated to the companies so the matter will be transferred to the Attorney-General to help the FIRS recover these properties since                              AGIS has confirmed the ownership for all the cases referred to them to belong the companies. With this development, 114 companies might lose their lands in Abuja.

    In Lagos, the FIRS issued 5,000 demand notices, 1,346 responses were received from companies, 610 companies made filing and the properties reflected in their books, 189 non-compliant companies have paid and N247 million was the total payment received from companies that made filings which did not reflect in the ownership of the property.

    In his presentation on IFFs, Presidential Advisory Committee Against Corruption (PACAC) Executive Secretary Prof Bolaji Owasanoye said: “Africa is a recipient of IFFs, there are tax havens in Africa, we need to challenge African countries that take part in IFFs.

    “There is the issue of South-South Illicit Flows  –  that is money leaving Nigeria but not leaving Africa. We need to challenge ourselves to know if we are making progress or not. The Mbeki report should be blunt not politically correct.”

     

  • How to stop illicit financial flows, by Osinbajo, others

    Vice President Yemi Osinbajo and Foreign Affairs Minister Geoffrey Onyema Tuesday said illicit financial flows from Africa cannot be stopped without global outrage against it.

    According to them, it will require international collaboration to block safe havens for looted funds and make asset recovery easier.

    Osinbajo believes there was the need to scale up the political will stop illicit financial flows at the domestic, continental and international levels.

    Read Also:IBB’s ally tackles Osinbajo over comment

    For Onyeama, countries that refuse to return stolen assets to their legitimate owners are as guilty as those who stole them.

    They spoke in Abuja at the second “International Conference on Combating Illicit Financial Flows (IFF) and Enhancing Asset Recovery (AR) for Sustainable Development (Second Abuja IFF/AR)”.

    It was organised by the Presidential Advisory Committee Against Corruption (PACAC) in collaboration with the African Union (AU), Ministry of Foreign Affairs, Federal Inland Revenue Service (FIRS) and the Federal Ministry of Justice.

    According to Osinbajo, who was represented by Special Adviser to the President on Economic Matters Dr Yemi Dipeolu, it will require global outrage to stem illicit financial flows.

    He said: “I repeat the call I made last year that illicit financial flows should attract the same level of global outrage that the world has for drug trafficking, human trafficking and terrorist financing.

    “We must recognise that progress in the fight against illicit financial flows requires that we focus on tackling cross border flows of corrupt and criminal activities as well as the ways and means by which they are facilitated. This will require collaboration and exchange of information amongst countries.”

    Osinbajo said the recovery of $321million stolen from Nigeria and hidden in Switzerland was a good example of how political will and international cooperation can lead to asset recovery.

    “Ultimately, our effort to stem illicit financial flows will depend on our domestic capacity to prevent and repatriate IFFs and to bring about desired development outcomes.

    “African countries will need to find the resources to establish the relevant architecture for tackling illicit financial flows, including by establishing and/or strengthening revenue authorities, transfer pricing units, customs services, anti-corruption agencies, financial intelligence units, and the like.

    “The task also requires accurate data and up-to-date information as well as effective regulatory, legislative and institutional frameworks.

    “It also means acquiring and training personnel who understand the complexities of illicit financial flows and who can carry out the required oversight of functions that are needed to stem illicit financial flows.

    “Above all, we must remain committed to using the resources acquired from blocking illicit financial flows or data recovered therefrom for promoting development and advancing the interest and welfare of our people, including by achieving the sustainable development goals,” Osinbajo said.

    The Vice President reiterated the Federal Government’s commitment to tackling illicit financial flows that happen through tax evasion, money laundering, smuggling and other acts of corruption.

    “We’re fully conscious that this requires transparency, financial probity and the upholding of due process in public procurement, amongst other things.

    “We reaffirm our commitment to taking the necessary measures in this regard, including by working in cooperation and collaboration with regional bodies like the African Union, and international partners as well,” Osinbajo said.

    Onyeama said political leaders must be held to account for the persistence of illicit financial flows despite all talks about tackling it.

    He described as mind-boggling the difficulties faced in the restitution and recovery of assets from foreign countries to developing countries.

    He said while powerful countries like the United States, Germany and France were able to force Switzerland to review its banking secrecy provisions and help identify their citizens who were transferring money there, developing countries lack such clout.

    “For developing countries as ourselves, it’s so much more difficult – the kind of hurdles that we have to overcome.

    “Large sums of money have been found in Jersey, for instance, and other countries are laying claim to it, because in getting to Jersey, it passed through different jurisdictions. We haven’t been able to get the money back.

    “We got some money back from Switzerland, but my God! When you look at the details, I was shocked and extremely angry at the process of recovery. Percentages were paid out to all kinds of institutions.

    “To me, this is daylight robbery that these countries are perpetrating, and of course playing on the fact that we’re not the United States.

    “So, it’s something we keep harping on, that these countries have to do a lot more, because at the end of the day, they are condoning huge theft and are accessories after the fact in fact.

    “If you’re making it difficult for legitimate owners to recover those assets, and then you allow your institutions and others take huge chunks from that asset for your own benefit, then you’re just as guilty of theft as those that transferred the money in the first place. This is totally unacceptable and totally immoral,” Onyeama said

    PACAC member Prof Femi Odekunle, who represented the chairman Prof Itse Sagay (SAN), said there was the need to tackle weak and compromised regulatory structures, poor governance structures and reckless tax incentives that encourage illicit financial flows.

    He said the government must not compromise on its regulatory standards even while seeking foreign investments, because, according to him, “you cannot worship a cow because you want to eat meat”.

    “One ultimate goal of combating illicit financial flows is to help countries mobilise domestic resources to finance their development goals. We cannot hope to achieve sustainable development goals without addressing the problem of illicit financial flows,” Odekunle said.

  • Untold story of illicit financial flows in Africa

    With over $1.4trillin lost to illicit financial flows in Africa these past three decades, it is anybody’s guess why the continent’s economy has remained in a parlous state. Ibrahim Apekhade Yusuf just back from Johannesburg, South Africa, report on outcome of panel discussions to address the menace.

    Africa is cash strapped, no doubt. But the irony however is that monies meant for sustainable economic development find its way out of the continent as a result of nefarious activities of some unscrupulous individuals who circumvent the system.

    Enter illicit financial flows.

    Channels through which funds are literally smoked away mixed with factors. One man who should know is Logan Wort, Executive Secretary, African Tax Administration Forum (ATAF). He spoke with our correspondent in Johannesburg, South Africa, during a week-long media engagement workshop and training for journalists drawn from 24 African countries.

    Citing a report by the African Union and Economic Commission for Africa, Wort said most of the money that gets lost in African countries is due to a mix of those factors.

    Paired into specifics, Wort said about $50 billion to US$80 billion annually is lost annually. Specifically, he said, corruption by government officials that includes theft, bribery and other forms of abuse, contributes 5% of total losses.

    Besides, he said, criminal activities including drug trafficking, money laundering, racketeering, counterfeiting, human trafficking, illegal arms dealing, and smuggling of contraband, fraud in the financial sector constitute 30 % with the remaining 66% due largely to corporate behaviour and a big part of that is tax avoidance and tax evasion. Tax avoidance is bigger loss than tax evasion.

    Bribes amongst state officials breaks down the legitimacy of the state, erodes confidence of the taxpayers and as a result revenue dries up, he stressed.

    Media dialogue to understand IFFs

    The week-long event facilitated by Fiona Musana of Uganda and moderated by ATAF Communications Manager Romeo Nkoulou Ella, was intended to bridge the gap between revenue authorities and journalists to ensure a proper understanding of how things work as far as illicit cash flows is concerned.

    ATAF believes that when citizens are better and adequately informed (through the media) they tend to become tax compliant which would ensure revenue growth to facilitate national development.

    The engagement, among others, focused on how Africa is addressing priority tax issues at the local and international levels and how the media can positively impact the work of tax administrations.

    Another session led by Thulani Shongwe and Frankie Mbuyamba focused on trends in taxation and what matters for Africa. In their deliberations, the presenters shed light on the work of ATAF on international tax, domestic resource mobilization, illicit financial flows, base erosion and profit shifting. This session highlighted key aspects that the continent faces in the struggle to finance their own budgets from revenue and taxation. The presentation also sharpened understanding on the significance of the media in relation to taxation and self-financing African States and the role of ATAF in taxation.

    A panel discussion explored the opportunities and challenges facing reporting on tax matters in the African media. The panelist comprised main stream reporters and communication officers of tax authorities sought to explore the changing nature of the media landscape in Africa, looking at diverse issues such as mobile technology use, access and liberalization of the media sector. They also assessed the current state of tax reporting in African media and examined impediments to reporting on taxation including: resourcing of newsrooms, training for the media, access to reliable information, the increase of citizen journalism. The panelist comprised Djimet Wiche Wahili, Vusie Norman Dlamini, Wahab Atanda Gbadamosi, Ceyrano-Patrick Obiang and Sara Jerving.

    There were also deliberations on what would make news in taxation. This discussion brought to the fore the challenges media faces in attaining tax-related information on one hand the bureaucracies and policies that bar communication officers of tax authorities from releasing some information to the media. It also focused on whether reporters are reporting stories on taxation rightly.

    Panelists comprising Salome Kitomari, Yusuf Ibrahim Apekhade, Alain Paul Sene, Rochete Libombo,  Prosper Ndlovu shared experiences on challenges faced readers/viewers, editors and owners of media houses. This session was aimed at fostering mutual relationship between reporters and spokespersons of tax administrations.

    There were group discussions on challenges tax administrations face in dealing with journalists and how those challenges can be averted. From the discussions amongst various groups, it was realised that there is the need for reduction in the bureaucracies tax administrations have to go through before releasing information to the media. Media practitioners have to prove themselves trust worthy that they would use information attained from tax administration responsibly without distortion. There were calls from group members for the simplifying of tax jargons when communicating to members of the media to enable them also clearly inform their audiences.

    The discussion triggered the extreme importance of maintaining professionalism, objectivity with significant contribution to state building and the formation of a network of reporters who would build interest and focus on reporting on taxation in their respective countries.

    ATAF’S view of IFFs

    According to ATAF, several actions legal or otherwise, geared at not paying all the tax due include but not limited to trade mispricing (falsification of the price, quality and quantity values of traded goods to avoid duties and levies.

    Echoing similar sentiments, Mary Baine, a member of ATAF Secretariat, she said, the predicament posed by tax evasion is well phrased by Everest-Phillips who states that “effective states require effective, efficient, and equitable tax systems. Creating the commitment of citizens not to evade taxation is a political process central to state building; cajoling elites to pay taxes has always been an essential step to any state becoming effective. Bad governance manifests itself through an unjust tax system and rampant tax evasion.”

    The latter, she stressed, becomes or remains a trigger for or indicator of political instability. Tax evasion, corruption and criminality as the main drivers of illicit capital flows are at the same time “both causes and effects of the fragility of state institutions, and in this sense, are challenges to state legitimacy.”  Citing a report by Everest-Phillips who drew an important correlation between tax evasion and corruption, she said, tax evasion undermines the funding of the state and therefore, the legitimacy associated with the state through the delivery of public services. Corruption in turn, affects the moral legitimacy of the government and criminality becomes a challenger to the legitimacy of the government.  It is evident that good governance is an essential element to addressing IFFs and remedies should therefore be more than “technocratic solutions.”

    A further consideration, she noted, “Is whether the country can demonstrate that it has a sound framework of measures which can help to prevent and combat corruption. Such measures include good governance principles, respect for transparency, high ethical and professional requirements, efficiency of the judiciary and the enforcement of judicial decisions.  These elements point to the level of state building and are important because significant weaknesses or shortcomings in these areas are obstacles to the effective implementation of the FATF recommendations.”

    A clarion call to stem IFFs

    It is however instructive to note that a consortium on IFFs with African organisations with vision to curb the menace of IFFs is being spearheaded by some eminent persons within the continent chief among which include the Thabo Mbeki Foundation, Pan African Lawyers Union, African Development Bank, United nations Economic Commission for Africa, to mention just a few.

    In the last few years, the consortium through its High Level Panel Report has been able to review the salient issues bordering continent, especially in her quest to manage wealth emanating from the continent to reduce dependence on overseas aids.

    Way forward

    Luxembourg is one of few European countries with a dedicated law on whistle-blowing, but it is considered too narrow. In this instance the whistle-blower is not considered as such, because the law in Luxembourg is limited to corruption offences and the information he revealed did not show blatant corruption. In addition, the law only protects whistle-blowers against dismissal, not against prosecution.

     

  • $1.4trillion lost to illicit financial outflows from Africa in 30 years

    Indications are that African countries may have lost over $1.4trillion to illicit financial flows (IFFs) in the last three decades.

    Making this disclosure recently was Logan Wort, Executive Secretary, African Tax Administration Forum (ATAF). He spoke with our correspondent in Johannesburg, South Africa, during a week-long media engagement workshop and training for journalists drawn from 21 African countries.

    Citing a report by the African Union and Economic Commission for Africa, Wort said most of the money that gets lost in African countries is due to a mix of those factors.

    Paired into specifics, Wort said about $50 billion to US$80 billion annually is lost annually.

    Specifically, he said, corruption by government officials that includes theft, bribery and other forms of abuse, contributes 5% of total losses.

    Besides, he said, criminal activities including drug trafficking, money laundering, racketeering, counterfeiting, human trafficking, illegal arms dealing, and smuggling of contraband, fraud in the financial sector constitute 30 % with the remaining 66% due largely to corporate behaviour and a big part of that is tax avoidance and tax evasion. Tax avoidance is bigger loss than tax evasion.

    72 participants representing 20 revenue authorities and 41 news media agencies were represented at the maiden media engagement by ATAF.

    ATAF believes that when citizens are better and adequately informed (through the media) they tend to become tax compliant which would ensure revenue growth to facilitate national development.

    The engagement, among others, focused on how Africa is addressing priority tax issues at the local and international levels and how the media can positively impact the work of tax administrations.

    Making her closing remarks Mary Baine, head of International Tax and Technical Assistance, she urged them to remain engaged and assured ATAF’s unending commitment to working with media and tax authorities in improving taxation on the continent.

    ATAF was inspired by the deliberations at the “International Conference on Taxation, State Building and Capacity Development in Africa” held in Pretoria, South Africa from 28 – 29 August 2008. Commissioners, Senior Tax Administrators and Policy Makers from 28 African countries resolved to work towards the establishment of ATAF.

    Headquartered in South Africa, ATAF was thus established in order to create a platform to promote and facilitate mutual cooperation among African Tax Administrations and other relevant and interested stakeholders with the aim of improving the efficiency of their tax legislation and administration.

  • How to tackle illicit financial flows, by experts

    How to tackle illicit financial flows, by experts

    How can cross border flow of corrupt and criminal assets be reduced? How do illicit financial flows (IFF) occur? What should be done to corrupt facilitators and intermediaries? What factors impede speedy recovery/return of stolen assets? How does IFF affect human rights? These and more were discussed at an international conference on IFF and assets recovery organised by the Federal Government and development partners in Abuja. JOSEPH JIBUEZE was there.

    Africa reportedly loses between $50 billion and $80 billion yearly through illicit financial flows (IFF). These include funds looted by public officials and hidden abroad, those fraudulently taken away by multinational corporations through tax evasion, profit shifting and mis-invoicing; money laundering and trade mispricing, among others.

    Globally, yearly cross-border flow of proceeds of criminal activities is estimated at between $1 trillion and $1.6 trillion, half of which comes from developing and transitional economies.

    The effect is that African countries are deprived of the capacity to realise the United Nations (UN) Sustainable Development Goals (SDGs) of no poverty, zero hunger, good health and wellbeing, quality education, clean water and sanitation and affordable clean energy.

    One of the ways through which these goals can be achieved is by strengthening asset recovery (AR) measures, and ensuring that assets recovered as proceeds of corruption are returned to victim countries and channeled towards meeting SDGs.

    To make its voice heard within the international community on stemming IFF in its wide ramifications and enhancing AR, the Federal Government, through the Presidential Advisory Committee Against Corruption (PACAC) and the ministries of Foreign Affairs and Justice, hosted a three-day conference on Promoting international cooperation in combating illicit financial flows and enhancing asset recovery to foster sustainable development.

    Tagged “Abuja IFF/AR”, which held at the State House Banquet Hall, it was organised in collaboration with some development partners, including the Government of the Kingdom of Norway, and the Ford Foundation.

    There were over 40 speakers drawn from Africa and other parts of the world, as well as members of the diplomatic corps, regional bodies, intergovernmental organisations, United Nations agencies, among others.

    The sessions had the sub-themes: Combating cross border flow of corrupt and criminal assets, understanding illicit flows in commercial transactions, holding IFF facilitators and intermediaries accountable, practical steps to stopping IFF, enhancing asset recovery and asset return, management and application of returned assets for SDG and human rights, and framework for international cooperation.

    Acting President Yemi Osinbajo opened the conference; ministers of Finance and Foreign Affairs Mrs Kemi Adeosun and Geoffrey Onyeama, as well as the Attorney-General of the Federation Abubabar Malami (SAN) were among the speakers.

    The conference focused on the policy measures, tools and strategies to effectively tackle IFF and strengthen AR, with emphasis on propelling the implementation of the recommendations of the African Union/UN Economic Commission for Africa High-Level Panel on IFF to foster the achievement of the SDGs.

    Speakers emphasised the need to close knowledge gap on IFF, enhance asset return process, improve sanctions and enforcement, and build on international resolutions on IFF and asset return.

     

    Hold facilitators accountable

     

    Corruption has many facilitators, but only few of those complicit in the chain of organised criminality of IFF are ever punished.

    Such intermediaries are real estate agents, brokers, trust experts, commercial actors, financial institutions, lawyers, bankers, auditors, accountants and others.

    Speakers said these middlemen who help to move criminal assets and falsify records should be held accountable.

    Osinbajo said financial institutions that aid the perpetration of corruption should be made to face the consequences.

    “Banks and financial institutions that actually engage in this must be called out and made to face the consequences of engaging in criminal practices. If that is not done, we are not likely to go very far.

    “In the agreement and conventions we will be signing, we must ensure that financial institutions are not given a free run and to hold them accountable,” he said.

    PACAC Executive Secretary Prof Bolaji Owasanoye said the committee was pushing for the prosecution of “middlemen”, such as accountants, lawyers and customs officials who aid looting.

    “When you pick up the politically-exposed person, you must also pick up the middleman – the accountant, the lawyer, the Customs official who looks the other way. Let them suffer the consequences together. That is what we are pushing for at PACAC,” he said.

    Former Economic and Financial Crimes Commission (EFCC) chairman Mallam Nuhu Ribadu said IFF and money laundering could not take place without the connivance of banks.

    There was, therefore, the need to hold culpable officials to account to serve as a deterrence, he said.

     

    End financial secrecy,

    build capacity

     

    To successfully tackle IFF, there is the need to end secrecy in financial transactions, according to the keynote speaker and chairperson, International Anti-corruption Conference Council, Akere Muna.

    He said capital flows had grown much faster than GDP and trade since 1980, yet the global financial system continue to look unprepared and, in some cases, reluctant to effectively regulate large volumes of cross-border flows.

    “It is imperative that we make it a priority to double efforts to end the use of financial secrecy for corruption, drug smuggling, money laundering, terrorism, people trafficking and other illicit financial practices,” he said.

    Muna, a member of the High-Level Panel on IFF from Africa, headed by Thabo Mbeki, referred to the panel’s findings, among which is that transparency was key across all aspects of IFF.

    He said even as more effort was needed in asset recovery and repatriation, weak national and regional capacities impeded efforts to curb IFF.

    “Financial secrecy jurisdictions must come under closer scrutiny,” he said.

    According to the Executive Secretary, African Capacity Building Foundation, Harare, Zimbabwe, Prof Emmanuel Nnadozie, poor governance, weak regulatory structures, tax incentives and existence of financial secrecy jurisdictions and tax havens are the main enablers of IFF.

    African countries, he said, need to develop capacity to deter, track, stop and recover stolen assets.

    They must strengthen the capacity to address the drivers and enablers of IFFs and implement the recommendations of the Mbeki Panel Report.

    They also need the capacity to determine and verify the amount of natural resources being exported, as well as capacity for inter-institutional cooperation, coherence and coordination.

    Nnadozie also spoke of the need to train and equip investigators in human trafficking, poaching and drugs, arms and minerals trade.

    He urged governments to strengthen institutional capacity of national and regional regulatory agencies and institutions; develop and enforce legal frameworks for illicit assets tracking and recovery, develop and enforce regulations against trade and tax malpractices, and implement comprehensive and strategic policies and best practices for rapid tracking and recovery of IFFs.

    The government, he said, should support the judiciary and legislative bodies, build transfer pricing capacity and harmonise tax systems.

    The modalities, he said, include mapping of key regulatory agencies/institutions mandated to combat IFFs, designing appropriate programs to equip agencies with required skills and institutional capacity, and assessing existing legal and regulatory architecture and identifying regulatory capacity gaps related to IFF.

    He called for the strengthening of institutional capacity to enable tax, Customs and revenue services to deal with issues related to IFF, such as mispricing, money laundering and tax evasion, among others.

    There was also need to strengthen audit and procurement capacity to effectively deal with multinational companies, he said.

    Effective tax regime is also a panacea to IFF in commercial transactions, according to Alicja Majdanska of Global Tax Policy Center, Vienna University of Economics and Business.

    She said the ‘whole-of-government approach’ in building tax regime is needed. In terms of administration and enforcement, she called for the strengthening of independent institutions and agencies of government responsible for preventing IFF.

    She advocated improvement of cooperation between revenue authorities, financial intelligence units and different law enforcement agencies at domestic and international level and establishment of multi-agency units within governments and networks for sharing of information.

    Majdanska called for the establishment of transfer pricing units in revenue authorities and suggested the implementation of transfer pricing legislation.

    She recommended the establishment of beneficial ownership registers that allow authorities to ‘follow the money’ in financial investigations involving suspect accounts/assets held by corporate vehicles.

    She also called for implementation laws against mis-stating the price, quantity, quality or other aspect of trade in goods and services in order to move capital to another jurisdiction or avoid taxation.

    According to her, there is also need make better use of technology and “big data” solutions to improve financial transparency, simplify record-keeping and audit procedures, reduce the time, cost, and risks of verifying and enforcing compliance, and detect and prevent fraud.

    Ambassador of Ecuador to Nigeria, Leopoldo Rovayo, said it required political commitment to tackle corruption and IFF.

    “If we don’t let them take the money, we won’t need to recover it,” he said.

    He believes the people also have a role to play, by ensuring that honest people get into politics. “Bad politicians should not be in politics,” he said.

    Council member, Association of Chartered Certified Accountants (ACCA) UK, John Cullen, urged professional accountants to help curb IFF.

    “The professional accountant’s skepticism is the first line of defence against money laundering. You have to get them (accountants) on side,” he said.

    President, Global Financial Integrity, Washington DC, Raymond Baker, suggested ways to stop illicit financial flows, including whole-of-government approach (in which all agencies collaborate and share information); indentifying beneficial ownership of stolen funds, effective use of legislation and developing better monitoring systems.

    He said assets recovery should be a diplomatic issue to make countries realise that relations can be adversely affected due to refusal to return stolen funds.

    Baker also recommended the use of global information exchange systems, among others.

     

    Nigeria’s demands, by Onyeama

     

    Onyeama said Nigeria’s commitment to curbing IFF was demonstrated at the 71st UN General Assembly where it co-sponsored two resolutions to refocus global attention on the menace of IFF and the need to strengthen mechanisms for AR.

    “Concerted efforts must be directed at curbing IFF in order to generate the much-needed finance for Africa’s development. Nigeria believes that there is a need for the global community to urgently redouble efforts to substantially tackle IFF through strengthened national regulation and increased international cooperation.

    “We urge that concerted efforts must be directed at the enhancement of disclosure practices and transparency in both source and destination countries, including by seeking to ensure transparency in all financial transactions between governments and companies to relevant tax authorities.

    “We urge global institutions including the International Monetary Fund (IMF), the World Bank and the UN to assist both source and destination countries in the implementation of effective measures aimed at detecting, preventing and countering corruption.

    “We urge the international community to strive to eliminate safe havens that create incentives for foreign transfer of stolen assets and IFF. We urge destination countries to remove bottlenecks and conditionalities hindering the recovery of illicitly acquired funds and assets.”

    PACAC Chairman Prof Itse Sagay (SAN) urged the international community not hold any fears about returned assets being re-looted.

    “The government in place is responsible and will account for whatever is received. Under the Buhari administration, there will be no re-looting of recovered funds. They will be used for development purposes,” he said.

    There were also suggestions on what should be done with the recovered assets. Special Assistant to the President on Social Protection, Mrs Maryam Uwais, said recovered funds should be channeled towards realising the SDGs.

    “So many of the SDGs will improve if we manage our resources well,” she said.

    Special Adviser to the President on Economic Matters, Ambassador Yemi Dipeolu, said recovered assets should be used on health, real sector, and agricultural investment and strengthening of institutions.

    National Association of Small and Medium Enterprises President, Prince Degun Agboade, said one of the ways SDGs could be realised was by micro, medium and small scale enterprises.

    “We need to encourage manufacturing companies to employ more people,” he said, adding that some of the recovered assets could be channelled towards providing credit, among others.

     

    Resolutions

     

    The conference ended with a resolution called the Abuja Declaration on promoting international cooperation to combat IFF and enhancing asset recovery (AR) to foster sustainable development.

    Stakeholders urged countries to remove barriers to asset recovery, including by simplifying their legal procedures and preventing abuse of those procedures.

    They urged states to limit, where appropriate, domestic legal immunities, in accordance with their legal systems and constitutional principles.

    It was agreed that stolen assets, when tracked, should not remain in the custody of enabling financial institutions but should be transferred into an escrow account, preferably in development banks, pending return to countries of origin.

    The declaration underscored the fact that global standards in anti-corruption and anti-money laundering require financial institutions to subject accounts held by certain persons to greater scrutiny and monitoring, including senior government officials, leaders of political parties, executives at state-owned enterprises and others with access to large amount of state assets and the power to direct them.

    On the management and application of returned assets, the declaration reiterated the need for countries to ensure that there were adequate mechanisms in place to manage and preserve the value and condition of assets pending the conclusion of confiscation proceedings.

    It was recommended that where appropriate, non-conviction-based proceedings should be deployed to recover identified proceeds of crime, and to deploy the use of such recovered assets in a manner that enhances sustainable development.

    Participants reiterated the principles behind the slogan adopted by the Mbeki Panel: track it, stop it and get it, and emphasised that facilitators and enablers of IFF should not benefit from the transaction.

    On framework for international cooperation and financing for development, the declaration states: “Increased financial and commercial transparency could help to reduce illicit flows, by reducing the scope for transfer mispricing, corrupt payment and the illegal exploitation of natural resources.”

    There was also a call for “enhanced inter-agency cooperation at national, regional and global levels to trace and recover illicit funds and assets and return of same to countries of origin.”

    Participants urged source and destination countries to dialogue with a view to facilitating removal of conditionalities imposed on illicit funds and assets.

    The declaration urged countries to ensure that “procedures for international cooperation allow for the seizure and/or restraint of assets for a time period sufficient to preserve those assets in full, pending confiscation proceedings in another State, to ensure that there are adequate mechanisms in place to manage and preserve the value and condition of assets pending the conclusion of confiscation proceedings in another State, and to allow or expand cooperation in the enforcement of foreign seizure and restraint orders and confiscation judgments, including through awareness-raising for judicial authorities.”

    Among the recommendations is that the Government of the Kingdom of Norway should host a follow-up meeting by September.

     

    Way forward

     

    Eminent professor of International Law and Jurisprudence, Akin Oyebode, who chaired the session on framework for international cooperation, said with time, Nigerians would fall in line in the anti-graft battle, especially with President Muhammadu Buhari being an “epitome of accountability, transparency, and integrity”.

    He said the team of Buhari and Osinbajo, who, he said, led an anti-corruption NGO called ‘Integrity’ before his appointment, offers hope for Nigeria.

    “If we succeed in stemming the tide of financial haemorrhage from Nigeria, then the bulk of the struggle against corruption would have been won.

    “Nigerian ruling class has had its hands soiled because of unconscionable practice, and if this conference recommendations are carried out, then I can express confidence and hope better days are yet to come,” Oyebode said.

    Owasanonye said going forward, the government should take measures to block IFF, strengthen the legal framework, implement international commitments and set up a coordinating committee on IFF.

    His words: “The conference was meant to call attention to the scourge of illicit financial flows, which is not very well known to many people. The second thing is to begin to take measures to block IFF and criminalise it.

    “Some laws already forbid the falsification of trade records, but we need to look at the weaknesses of such regulations and legislations and then, in any area where legal reform required, to push for it.

    “More importantly, we need to get our tax authorities and the customs to be a bit more vigilant with regards to records submitted by big businesses on imports and exports.

    “Nigeria will need to quickly implement some of our commitments with regards to open government partnership and the beneficial ownership disclosures, because part of the problem is that companies move profits in-between subsidiaries to the detriment of the nation.’’

    He continued: “We need to look at the practice of profit-shifting – moving profit that has been earned in Nigeria to a tax heaven. That’s the next major measure.

    “The government needs to push for information sharing with other countries that we do business with and which multinational companies claim to be their countries of origin.

    “The last point which is the most critical is that government will need to set up some kind of coordinating committee made up of the key agencies that are critical to stopping IFF.

    “We’ve mentioned the middlemen. We have pushed successfully that government should penalise very severely and criminalise totally the actions of middlemen – banks, auditors, accountants, lawyers – all those people who facilitate IFF contrary to existing regulations. They will no longer have it easy.”