Africa Could Gain $89 Billion Every Year by Burbing Illicit Financial Flows
The report’s analysis also demonstrates that IFFs in Africa are not endemic to specific countries, but rather to certain high-value, low-weight commodities.
Of the estimated $40 billion of IFFs derived from extractive commodities in 2015, 77% were concentrated in the gold supply chain, followed by diamonds (12%) and platinum (6%).
This finding offers new insights for researchers and policymakers studying how to identify and curb IFFs and is relevant to all gold-exporting countries in Africa, for example, despite their differing local conditions.
The report aims to equip African governments with knowledge on how to identify and evaluate risks associated with IFFs, as well as solutions to curb IFFs and redirect the proceeds towards the achievement of national priorities and the SDGs.
It calls for global efforts to promote international cooperation to combat IFFs. It also advocates for strengthening good practices on the return of assets to foster sustainable development and the achievement of the 2030 Agenda for Sustainable Development.
Need to collect better trade data to detect risks related to IFFs
Specific data limitations affected efforts to estimate IFFs. Only 45 out of 53 African countries provide data to the UN International Trade Statistics Database (UN Comtrade) in a continuous manner allowing trade statistics to be compared over time.
The report highlights the importance of collecting more and better trade data to detect risks related to IFFs, increase transparency in extractive industries and tax collection.
The UNCTAD Automated System for Customs Data (ASYCUDA), including its new module for mineral production and export, called MOSES (Mineral Output Statistical Evaluation System), are potential available solutions.
African countries also need to enter automatic exchange of tax information agreements to effectively tackle IFFs.
Africa should improve regional cooperation on IFFs and tax
Although IFFs are a major constraint to domestic resource mobilization in Africa, African governments are not yet sufficiently engaging in the reform of the international taxation system.
Transparency and cooperation between tax administrations globally and within the continent is key to the fight against tax evasion and tax avoidance.
Regarding regional cooperation on taxation within the continent, the African Tax Administration Forum can provide a platform for regional cooperation among African countries.
Regional knowledge networks to enhance national capacities to tackle proceeds of money laundering and recover stolen assets, including within the context of the African Continental Free Trade Area (AfCFTA), are crucial in the fight against corruption and crime-related IFFs, the report says.
Tackling IFFs requires international action
Tax revenues lost to IFFs are especially costly for Africa, where public investments and spending on the SDGs are most lacking. In 2014, Africa lost an estimated $9.6 billion to tax havens, equivalent to 2.5% of total tax revenue.
Tax evasion is at the core of the world’s shadow financial system. Commercial IFFs are often linked to tax avoidance or evasion strategies, designed to shift profits to lower-tax jurisdictions.
Due to the lack of domestic transfer pricing rules in most African countries, local judicial authorities lack the tools to challenge tax evasion by multinational enterprises.
But IFFs are not just a national concern in Africa. Nigeria’s President Muhammadu Buhari said: “Illicit financial flows are multidimensional and transnational in character. Like the concept of migration, they have countries of origin and destination, and there are several transit locations. The whole process of mitigating illicit financial flows, therefore, cuts across several jurisdictions.”
Solutions to the problem must involve international tax cooperation and anti-corruption measures. The international community should devote more resources to tackle IFFs, including capacity-building for tax and customs authorities in developing countries.
African countries need to strengthen engagement in international taxation reform, make tax competition consistent with protocols of the AfCFTA and aim for more taxing rights.
UNCTAD (UN Conference on Trade and Development) is a permanent intergovernmental body established by the United Nations General Assembly in 1964. Our headquarters are located in Geneva, Switzerland, and we have offices in New York and Addis Ababa.
*SOURCE: UNCTAD. Go to ORIGINAL.
2020 Human Wrongs Watch
