Addis Ababa, 21 May 2015 (ECA) -Africa needs large volumes of capital to address poverty eradication and underdevelopment but annually, fraud and corruption result in $50 billion leaving the continent. To fight this capital-depleting trend, Mr. Thabo Mbeki, the former South African president and Chair of the High Level Panel on Illicit Financial Flows, told delegates at the Pan-African Parliament in Midrand, South Africa that African states should seek international cooperation and joint action and should look at the role of the countries receiving this money.
The Pan-African Parliament has a role in advocacy and popularization of methods of rectifying this phenomenon, Mr. Mbeki said. The Panel recommended African states to track and stop these illicit financial transactions and most importantly to get the money back. “Over 60% of these illicit financial flows from the continent are derived from the activities of the large commercial companies”, Mr.Mbeki informed attendants at the session chaired by Mr. Bethel Amadi, the President of the Pan-African Parliament. Criminal activities such as drug trafficking account for about 30% with corruption making up the remainder.
The methods by which these transactions take place in the commercial sector vary and may include transfer pricing, tax evasion, aggressive tax avoidance, trade mis-invoicing, tax incentives and double-taxation agreements. The report acknowledges that though the commercial sector is the major source of illicit financial outflows in Africa, it is the least understood.
The money’s final destination is in Africa and elsewhere in the world, typically in tax havens and jurisdictions with financial secrecy. The Panel recognized that many African countries lack the capacity to combat the illicit financial flows. Mr. Mbeki told the session “to stem these outflows requires global systems and cooperation among the originating and receiving countries”. Mr. Mbeki’s panel suggested that transparency of financial transactions is the most crucial in achieving success in the fight against the illicit outflows.
The Panel further suggests it would be best that the matter of these commercial, criminal and corrupt activities of illicit financial flows is dealt with comprehensively under the auspices of the United Nations.
The Economic Commission for Africa’s research estimates annual needs for Africa to be about $90 billion per year to expand and modernize its infrastructure; $30-50 billion to meet costs of climate adaptation; and $25 billion to cover energy requirements. The returned money could help the continent meet its developments needs. Some of these funds can come from applying proper tax regimes.
The report points to using tax holidays as an incentive for foreign direct investment as one of the culprits because states fail to undertake appropriate cost-benefit analyses. When governments offer tax holidays, they should coordinate with tax authorities in their regions to set common standards, the report recommends.
The Panel also recommends for states to look into corruption. Corruption remains a matter of major concern despite the global and regional attention that resulted in the adoption of the United Nations Convention against Corruption and the African Union Convention on Preventing and Combating Corruption. Corruption is a cross-cutting and integral part of Illicit Financial Flows because of its facilitating role.
Issued by:
ECA External Communications and Media Relations Section
PO Box 3001
Addis Ababa
Ethiopia
Tel: +251 11 551 5826
E-mail: ecainfo@uneca.org