The recent revelation by the Panama Papers reaffirms the efforts of many Africans, over the past few years, to draw the attention of world leaders and policy-makers to the catastrophic effects of illicit financial outflows (IFFs) bleeding the continent.
The Panama Papers confirm two major facts: First the existence and wide practices of offshore banking for the purposes of tax evasion and other illegal activities; and second, we are given another glimpse into the magnitude of these secret financial transactions.
What is shocking to many observers is the sheer scale of the money transfers: almost 215,000 offshore shell companies, more than 14,000 clients, more than 11.5 million documents with billions of U.S. dollars hidden behind them.
Days before the papers were released on April 2, the United Nations Economic Commission (ECA) launched on April 2 its African Governance Report IV (AGR IV): Measuring Corruption in Africa—the International Dimension Matters.
The findings of the Panama Papers strongly confirm the core messages of AGR IV:
*The need to rethink current perception-based measures of corruption in Africa, as one does not get to understand the true extent of the problem, beyond naming and shaming, and how it could be addressed.
* The roles of international players in corrupt practices, including IFFs, as has been in the case of Mossack Fonseca and its diamond dealings in Africa, are not adequately acknowledged
* Fighting IFFs will enhance the continent’s domestic resource mobilization efforts.
* There is a need to improve governance institutions and ensure a fair tax system to both combat corruption and IFFs and enhance public services delivery and social inclusion.
*And there is a paramount need to reform international cooperation–especially in relation to eliminating tax havens and secrecy jurisdictions, and enforcing assets recovery.
The international dimension of corruption does matter and needs to be clearly understood if efforts by African countries to stem corruption are to succeed.
It is common knowledge that multinational corporations often take advantage of present gaps and loopholes in the legal and regulatory frameworks in Africa, particularly in the extractive sector, and use nontransparent methods in negotiating contracts with governments. Over the years, these corporations have progressively adopted more sophisticated approaches, which have allowed them to repatriate hefty sums of mineral revenue from Africa without paying their dues.
Such approaches include: market rigging, insider trading, trade mis-invoicing and transfer pricing, profit shifting and base erosion, payment of illicit political donations, embezzlement, fraud and payment of bribes and kickbacks.
While the media seems to be fixated on the naming of public officials and famous names in the Panama Papers scandal, we Africans, however, remain concerned that the underlying global institutional and regulatory loopholes that facilitate tax evasion and IFFs are yet to receive the attention they deserve.
By all estimation, Africa has been the most victimized part of the world, as a result of the huge amounts of money that continue to leave the continent, destined offshore banks using various tax evasion loopholes and illegal means.
Africa’s loss to IFFs is estimated to be between $50 billion and $60 billion a year, according to an African Union (AU)-ECA high-level panel led by Thabo Mbeki, the former president of the Republic of South Africa.
Incidentally, this amount far exceeds the combined foreign aid and direct investment flowing into these countries. The effect of such financial outflows is particularly felt the most by the continent’s poorer nations.
What can the Africans and global leaders and institutions do to curb the growing problem of IFFs and related corrupt practices in Africa?
First, to eliminate the opportunity for IFFs, African states should ensure public access to national and sub national budget information, and that processes and procedures for budget preparation and auditing are open and transparent.
Non-transparent government procurement and supply chains can provide opportunities for corruption-related IFFs. African governments should adopt open contracting to stem corruption through government procurement processes.
Second, African countries should adopt a normative instrument in the form of a declaration to commit to combating IFFs and urge similar action at the global level. Given the vital and positive role of civil society organizations, including the media in efforts to curb IFFs, it is essential that they get the legal operating space required for advocacy, activism and research in this area.
Third, global standards in anti-corruption and anti–money laundering require financial institutions to subject accounts held by certain individuals or companies to greater scrutiny and monitoring. This includes senior government officials, leaders of political parties, executives at state-owned enterprises and others with access to large amounts of state assets and the power to direct them, (often called politically exposed persons, or PEPs) through enhanced Know Your Customer (KYC) rules.
African governments can greatly help financial institutions in this task by publishing lists of PEPs, as well as any asset declarations filed by PEPs and information about whether the country’s laws prohibit or restrict the ability of their PEPs to hold financial accounts abroad.
Fourth, the global community should take all necessary steps to eliminate secret jurisdictions, introduce transparency in financial transfers and crack down on money laundering.
The AU, G20, International Monetary Fund and the Organization for Economic Cooperation and Development should provide required leadership in these efforts.
Global economic and financial governance structures should be reformed to facilitate stronger collaboration and consistent engagement between Africa and global players such as the U.S., EU, G8 and G20 to help ensure greater transparency in the international banking system, with banks being required to ascertain the identity, source of wealth and country of origin of their depositors and their deposits.
Finally, these structures and related institutions should have a more coherent and visible role in tackling IFFs by adopting a unified policy instrument to curb them and place the matter squarely on the global agenda, bringing coherence to all ongoing efforts in this regard.
*Dr. Carlos Lopes is the Executive Secretary of the United Nations Economic Commission for Africa. Carlos Lopes holds a PhD in history from the University of Paris 1 Panthéon-Sorbonne and a research master from the Geneva Graduate Institute of International and Development Studies.