Report cites Africa as leading victim in illegal cash transfers

May 2—Global Financial Integrity (GFI), a non-profit, Washington DC-based research and advisory organization, wants policymakers in developing countries to require multinational companies to publicly disclose their revenues, profits, losses, sales, taxes paid, subsidiaries, and staff levels on a country-by-country basis to limit illicit financial outflows.

GFI claims every year, roughly $1 trillion flows illegally out of developing and emerging economies due to crime, corruption, and tax evasion—more than what these countries receive in foreign direct investment and foreign aid combined.

In its latest report, GFI says outflows from sub-Saharan Africa ranged from 5.3 percent to 9.9 percent of total trade in 2014, a ratio higher than any other geographic region studied.  The report was issued on the sidelines of the World Economic Forum Africa which is taking place in Durban, South Africa, this week.

GFI says in 2014, total outflows for developing countries are estimated to have ranged between $620 billion and $970 billion, while inflows ranged between $1.4 trillion and $2.5 trillion.

GFI President, Raymond Baker a longtime authority on financial opacity said, “Years of experience with businesses and governments in the developing world have taught us that the decision to bring illicit flows into a particular developing country often marks only the first phase of a strategy to subsequently move funds out of the country.”

The most common definition of illicit financial flows (IFFs) is ‘money illegally earned, transferred, or used that crosses borders’ is the most common defition.  A good example is an importer using trade mis-invoicing to evade customs duties, VAT, or income taxes.

The World Bank has recommended making tax policies more transparent — such as requiring all tax holidays to be publicly disclosed along with names of officials involved in granting the holiday.

This might help increase tax revenues collected by the government while reducing the risk of corruption and the potential for firms to abuse tax holiday provisions in ways that could contribute to IFFs.  Other suggestions are that governments should establish public registries of verified beneficial ownership information on all legal entities, and all banks should know the true beneficial owner(s) of any account in their financial institution.

Relevant authorities should also adopt and fully implement all of the Financial Action Task Force’s (FATF) anti-money laundering recommendations; laws already in place should be strongly enforced.  Uganda recently made amendments to its anti-money laundering laws to bring them in line with current international standards.

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