Increased financial transparency regulations are critical if we are to stem the illicit capital flows which are crippling Africa. The past week the spotlight has been on James Ibori, the governor of Nigeria's Delta State from 1999 to 2007 who pleaded guilty at Southwark Crown Court to 10 counts relating to conspiracy to launder funds from the state he governed.
Mr. Ibori was accused of siphoning off an estimated $250 million and laundering it in London through a number of offshore companies and financial intermediaries to fund his extravagant lifestyle of lavish mansions, expensive cars, private jets and other such vagaries. This mode of illicit capital flight is by no means restricted to one rogue Nigerian Governor or even African leaders at large, nor is it the most important means by which capital leaves the continent (and developing countries generally) illicitly. True, $250million dollars from one source is substantial. But this pails into insignificance compared with the estimated $100 billion dollars that left Nigeria illicitly between 1970 and 2008, according to Global Financial Integrity (GFI Global Financial Integrity (GFI). The bulk of this hemorrhage, contrary to popular belief, is NOT through the laundering of corrupt money but through commercial activities, and particularly through multinational corporations.
According to GFI's conservative estimates, well over $1.8 trillion dollars left African shores illicitly between 1970 to 2008. Of this amount only 3% is attributable to laundering of corruptly acquired money, 30-35% result from the laundering of criminally acquired wealth (drugs, illegal arms sales, human trafficking etc), and the bulk – 65%-70% is from commercial activities, especially through trade mis-pricing of goods. Over the past 10 years, the average annual out-flows of this sort exceeded $50bn this compares with annual aid inflows of less than $30bn. These outflows are motivated largely by purposes of tax evasion, aggressive tax avoidance and the desire to conceal wealth for various reasons. Next week's proposed change by George Osborne on how foreign subsidiaries of multinationals based in the UK are taxed will give even less incentive to keep money in poorer countries. Reform of these controlled foreign company (CFCs) rules in the upcoming budget would strengthen the financial case for shifting money to tax havens by making profits made by multinationals abroad and retained in off shore jurisdictions free from UK tax all together. This action could cost developing countries £4bn a year in lost tax revenue according to ActionAid estimates.
Such outflows undermine the rule of law, stifle trade and worsen macroeconomic conditions. They are facilitated by some 60 international tax havens and secrecy jurisdictions that enable the creating and operating of millions of disguised corporations, shell companies, anonymous trust accounts, and fake charitable foundations allowing the likes of Ibori and many multinational corporations to cripple the continent financially and politically. Given that an estimated 50% of global trade pass through tax havens, these jurisdictions facilitate trade mis-pricing by making it difficult for mis-invoicing to be traced. This service is used extensively by transnational companies because they have the most capacity to set up multiple trusts and shell companies in these jurisdictions. This is significant because about 60% of global trade takes place between and within multinational companies. Secrecy also attracts criminal activities and the laundering of corrupt money especially through concealment of the natural beneficiaries behind the shell companies and trusts.
It is one thing to steal public money through corruption by the likes of James Ibori. This is bad enough. It is another to launder it across borders. For this to happen, other players are central, and tax havens, offshore and secrecy jurisdictions are key. Africa is on a growth path, for the increasing wealth to be channeled to public services, development and the achievement of the Millennium Development Goals by 2015, it is urgent that the problem posed by tax havens as a conduit for illicit outflows of wealth is addressed. Last week's formation of a High Level Panel by the African Union, the African Development Bank and the UN Economic Commission for Africa and chaired by Thabo Mbeki, is a significant step forward and testifies to the importance of this issue for Africa's development. The ball is now in the court of the rich countries.
I am a Ghanaian development economist, who has been active in international development for over 20 years; as a researcher and lecturer, as an NGO activist and development professional in several parts of the world. Working with others, I co-founded several development organisations around the world, including the Third World Network, ISODEC and the Centre for Public Interest Law in Ghana. Heading the United Nations Millennium Campaign in Africa, till December 2014. I currently head Savannah Accelerated Development Authority (SADA), Ghana.