Coalition recommends 14 antidotes to combat illicit financial flows from Africa

Economy

A coalition of institutions against illicit financial flows (IFFs) recommended a set of actions African governments need to take in order to combat the chronic that is Shrinking African economies.

In their paper, “Accelerating the IFF Agenda for African Countries”, the coalition suggested a list of fourteen measures governments can take in the immediate term to catalyze their efforts to combat IFFs. The colition includes: Tax justice Network Africa, Plan African Lawyers Union, Global Financial Integrity, Trust Africa and Civil Society Legislation Authority.

Illicit financial flows have steadily increased out of Africa in scale and magnitude. GFI data indicates that from 2002 to 2011, illicit financial flows from Africa were the second fastest growing of all regions, at a rate of 19.8 % per year. In 2016, the Panama papers highlighted the depth and breadth of IFFs not to be just an African challenge.  

As such, African governments are working to curb IFFs from the continent. The High Level Panel  on IFFs 2015 report recommends concrete steps be taken to curb financial outflows from the continent in the form of illicit financial flows. These recommendations have informed the Stop the Bleeding Campaign to curb IFFs as well as a new partnership on the Accelerated Agenda on IFFs for African Countries.

The antidotes the paper recommended to African nations to battle IFFs are: 

1.Establish Multi-Agency Units within Governments to Address IFFs: To ensure that these multi-agency units can function effectively, countries should ensure that laws are in place to allow officials from different agencies to share information within these multi-agency units.

2.Include IFF Accountability within the African Peer Review Mechanism Promote Financial Transparency: Countries should call on the African Union to include IFF-related questions on the African Peer Review Mechanism questionnaire.

3.Establish or Enhance Online Corporate Registries, Make Information Publicly Available, and Require Beneficial Ownership Information as Part of the Registration Process: Countries could look to legislation and regulation from early adopters like the United Kingdom and the Ukraine for models on how to implement these measures.

4.Adopt the Open Contracting Data Standard: The Open Contracting Data Standard (OCDS) is a common data model that establishes a framework to enable governments to publish shareable, reusable, and machine-readable procurement data that is publicly accessible.

5.Require Disclosure of Beneficial Ownership Information from all Government Contract Bidders: Currently, the Open Data Contracting Standard does not collect information on beneficial ownership. To fill this gap, countries should require beneficial ownership disclosures for all bidders for and recipients of government contracts to help prevent sham bidding, bidding by persons barred from government procurement for past actions, and other forms of corruption in bidding processes.

6.Require Disclosure of Beneficial Ownership Information in Political Asset Declarations: Conflicts of interest may not be readily identifiable in asset declarations unless the beneficial owners of the entities included are known. Adding this detail to the asset declaration requirements can help identify where potential conflicts may arise in the individual’s political work.

7.Establish Government/Independent Measurement Mechanisms for Extracted Natural Resources: Governments should independently determine or verify the actual volume of natural resources being extracted from the ground by mining and oil companies and not just rely on the volumes reported by the companies.

8.Adopt a Law Clearly Prohibiting Trade Misinvoicing: Trade misinvoicing is the manipulation of the price, value, or quantity of a good on an international invoice in order to avoid taxes, move money, or evade capital controls. Of measurable IFFs, trade misinvoicing has historically represented and continues to represent the largest portion of IFFs.

9.Establish Specialized Asset Forfeiture and Recovery Units and/or Advocate for the Creation of a Special Office of Asset Recovery within the African Union: Asset forfeiture and recovery efforts deprive all types of criminals of the proceeds of their crime, providing powerful disincentives for crime in the first place. However, in order to be effective disincentives, these efforts must be consistent and efficient. Because they involve funds found in other jurisdictions, asset recovery efforts require specialized knowledge of foreign legal systems and mutual legal assistance treaties.

10.Join African Tax Information Sharing Networks: Several African countries have signed up to the OECD-led Common Reporting Standard (CRS) for the  international exchange of information about bank accounts held by citizens abroad in an effort to capture lost  tax revenue. Access to this information is critical in identifying and pursuing cases of individual tax evasion  because without the information provided by the foreign countries, the home country has no way of knowing  which citizens hold taxable bank accounts abroad and must instead rely upon self-reporting by individuals.

 11.Establish Transfer Pricing Units within Tax Authorities: Financial arrangements within corporate groups or among related entities are nearly impossible to observe from the outside and consequently are of high risk for manipulation. For this reason, transactions among these parties, referred to as transfer pricing, warrant special attention.

12.Require Public Country-by-Country Reporting by Multinationals Prevent Financial Crime: Public country-by-country reporting (CBCR) helps identify where transfer pricing investigations should focus. By requiring companies to provide basic financial information for entire corporate groups, disaggregated by country, tax administrations are better able to identify the risk of potential transfer pricing abuse and even identify jurisdictions of concern to help establish more sensitive risk management frameworks within tax administrations.

13.Mandate Rigorous Customer Due Diligence and Suspicious Activity Reporting Programs within Banks: The Financial Action Task Force (FATF) has set the international standards for customer due diligence and suspicious activity reporting in their  FATF Recommendations 2012 standard, Recommendations 10 and 20, respectively. Countries can look to their FATF-Style Regional Body (FSRB) for assistance in implementing and strengthening their laws and regulations in this area.

14.Empower Strong and Effective Financial Intelligence Units (and create them if not yet established): Financial intelligence units (FIUs) are bodies that collect and, if given the power, coordinate intelligence on financial crime that results in IFFs. Creating FIUs where none exist, and giving them strong powers of coordination and information collation from different arms of government (possibly in a lead role in a Multi-Agency IFF Unit (see point 1 above)), is critical to organizing and operationalizing counter-IFF measures.

“Several of the actions identified above require that certain information be made available to the public. Countries may also want to consider adopting a more wide-ranging law, regulation or policy that provides the public with greater access to government information and data, often called freedom of information provisions,” the paper suggested.