AfricaFocus Bulletin
July 21, 2015 (150721)
(Reposted from sources cited below)
Editor’s Note
With the exception of inclusion of a statement promising to address
“illicit financial flows,” the outcome document of the Financing for
Development conference in Addis Ababa (July 13-16) broke little new
ground. Significantly, rich countries vetoed action on a greater
role for the United Nations in setting international tax standards,
preserving that role for the club of the OECD countries dominated by
the United States and Europe. But civil society momentum for more
significant action is continuing to grow, as was marked by the
launch of the “Stop The Bleeding” campaign at a continent-wide
gathering in Nairobi in June.
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As noted in previous AfricaFocus Bulletins on illicit financial
flows and tax justice (http://www.africafocus.org/intro-iff.php),
there is strong momentum for African countries to take action to
curb the $50 to $60 billion a year outflow of capital due to clearly
illegal trade fraud and other financial crime. Campaigners for tax
justice point out, however, that even legal economic measures such
as ill-advised tax incentives also bleed African economies of
resources. Depending on how it is defined, “illicit,” it should be
noted, can include not only “illegal” flows, but also “illegitimate”
flows which are even harder to track and combat.
The “Stop the Bleeding” campaign is intended to build public support
and pressure for action on these drains of resources from Africa. It
is a joint effort of the Tax Justice Network-Africa, Third World
Network-Africa, Africa Forum and Network on Debt and Development
(AFRODAD), the African Women’s Development and Communication Network
(FEMNET), the African Regional Organisation of the International
Trade Union Confederation (ITUC-Africa) and Trust Africa, supported
and joined by the Global Alliance for Tax Justice, including
international partners such as ActionAid, Oxfam, and Public Services
International. For more, see
http://stopthebleedingafrica.org/ and, for frequent updates,
https://twitter.com/stop_AfricaIFFs
This AfricaFocus Bulletin contains (1) An article on the
#StopTheBleeding campaign by Alvin Mosioma, Executive Director of
Tax Justice Network-Africa, (2) a reflection by your editor on the
different meanings of “illicit financial flows,” (3) two reactions
by civil society organizations to the failure of the Addis
conference to endorse a global tax body with universal membership to
set standards to block tax evasion and tax avoidance, and (4) links
to specific examples of illicit financial flows from previous issues
of AfricaFocus Bulletin.
A few additional links on the Addis conference:
Official conference website
http://www.un.org/esa/ffd/ffd3/
IRIN, “Do #summits solve problems?”, July 16, 2015
http://tinyurl.com/qjv4pox
Quartz, “Rich countries rejected an international plan to let the UN
help fight tax evasion,” July 15, 2015
http://tinyurl.com/qzlpfuq
Global Financial Integrity and Jubilee USA, July 15, 2015
http://tinyurl.com/oobrons
Women’s Working Group, July 16, 2015
http://tinyurl.com/nbajbmy
++++++++++++++++++++++end editor’s note+++++++++++++++++
#StopTheBleeding?: Kenya, East Africa’s economic powerhouse is
bleeding
By Alvin Mosioma
Business Daily (Nairobi), June 24, 2015
http://tinyurl.com/o8ulcmc
Alvin Mosioma, is Executive Director of Tax Justice Network-Africa,
a Pan-African research and advocacy organization based in Nairobi,
Kenya.
Between 2002 and 2011 East Africa’s powerhouse lost at least KSh151
billion (US$1.51 billion) to trade misinvoicing, which is where
companies deliberately cheat how much they are selling abroad.
Companies do this to evade taxes, avoid customs duties, transfer a
kickback or launder money. That is three times the country’s
national health budget. The losses are equivalent to about 8.3 per
cent of government’s total revenue.
And Kenya is not alone, according to a newly published report from
the African Union and the Economic Commission for Africa High Level
Panel on Illicit Financial Flows from Africa, the continent loses at
least KSh 5,000 billion (US$50 billion) each year. This could build
151,000 modern schools in just one year.
Illicit Financial Flows (IFFs) is bigger than just misinvoicing.
They are defined as money that is illegally earned, transferred or
utilized. These funds originate from three main sources, commercial
activities (tax evasion, trade misinvoicing and abusive transfer
pricing); criminal activities (including the drug trade, human
trafficking, illegal arms dealing, and smuggling of contraband); and
corruption by government officials. Of the three types, aggressive
tax practices by the commercial sector particularly multinational
companies operating in Africa’s mining, oil and gas sector
constitute the worst offenders.
Kenya is one of six countries which the High Level Panel conducted
in-depth case studies for its groundbreaking report. The others were
Algeria, DR Congo, Liberia, Mozambique and Nigeria. The Panel also
visited Mauritius as a representative of a small island economy and
South Africa to gain understanding of how institutions and processes
in Africa’s second largest economy are geared to addressing illicit
financial flows.
In addition to IFFs, Kenya loses over KSh100 billion (US$1.1
billion) each year from legitimate tax incentives and exemptions
granted to multinational companies. Of these, trade-related tax
incentives were at least KSh12 billion (US$120 million) in 2007 and
2008.
In 2010/11, the Kenyan government spent more than twice the
country’s health budget in tax incentives. Can we really afford this
when 46 per cent of Kenya’s 40 million people live in poverty (less
than US$1.25 a day)?
Many studies including from the African Department of the
International Monetary Fund (IMF), focusing on East Africa, state
that “investment incentives – particularly tax incentives – are not
an important factor in attracting foreign investment”.
Another recent study found that the main reasons for companies
investing in Kenya are access to the local and regional markets,
political and economic stability and favourable bilateral trade
agreements, fiscal concessions offered by EPZs were mentioned by
only one (1%) per cent of the businesses sampled. They are an
expense Kenya can do without.
The multiplier effects of these losses are much larger. IFFs and
other outflows in real terms mean loss of jobs, income, decent
education and health facilities and other basic infrastructure
critical to structurally transform Kenya’s economy and the socio-
economic conditions of the average citizen.
It is against this backdrop that the Interim Working Group of the
“Stop The Bleeding” Africa IFF Platform comprising six large Pan-
African organisations namely Tax Justice Network-Africa (TJN-A),
Third World Network-Africa (TWN-Af), the African Forum and Network
on Debt and Development (AFRODAD), the African Women’s Development
and Communications Network (FEMNET), the African Regional
Organisation of the International Trade Union Confederation (ITUC-
Africa) and Trust Africa supported and joined by the Global Alliance
for Tax Justice (GATJ) launched a unified African campaign platform
on IFFs.
Dubbed “Stop The Bleeding” (Hash tag #StopTheBleeding) campaign, the
launch took place on June 25, 2015 at Uhuru Park, in Nairobi.
The main goal of the campaign is to stop IFFs from Africa through
first the implementation of the recommendations of the HLP report by
all African countries through enactment and enforcement of
appropriate laws to curtail IFFs from Africa. The aim of the launch
is to implement a unified Africa campaign on IFFs that is led and
driven by African civil society organisations with support from
other partners including international NGOs.
Today there is a consensus of the damaging impact of IFFs on
Africa’s economies and the continent’s future between our
governments and civil society. But ultimately ending illicit
financial flows is a political problem, not least because of the
issues, the nature of actors involved, the international character
of the phenomenon and ultimately the corrosive and crippling effects
of IFF on the state and society.
We therefore urge our leaders to adopt measures to curb the
haemorrhaging of Africa’s resources, harness these resources and
invest them in the productive sectors of their economies to improve
living conditions on the continent.
*****************************************************
Defining Illicit Financial Flows
AfricaFocus Bulletin, July 21, 2015
“Illicit financial flows” out of Africa are estimated to exceed $50
billion a year, the most commonly used estimate coming from Global
Financial Integrity and the African Union High Level Panel on
Illicit Financial Flows from Africa. This is roughly equivalent to
the annual total of official development assistance to Africa.
This is a minimum estimate for illicit financial flows, based on
indirect calculations from global statistics. It also relies on the
most restrictive definition of the term, namely funds transferred
across national boundaries that are “illegally earned, transferred,
or utilized,” that is, “illicit” in the sense of “illegal.”
The term “illicit” can actually have two meanings according to most
dictionaries:
(1) not allowed by the law or
(2) not approved of by the normal rules of society
(http://www.oxforddictionaries.com/us/definition/learner/illicit).
In practice the lack of transparency makes it difficult to
distinguish between the two in many if not most cases. Actions that
are clearly illegal, such as fraud in customs declarations to evade
taxes (trade misinvoicing), are among the easiest to track and to
combat, if national tax authorities are adequately equipped to do
so.
But for financial arrangements within a multinational corporation or
agreements between such corporations and governments on terms of an
investment, information needed to determine whether such
transactions are illegal, legal but illegitimate, or legitimate is
rarely available for public scrutiny or for adequate government
regulation.
So in practice financial flows between countries fall into four
categories:
(1) illicit because clearly illegal,
(2) clearly illegitimate because there is enough information is
available to show that they would be regarded as such according to
“normal rules of society,”
(3) clearly legitimate because there is enough information is
available to show that they would be regarded as such according to
“normal rules of society,” or, finally,
(4) hard to tell or debatable because there is not enough
information or there is disagreement on what the law is or what
“normal rules of society” should be.
The same difficulties apply within countries, in distinguishing
between (1) tax evasion, which is clearly illegal, and (2) tax
avoidance, which may be legal but would be regarded as illegitimate
if the facts were known. In addition, of course, laws or their
interpretations can be changed, often as a result of lobbying by
interested parties.
Such distinctions were highlighted by U.S. political cartoonist Tom
Toles in 1993. In the cartoon Russian President Yeltsin tells Uncle
Sam:Â “We’re having problems switching to capitalism. The trouble is
that all our capitalists are criminals, breaking our laws.” And
Uncle Sam replies: “That’s just an early stage of capitalism.
Eventually they become powerful enough to rewrite the laws.”
*****************************************************
Global Alliance for Tax Justice, “Financing for Development outcome
rejects a key tax justice measure for ending poverty and
inequality,” July 16, 2015
http://tinyurl.com/njhew6z
On 15 July 2015, at a summit of world government representatives in
Addis Ababa, Ethiopia, the Third International Conference on
Financing for Development final outcome text was concluded. A key
proposal was rejected to set up an inclusive United Nations
intergovernmental global tax body, where every country would have a
seat at the table and equal say in reforming global tax policies.
This measure had been advocated by many G77 countries and strongly
backed by Global Alliance for Tax Justice members and allies.
Establishing such a political body on tax within the UN was seen as
an effective way to ensure developing countries could increase
domestic resource mobilization through fairer international tax
policies.
Instead, only a few minor tweaks have been made to the existing UN
expert committee. The United States and the United Kingdom were
among the developed countries pressuring to ensure that the “the
rich countries club” of the OECD remains the only intergovernmental
body that sets global tax standards for all.
No specific debt relief initiatives are contained in the FfD outcome
document, while privatization and private finance are heavily
promoted as ‘solutions’ to financing for development. The problem of
illicit financial flows was strongly debated, but final language
around the issue remains weak, with no clear measures for
implementation. Member states are simply urged to “redouble efforts
to substantially reduce illicit financial flows by 2030, with a view
to eventually eliminate them, including by combatting tax evasion
and corruption through strengthened national regulation and
increased international cooperation.”
Global Alliance for Tax Justice Chair Dereje Alemayehu said: “This
came down to a matter of power between rich and poor, developed
countries and the rest of the world, and private corporate interests
versus the common good. The most powerful countries have ensured the
status quo continues in their favour – but only for the moment. Tax
justice activists can take heart that our years of advocacy,
research and campaigning have ensured that mobilization for real
progressive change on these issues will only continue to grow at
national, regional and global levels.”
During various FfD events, Independent Commission for the Reform of
International Corporate Taxation members José Antonio Ocampo, Joseph
Stiglitz and Eva Joly, UN Economic Commission for Latin America and
the Caribbean Executive Secretary Alicia Bárcena, UN Economic
Commission for Africa Executive Secretary Carlos Lopes, former South
African president Thabo Mbeki, and even the World Bank’s President
Jim Yong Kim commended civil society activists for pushing tax
justice demands – including the call for an inclusive global tax
body, to the top of the agenda in both formal and behind-the-scenes
Financing for Development discussions, and urged civil society to
continue efforts on this front.
********************************************************************
Failure in Addis Ababa: trouble ahead for development
Financial Transparency Coalition
July 15, 2015
http://tinyurl.com/oqbx6p5
Tonight, the Addis Ababa outcome was closed. The final outcome
rejects the proposal of establishing an intergovernmental UN body on
tax matters, and instead introduces some minor changes to the
existing UN expert committee. This means that the OECD will remain
the only intergovernmental body that adopts global standards on tax
matters.
“This is not only a tragic day for the world’s developing countries,
who will now have to accept that global tax standards will get
decided in a closed room where they are not welcome. It is a tragic
day for all of us, because a global tax system where half of the
world’s countries are excluded from decision-making will never be
effective. As long as our governments keep failing to cooperate on
tax matters, multinational corporations will be able to dodge taxes.
At the end of the day, the Addis Ababa failure will impact us all.”
“This came down to power,” said Alvin Mosioma. “The powerful simply
did not want to cede one ounce of their authority to the rest of the
world, and they succeeded in preserving their control.”
“Developing countries have fought hard for this body but today’s
agreement will do nothing but keep them in a patronizing system
where a group of 34 countries hold all of the power,” said Pooja
Rangaprasad of the Financial Transparency Coalition. “Rich countries
decided to maintain a system where money goes from south to north,
but the rules follow the opposite route.”
“This is a dangerous failure of multilateralism and a triumph for a
few, said Jorge Coranado,” President of the Latin American Network
on Debt, Development and Rights. “The agreement will simply continue
to allow the powerful to dictate rules for the entire globe.”
“Developing countries, including a number from Latin America, made
their voice heard on the need for a democratic process,” said Jorge
Coranado, President of Latin American Network on Debt Development
and Rights. “But rich countries and their multinationals decided
there would be no room for them.”
“It was a painful moment to see the developed countries celebrating
the fact that nothing will change and everything will remain the
same,” added Ryding. “This sets a terrible precedent for the
post-2015 and climate negotiations. This was never a negotiation in
good faith, and the developed countries have consistently refused to
even discuss the issues on the table.”
***************************************************************
A Few Examples of Illicit Financial Flows cited in AfricaFocus
Bulletins, 2013-2015
Note: With the exception of trade misinvoicing, which is by
definition illegal, in most of these examples, it is not clear,
without both more information and detailed expertise on the laws in
different laws, what portion of the financial flows are “illegal”
and how much are “only illegitimate.”
Lonmin in South Africa
June 30, 2015Â South Africa: Marikana Perspectives, 2
http://www.africafocus.org/docs15/mar1506b.php
Philia (oil) in Congo (Brazzaville)
March 23, 2015Â Africa/Global: Swiss Connections
http://www.africafocus.org/docs15/iff1503.php
Mining companies in Sierra Leone
January 6, 2015Â Sierra Leone: Losing Out
http://www.africafocus.org/docs15/sl1501.php
Swiss oil trading companies
September 16, 2014Â Africa: Tracing the Oil Money
http://www.africafocus.org/docs14/oil1409.php
Equatorial Guinea
August 11, 2014Â Africa: Investment for Whom?
http://www.africafocus.org/docs14/iff1408.php
South African diamonds
June 1, 2014Â South Africa: Disappearing Diamond Revenue
http://www.africafocus.org/docs14/dia1406.php
Trade Mis-Invoicing
May 26, 2014Â Africa: Fraudulent Trade & Tax Evasion
http://www.africafocus.org/docs14/iff1405.php
Fisheries & Forests
May 12, 2014Â Africa: Report Highlights Resource Plunder
http://www.africafocus.org/docs14/app1405.php
Nigeria Oil
March 25, 2014Â Nigeria: Corruption & Its International Partners
http://www.africafocus.org/docs14/nig1403.php
Tax Havens
May 31, 2013Â Africa/Global: Rich Without Borders
http://www.africafocus.org/docs13/tax1305.php
Tax Havens
Apr 11, 2013Â Nigeria: #Offshoreleaks
http://www.africafocus.org/docs13/tax1304.php
Zambia Sugar
Feb 15 2013Â Zambia/Global: The Price of Tax Avoidance
http://www.africafocus.org/docs13/tax1302.php
*****************************************************
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