Ibrahim Lamorde, EFCC Chairman
The loss of $333.77 billion (annually) and a total of $6.5 trillion in nine years via illicit financial flows from the Least Developed Countries (LDCs), means that Nigerians and the rest of Africa will continue to dwell in poverty if not checked, writes Eromosele Abiodun
Corruption often involves government officials ignoring their responsibilities or acting in violation of them for personal and material gains. Thus, corruption also involves bribe-taking, specifically whereby government officials and others (including those in the private sector) are bribed to encourage or facilitate their action to arrive at a speedier or more favourable outcome to the agent or individual offering the bribe.
These factors, along with “grassroots corruption” in the private sector (involving individuals, private households, and enterprises) drive the extensive corruption that can permeate in the society. Grassroots corruption fuels growth of the underground economy, from which the government is unable to raise taxes.
Also, transactions in black markets are seldom recorded and are carried out at prices that deviate sharply from the “arm’s length” prices prevailing in free markets. As the revenue generated from such commercial, corrupt, and criminal activities are seldom reflected in official statistics, stylised models using official data are likely to seriously underestimate the magnitude of illicit capital leaving the country in a clandestine manner.
In Nigeria and other least developed countries, the situation has over the years assumed a higher dimension as hundreds of billions have been looted and hidden in foreign countries, leaving their people impoverished. Experts estimates that Africa loses about $333.778 billion annually due to capital flight and other illicit transactions.
In a recent presentation titled: ‘Illicit financial flows: The Cost of Tax Evasion’, in Kampala, Uganda, the chairman, Tax Justice Network, Africa (JTN), Dr. Dereje Alemayehu, described capital flight as the unrecorded and (mostly) untaxed illicit leakage of capital and resources out of a country as well as domestic wealth that is permanently put beyond the reach of appropriate domestic authorities, mostly because of deliberate misreporting.
He expressed concern that outflows from Africa was on the increase compared with other regions. This he put at 22.3 per cent, saying that trade mis-pricing was the biggest contributor to illicit outflow from the continent. “For every one dollar coming into Africa in the form of development aid, ten dollars flows out of Africa. That more resources flow out of Africa than they come in, is now an established fact,” he said.
He declared that capital flight due to trade mis-pricing alone between 2005 and 2007 had resulted in £190.8 billion global tax losses. Alemayehu added: “Poor countries are deprived of badly needed tax revenues. Christian Aid has estimated that the loss is to the tune of $160 billion a year - much higher than the money required for the Millennium Development Goals (MDGs).”
He described tax leakage as “tax due on income earned by multinationals and then moved offshore without paying appropriate tax; tax due on income earned from assets which are held offshore; tax expenditures and tax due, but not paid – due to corruption, weak enforcement mechanisms; low tax revenue collection capacity, exemptions and privileges granted through the patronage system.”
He advised policymakers on the continent to recognise the stoppage of resource leakages as one of the major means of mobilising domestic resources for development and also to extend the fight against corruption to focus on “supply side” of corruption.
Recently, a United Nations Development Program (UNDP) commissioned report from the Global Financial Integrity (GFI) on illicit financial flows from LDCs, revealed that approximately $6.5 trillion was removed from developing countries from 2000 through 2009. The report showed that Asia produced the largest portion of total outflows while Nigeria and a few other oil producing countries led the pack.
The report, ‘Illicit Financial Flows from the Least Developed Countries’, examined how structural characteristics of LDCs could be facilitating the cross-border transfer of illicit funds, discussed methodological issues underlying estimates of illicit flows, presents an analysis of the magnitude of such flows, and makes policy recommendations for the curtailment of these illicit flows.
The report revealed that bribery, theft, kickbacks, and tax evasion were the greatest conduit for the illicit financial flows from the major exporters of oil such as Kuwait, Nigeria, Qatar, Russia, Saudi Arabia, the United Arab Emirates and Venezuela.
The report showed that illicit outflows through trade mispricing grew faster in the case of Africa (28.8 per cent per annum) than anywhere else, possibly due to weaker customs monitoring and enforcement regimes.
The report showed that illicit outflows increased from $1.06 trillion in 2006 to approximately $1.26 trillion in 2008, with average annual illicit outflows from developing countries averaging $725 billion to $810 billion per year, over the 2000-2008 period measured.
“Illicit flows increased in current dollar terms by 18.0 per cent per annum from $369.3 billion at the start of the decade to $1.26 trillion in 2008. When adjusted for inflation, the real growth of such outflows was 12.7 per cent.
“Real growth of illicit flows by regions over the nine years is as follows: Middle East and North Africa (MENA) 24.3 per cent; developing Europe 23.1 per cent; Africa 21.9 per cent; Asia 7.85; and Western Hemisphere 5.18 per cent,” GFI said.
The GFI observed that Asia accounted for 44.4 per cent of total illicit flows from the developing world followed by Middle East and North Africa (17.9 per cent), developing Europe (17.8 per cent), Western Hemisphere (15.4 per cent), and Africa (4.5 per cent).
“Top 10 countries with the highest measured cumulative illicit financial outflows between 2000 and 2008 were: China: $2.18 trillion, Russia: $427 billion, Mexico: $416 billon, Saudi Arabia: $302 billion, Malaysia: $291 billion, United Arab Emirates: $276 billion, Kuwait: $242 billion, Venezuela: $157 billion, Qatar: $138 billion and Nigeria: $130 billion.”
Commenting on the report, UNDP administrator Helen Clark, said, “Illicit flows seriously impede LDCs’ efforts to raise resources for social and economic development. These flows are often absorbed into banks, tax havens, and offshore financial centers in developed countries.” The report, Clark added, seeks to gauge the impact of the current global economic crisis on the volume and pattern of illicit flows from developing countries.