In April and May of 2016, the International Consortium of Investigative Journalists (ICIJ) made public the largest ever investigation into international fraud. This exposed a cast of characters who use offshore companies to facilitate bribery, arms deals, tax evasion, financial fraud and drug trafficking. The revelations, dubbed the ‘Panama papers’, have brought to the fore systemic corruption and failings of the global financial and legal system which have allowed individuals and companies to exploit loopholes and gaps in legislation and regulations at the expense of, in many cases, poor countries.
The Panama papers are important for several reasons. First, they reveal the breadth and depth of ‘legal corruption’ taking place within the global financial and legal framework, allowing individuals and companies to move money across the globe irrespective of how it has been obtained. Second, they reveal that issues of corruption, tax avoidance, tax evasion and illicit financial flows (IFFs) can no longer be seen as an ‘African or developing country challenge’. The evidence thus far confirms complicit actions from European and American-based companies in moving monies to jurisdictions with high secrecy laws. Third, the data and evidence presented in the Panama papers further demonstrate the exploitation by individuals and companies of weak legislative frameworks in developing countries, as well as the deep-rooted corruption that transcends the national and international architecture.
The Panama papers are important for Tax Justice Network – Africa (TJN-A) because they confirm long-held views of a complicit and flawed international financial and legal architecture in moving monies from Africa to tax havens, and offshore and high secrecy jurisdictions . These monies are often associated with tax avoidance , tax evasion , IFFs , fraud and corruption. This leaves African borders at the expense of African citizens, who lack access to basic services such health, education, water and sanitation. Furthermore, the movement of this outflow from Africa has consequences for governments’ ability to finance their development, growth and poverty agenda.
Between 2004 and 2014, TJN-A member countries lost over $50 billion to IFFs. To put this in perspective, over the same period, TJN-A member countries received $30 billion in official development assistance (ODA) and $28 billion in foreign direct investment (FDI). This is to say that over a 10-year period, TJN-A member countries lost approximately twice as much to IFFs as they received in ODA and FDI. This is indeed quite a significant outflow of resources, especially considering most TJN-A member countries are low income countries with high incidences of poverty and deprivation.
It is worth noting individual member countries affected by outflows by IFFs. Countries like Nigeria, South Africa, Togo and Zambia have lost more to IFFs than they have received in ODA between 2004 and 2014. This is of concern given the levels of poverty experienced in these countries, despite their economic growth and GDP statistics. The issue of IFFs needs to be addressed both at the global and national levels. This is especially so given the countries with the highest IFFs also have the highest number of registered offshore entities as per the latest Panama leaks.
Beyond the Dollars
The impact of IFFs on developing countries goes beyond those on the revenue and economic front. In sub-Saharan Africa where IFFs are significant, the socio-economic conditions tend to be poor for a majority of the population. These countries perform poorly on several global socio-economic indicators, especially human development index (HDI), life expectancy, population living on below $1.25 a day and population in severe multidimensional poverty.
While it is difficult to attribute IFFs to poor socio-economic performance in African countries, their impact cannot be discounted. The losses incurred through IFFs could have been used to finance a range of developmental based projects such schools, hospitals, early childcare centres, maternal clinics and so on. Furthermore, the impact of IFFs goes beyond the inability of governments to provide basic services to impacting on the human rights of citizens. It is therefore important to realise and appreciate the human cost element when considering the impact of IFFs on developing countries.
What is TJN-A doing?
The Panama papers come at a time when TJN-A is at the forefront of several campaigns geared towards to raising awareness on IFFs, and the need for a more transparent and efficient global financial and legal architecture. Our ‘Stop the Bleeding’ campaign aims to stop IFFs from happening in Africa. In addition, our 2016 International Tax Justice Academy (ITJA) and African Parliamentarian Network on Illicit Financial Flows and Tax (APNIFFT) will have IFFs as a major theme and bring together our member countries to ensure the issues of IFFs are at the fore for discussions and policy recommendations.
Further, TJN-A is actively lobbying governments of developed countries and multilateral organisations to strengthen the global financial architecture to curb IFFs. In particular, we have issued a statement to the UNCTAD 14 meetings for it to have a greater mandate in supporting developing countries in Africa and across the world curb tax avoidance and tax evasion.
Former President of Tanzania and Global Ambassador for Immunisation.
Executive Director, International Trade Centre