Download How do IFFs Contribute to Resource Curse?

Public Finances and Illicit Financial Flows
Ford Foundation and ACET
Conference, Accra
26-30 August, 2013
Plenary
Moderator: Prof. Joe Amoako-Tuffour
Snr. Advisor, ACET
Joe Amoako-Tuffour, [email protected]
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How do IFFs Contribute to Resource Curse?
1. Facts & Magnitude of the Problem
a. 1970-2008 (38 years): Conservative estimates $854 billion from
Africa (or $22.5 billion annually)
b. Joint Report by the GFI & AfDB: 1980-2008 (30 years): IFFs = $1.4
trillion ($46.6bn annually) exceeds inflow for the same period.
c. African countries experience massive outflows mainly to Western
financial institutions.
d. Between 1970-2008 IFFs increased on average annually by
 12.1% for Africa
 15.1% for SSA
 21.8% for oil-exporting countries
 13.6% for nonfuel exporting countries
 West and Central Africa tops SSA in terms of actual magnitude
of IFFS averaging nearly $10.2 billion annually.
 Nigeria is the dominant driver of IFFs from the sub-region and
tops the list of cumulative illicit flows
 Africa’s ability to finance development is undermined by the
severity of the IFFs.
Joe Amoako-Tuffour, [email protected]
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2. Composition of IFF and the Ways and Means:
a. public sector bribery 3%, - kick-backs, bribe, outright theft
b. criminal activities 30-35% - drug trafficking, smuggling, illegal
weapons sale
c. commercial activities 60%+ largely through trade transactions
 Trade mis-pricing via transfer pricing,
 Mis-invoicing of imports and exports,
 Deliberate mis-recording of trade pricing,
 Inflated management fees,
 Aggressive tax planning – minimize, evade or avoid taxes
 Exploiting tax loopholes,
 Profit laundering
Summary (Tandai’s snapshot of IFFs):
o
Corruption
o
Criminal activities
o
Commercial tax evasion
o
Smuggling
Joe Amoako-Tuffour, [email protected]
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3. IFFs and Natural Resources
a.
b.
c.
d.
e.
No open tendering or bidding process
Transfer pricing
Management fees
Weak fiscal regimes and Tax expenditures
Weak tax administration
Joe Amoako-Tuffour, [email protected]
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4. Structural factors that make IFF possible or prevalent in Africa
a. Existence of tax havens and secrecy jurisdictions- Most tax
havens are located in OECD countries.
b. Business policies and practices to evade and avoid taxes as
well as to escape regulation. Sophisticated tax avoidance
schemes
c. Corruption and kick-backs in investment, procurement
agreements, resource sector licensing and contracting
d. Weak tax administration
e. Sheer bad governance and undemocratic Development
State.
Joe Amoako-Tuffour, [email protected]
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5. Way Forward (Discussions)
a. What can be done?
b. What can CSOs do?
c. What are the pathways to dealing with the issue?
Joe Amoako-Tuffour, [email protected]
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6a: What can be done?
The 4Cs Solution (Dr. Donald Deya)
Solution
Complexity
Complacency
Complicity
Corruption
o Information sharing
o Regional integration of information systems
o Need for framework and standards of behavior of
all financial actors, revenue agencies
o Transparency, Accountability and Institutional
collaboration
o Capacity building about contracting process
o Design and implementation of good standards of
behavior of lawyers, accountants etc
o Call for ethical standards
o Need to identify (ethical) gaps in existing code of
conduct of professional bodies
o National anti-corruption measures
Joe Amoako-Tuffour, [email protected]
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6b. What can CSOs do? (Recommendations for Ford Foundation)
 Greater demand for transparency and accountable processes in
resource contracting and revenue management.
 Greater advocacy against resource rent capture by politicians and
elites.
 Greater push to plug loopholes in country tax regimes, strengthen
tax administration
 Need for evidence-based advocacy (don’t rely on anecdotal
evidence)
 Identify channels of advocacy through national governments,
regional bodies, continental governance institutions, business
associations.
 Need to develop CSOs capacity – to understand the dimensions
of the problem, to strengthen their engagements.
 Need for greater public sensitization of the problem of IFFs and
their consequences.
Joe Amoako-Tuffour, [email protected]
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6c: What are the pathways to dealing with the problem?
 Data, Evidence, African Problem
o Need to understand the problem through research.
Generate evidence-based advocacy. Paucity of data.
o Need to build African academy to help frame the solutions
from the African point of view. As in most cases the framing
is done by others.
o Need to build CSOs capacity to engage and sensitize the
public, governments, regional and international bodies on
issues and the search for solutions
 IFFs are a global problem
o Role of multilateral and international bodies: Role of IMF,
WB, BIS, EU, Commonwealth, G8, G20, AU
o Advocacy for commitment to collaborative approach to
dealing with tax havens, “secrecy jurisdictions” disguised
corporations.
o Multilateral institutions can help find solutions by helping
with policies, standards. Therefore networks at the global
level will greatly enhance the control of illicit flows.
Joe Amoako-Tuffour, [email protected]
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 IFFs are banking, trade and revenue problems
o There is a role for banks in fighting illicit flows and tax
evasion. They are the agents of absorbing IFFs through
money laundering. Country legislation & Standards are
essential.
o There is a role for revenue agencies and authorities in
dealing with tax systems.
o The AfDB should
 lead in setting standards, information sharing among
central banks
 develop its research interest and advocacy visibility to
be the lead institution on fighting illicit flows on the
continent
Joe Amoako-Tuffour, [email protected]
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 Other Key Points
o Good macroeconomic management is the best baseline for
countries to control illicit flows.
o Accounting professionals and lawyers have a key role to
play. An analysis of the ethics and standards among lawyers
is important.
o Improve legislation on corporate governance and standards
for FDI
Joe Amoako-Tuffour, [email protected]
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