But it’s not a physical wound, it’s a financial one, and it’s allowing more to leave in illicit flows — money that is illegally transferred, earned or utilized — than the amount received in development aid. Though the loss is coming out of Africa and other developing regions, the Band-Aid that could stop the bleeding is in the hands of a small group of rich countries.
A recent report from the African Union/Economic Commission for Africa High Level Panel on Illicit Financial Flows from Africa, chaired by former South African President Thabo Mbeki, estimates that the African continent alone is losing roughly $50 billion each year, 20 percent more than the amount of official development assistance coming in.
Whether a country needs more money for hospitals, roads or schools, one thing is clear: Governments could see a huge boost in revenue and economic growth if we can put an end to the billions leaving through tax evasion, profit shifting by multinational companies, and embezzlement of state funds.
Fortunately, we’re in a landmark year to take action.
The Millennium Development Goals are reaching their expiration, and the world is discussing the post-2015 framework for fighting poverty over the next 15 years. Alongside this agenda is a discussion on how to finance the effort. Preserving capital in developing countries — rather than exporting it to tax havens or bank accounts in rich countries — will allow us to make our own decisions about how to invest in the future.
A final session is underway now at the United Nations in preparation for July’s third International Financing for Development conference in Addis Ababa, Ethiopia. Putting an end to illicit financial flows and opening the door for financial transparency must be at the center of this discussion and the final decision that will emerge in Ethiopia next month.
Though the money moves almost unabated from poor countries to rich ones, now that the alarm is being sounded, the same rich countries have put themselves in charge of making the rules on how to bring it back.
Until now, the Organization for Economic Cooperation and Development, a group of rich nations, has taken the lead on many of these very initiatives. Developing countries have found themselves marginalized in the Paris-led drafting, and many are at risk of being left out altogether. When low and middle-income countries are given a seat at the table, it seems our chairs are often placed further away from the others.
Does it really make sense to have a group of 34 countries draft standards that will affect a global financial system where hundreds of countries operate?
Instead, negotiators meeting in New York City this week should ensure that the F4D document includes the creation of an intergovernmental body on tax that would sit at the United Nations. Rather than a club of the few, this body would be universal, and countries from all over the globe could contribute their perspectives on how the new rules should pan out.
But what steps can an inclusive tax body take to put a stop to illicit financial flows?
One of the biggest contributors to illicit financial flows is a lack of transparency in the global financial system. Anonymous companies allow criminals and corrupt politicians move their money with no way of tracing who actually owns a company. Last year, when the U.S. Department of Justice froze almost $500 million of embezzled money from former Nigerian leader Sani Abacha, anonymous companies in places like the British Virgin Islands were used to hide the wealth. Requiring a public registry of who’s behind companies would help prevent this practice.
Better reporting by multinational corporations would also help resource rich but revenue strapped governments make sure that profits made in their mines, fields and factories aren’t being shifted outside their borders. A landmark 2010 investigation by ActionAid revealed that SABMiller, one of the biggest beverage corporations in the world, paid less tax in Ghana than a woman who sold beer just outside their production plant. Seeing reports of profits and tax paid at the country level would help prevent profit shifting to low tax nations.
Finally, a global standard for the exchange of financial information between governments would enable authorities to track down wealthy elites who hide their assets in tax havens with strict secrecy laws.
A representative tax body is the only way to ensure that these and other practical solutions are implemented with both rich and poor countries in mind. The effects of financial secrecy and illicit flows are harming countries in the global south at an alarmingly disproportionate rate, so it’s only fair that we have a voice in how to stop the bleeding.
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Hon. Khanyisile Litchfield-Tshabalala is a former member of South African Parliament, a retired rear admiral in the South African Navy and chairperson of the African Parliamentarians Network on Illicit Financial Flows.
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