Curbing illicit financial transfer: A Role for parliaments

7/27/2019 Curbing illicit financial transfer: A Role for parliaments

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CURBINGILLICITFINANCIALTRANSFER:

A ROLEFORPARLIAMENTS

Zitto Z. Kabwe, MPChairperson PAC, United Republic of Tanzania

DSalaam, October 1st 2013


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SOMENUMBERS:

Between 1980 and 2009, the economies of Africa lostbetween US$597 billion and US$1.4 trillion in netresource transfers away from the continent (A May 2013Jo int Repo rt from Global Financial Integri ty and the

Afr ican Development Bank)

While a total amount of $597bn leaving Africa illicitly asproceeds of bribery, theft, kickbacks and tax evasion andavoidance, only around 80bn USD flow into Africa as FDIand Aid combined

The resource drain on Africa over the past thirty years isalmost equivalent to Africa's current GDP. (GFI/AfDB

2013)


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AFRICA NET CREDITOR?

Capital flight from Africa is USD 420 Billion over a period

of 35 years while over the same period Total externaldebts of African countries is USD 227 Billion - Universityof Massachussets, Amherst.

In every 1 USD coming to Africa, 7 USD illicitly leaves

Africa (estimated)


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SOMENUMBERS:

The extractive industries sector is central to the illicitoutflows of money from Africa Thabo Mbeki, Head ofthe High-level Panel on Illicit Outflows of Money from

Africa

Between 1998 2011 total value of minerals exportedfrom Tanzania - USD 11.13 Billions

Total FDI into Mining Sector in Tanzania between 1998

2011 - USD 3 Billions

Total Government Revenue from the mining Sector 1998 2011 - USD 445.2 Billions


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WHAT EXPLAINS THIS?

Tax avoidance through excessive tax planning (legal)

Transfer pricing (massive thin capitalisation usage)

Tax evasion (illegal)

Tax exemptions (legal, corruptly acquired and abused)

ROLE OF TAX HAVENS/OFFSHORE


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ILLICIT MONEY TRANSFER

It is the flows of money earned through, or used for,illegal activity or moved across borders illegally.

2/3 of total illicit money transfer from developing

countries is trade mispricing Under invoicing or overinvoicing of imports and exports of goods and services.(Global Financial Integrity)

Corruption accounts for only 5% of this and organised

crime like drugs, human trafficking and pirates about 25%of illicit flows.


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TAX EVASIONPROBLEMS

Tax avoidance and Tax evasion (mispricing) hasto be addressed by all African Parliaments.

Many Multinational Corporations use Tax Havens

(Offshore) to shift profits they make in AfricanCountries to low Tax Jurisdictions.

Poverty in Africa cannot be understood without

understanding the role of Offshore NicholasShaxson in Treasure Islands.


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TAX HEAVEN

A Tax Haven is a place that seeks to attract business byoffering politically stable facilities to help people orentities get around the rules, laws and regulations of

jurisdictions elsewhere (Shaxson, N).

These Tax Havens are Cayman Islands, Bermuda, City ofLondon, Switzerland, Luxembourg, Jersey etc.

Some African countries are Tax Havens as well. Mauritius

is a good example.


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EXAMINATIONOF THE MAURITIUSCASE

FDI flows into Africa: Multinationals use TaxHavens to channel investments.

Mauritius is a source of many FDIs into manyAfrican Countries.

Mauritius has Tax Treaties with many Africancountries.

City of London Investment Companies run Businessthrough Mauritius to finance projects in Africa withcountries that have a tax treaty in place with Mauritius

Rudolf Elmer, Offshore practitioner.


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MAURITIUSPOPULARINTANZANIA

A major Oil and Gas Company in Tanzania uses

Mauritius (Pan African Eenergy) Even Government used a Tax Haven for its own Mining

Company ie TANGOLD in 2006

Bank of Tanzania paid more than USD 216m on

Meremeta Mining Company through South Africandubious Nedcor Trading company registered in Mauritius


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AFRICAN CHALLENGE: TANZANIANEXAMPLE

Tanzania is losing revenue equivalent 5% of GDP through illicit

money transfer (Tax avoidance, evasion and corruption),equivalent to $ 1.25bn/year.

Of top 10 taxpayers, 7 use tax havens. Extractives andCommunications sectors

Of 3 largest mobile phone companies in the country, 2 areregistered in the tax havens of Holland and Luxembourg (Airtel Holland and Tigo Luxembourg). Vodafone/com?

African Barrick Gold has 9 sister companies offshore, just likeone of the large oil and gas exploration companies.

In June 2013, African Barrick Gold announced that it wouldclose more than 24 companies registered in jurisdictions suchas the Cayman Islands


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GLOBALSOLUTIONS:G8 LOUGH ERNE DECLARATION

1. Tax authorities across the world should automatically share

information to fight the scourge of tax evasion. 2. Countries should change rules that let companies shift their

profits across borders to avoid taxes, and multinationalsshould report to tax authorities what tax they pay where.

3. Companies should know who really owns them and taxcollectors and law enforcers should be able to obtain thisinformation easily.

4. Developing countries should have the information andcapacity to collect the taxes owed them and other countries

have a duty to help them. 5. Extractive companies should report payments to all

governments - and governments should publish income fromsuch companies.


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GLOBALSOLUTIONS:G8 LOUGH ERNE DECLARATION

6. Minerals should be sourced legitimately, not plundered

from conflict zones. 7. Land transactions should be transparent, respecting

the property rights of local communities.

8. Governments should roll back protectionism and agree

new trade deals that boost jobs and growth worldwide. 9. Governments should cut wasteful bureaucracy at

borders and make it easier and quicker to move goodsbetween developing countries.

10. Governments should publish information on laws,budgets, spending, national statistics, elections andgovernment contracts in a way that is easy to read andre-use, so that citizens can hold them to account.


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GFI/AFDB

Require banks and tax havens to regularly report to the

Bank of the International Settlements (BIS) detaileddeposits by sector, maturity, and country of residence ofdeposit holders.

Address the problem of shell companies by requiring that

all corporations, foundations, and trusts confirmbeneficial ownership information in all banking andsecurities accounts.

Address capacity issues and corruption domestically

within African tax authorities. Persue automatic cross-border exchange of tax

information on personal and business accounts, ideallyon a multilateral basis


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LOCAL SOLUTIONS:NATIONALEXAMPLES

Tanzania :

Resolution to task the executive to investigate people withstolen assets abroad. Parliamentary Resolution no9/2012. No report to the moment

Parliamentary Committees Resolutions (BagamoyoResolution

SADCOPAC 10th Conference resolutions


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BAGAMOYO RESOLUTIONS

Sheria ya Anti Money Laundering ya 2006 irekebishwe

ili iweke viwango vya fedha ambazo mtu anawezakuingia au kutoka nazo nchini bila kuzitaja (declare).Kuna umuhimu wa Waziri wa Fedha kutengeneza kanuniza kutekeleza Sheria hiyo.

Sheria ya The Proceeds of Crime Act, 1991 ifanyiwemarekebisho na kuweka kifungu kinachomwezesha

AG/DPP kuwa na mamlaka ya kuomba mahakama

kufungua kesi ya madai (Civil Forfeiture) kwa watuwanaotuhumiwa kwa ufisadi.


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SADCOPACARUSHARESOLUTION

PACs or similar Committees should encourage theirmember states to pass legislation to control the use oftax havens by companies and individuals in order to curbillicit money transfer and tax avoidance/evasion.

PACs should initiate investigations on the extent of taxavoidance/evasion and illicit money transfer in their

jurisdictions.


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PARLIAMENTARY INQUIRY

Tanzanian PAC have decided to conduct ParliamentaryInquiry on extent of illicit financial transfer in Tanzaniaand Report to Parliament in February 2014.

Can GFI support PAC in conducting this inquiry? ToRsand capacity of members to question authorities anddemand documentations


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AFRICAN SOLUTIONS: ON AGREEMENTS

Africa should withdraw from the tax systemrecommended by the OECD (OECD Model Treaty) asthis form of tax agreement protects large foreigncompanies rather than developing countries

Africa should withdraw from all tax agreements it hasentered with tax havens such as Mauritius, the UnitedKingdom (City of London and British Overseas

Territories), Luxembourg, Netherlands, etc.


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AFRICAN SOLUTIONS: ON TAX HEAVENS

Any company, foreign or domestic, that has sistercompanies registered in tax havens should make publictheir accounts for the past five years so they can be

reviewed by Revenue Authorities and the Controller andAuditor Generals

Parliaments should pass legislation to control the use oftax havens by companies, particularly in the sectors of

communications, mining, oil and gas and others.


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THANKYOUVERYMUCH

Asanteni sana

ILLICIT FINANCIAL FLOWS IS A DEVELOPMENTAL

CHALLENGE

Curbing illicit financial transfer: A Role for parliaments

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