Capital flight: Africa losing out stashed illicit funds

Dr Dereje Alemayehu the Christian Aid Country Representative for East Africa and chair for Tax Justice Network-Africa

More resources are being flown out of Africa than Aid coming in which translates for every $1(Sh81) for development Aid, $10(Sh810) is illegally taken from the continent in capital flight, a Tax Justice Network official has said.

Capital flight which also accounts for tax loss to countries origin as stashed loot is permanently put beyond the reach of domestic authorities also makes resources and capital being flown out of these countries to be untaxed an un-accounted for.

“Poor countries (like African ones) are deprived of the badly needed tax revenues on income earned from multinationals and assets which are illegally held offshore which is often fueled by low tax collection capacity, corruption, weak (law) enforcement mechanism” Dr Dereje Alemayehu the Christian Aid Country Representative for East Africa and chair for Tax Justice Network-Africa said.

Alemayehu says that capital flight is usually driven corrupt citizens stashing away their loot and by multi-nationals with several country branches by falsifying invoices by inflating or undervaluing prices to increase cost and diminish tax liability, and parent company selling to each other in countries goods and services at inflated prices to inflate cost for tax evasion.

He adds that ‘round-tripping’ where local businesses send money offshore and bring it back disguised as foreign investment to get preferential tax treatment is also a main cause of capital flight.

“Round tripping is done from tax havens like Miami, Switzerland, London, Cayman Islands with a case in question being Mauritania with has only 76,000 citizens but boosts of 82,000 registered companies mostly done on over the internet” Alemayehu says.

According to the recent Global Financial Integrity (GFI) 2009 report on capital flight the vice in Africa is growing faster than any other region in the world at 22.3% which accounts for $333,778.51m with the world figure standing at US$1.55tn.

Alemayehu adds that in the same year GFI released the report his organization Christian Aid did a research of capital flight in ‘mis-pricing’ within multinationals between 2005-2007 where Kenya lost £32m of taxes with Nigeria losing £502m while globally the loss was £190.8bn.

His statement comes after the country’s Swiss ambassador Jacques Pitteloud is reported to have said that Kenya won’t recover US$857 million (Sh72bn) stashed in Switzerland until it shows the money was looted and obtained illegally by those who obtained it.

Pitteloud who was responding to The Swiss National Bank (SNB), Switzerland Central Bank, report on the country’s banking sector that revealed Kenyans have stashed away the money in the country, and added that it will be upon the country judicial to ascertain if the individuals named are corrupt first.

According to the report EAC countries have at least US$1.3bn(Sh105.3bn) in Switzerland with Kenya leading the pack followed by Tanzania $178m( ), Uganda ($159m), Rwanda ($29.7m) and Burundi ($16.7m).

This report comes amid fear that money from the country’s mega scandals like Goldenberg, Anglo-leasing, Triton saga amongst others are stashed in the country.

Alemayehu says African countries worst affected by capital flight like Kenya should fight corruption and have a political commitment to end the vice by redesigning tax policies to enable maximization revenue collection by stamping out loopholes like tax incentives.

“(By having) regional and continental tax cooperation and policy harmonization to avoid race to the bottom tax competition, and safeguard African interest in international taxation dialogue” he says.

To root out the vice internationally he also recommends a multilateral agreement to expand and deepen tax information exchange by disclosure of ownership information and coordinated counter-measures against culprits.

On capital flight within multi-nationals operating in different countries he says there should be transparency between their internal trading and “there should be an obligation for each multinationals company to report financial details for every country in which it operates”.

Alemayehu was speaking at the African Center for Media Excellence Center (ACME) in Kampala Uganda during a Thomas Reuters Financial and Economic training.

© Manuel Odeny, 2012