Every year, Africa loses more than $50 billion in illicit financial outflows as multinational companies, the rich and the powerful, engage in schemes aimed at avoiding tax payments. According to a report released by the African Union’s (AU) high-level panel on illicit financial flows (IFFs) and the UN economic commission for Africa (Uneca), illegal transfers from African countries have tripled since $20 billion was siphoned off in 2001. The “Panama Papers” brings to light the issues underscored in the report.
In the leak of more than 11 million documents from Panamanian firm Mossack Fonseca which dates back to four decades, prominent personalities are linked to practices such as tax evasion and the use of Tax Havens, which are responsible for the massive illegal transfers out of Africa.
But if the existence of tax havens encourage illicit financial flows, why allow their continued existence?
Thabo Mbeki, Chair of the AU/UNECA High Level Panel does not see why they should be allowed to remain.
“Now is the time for the global community to act in a firm and comprehensive manner to end the Illicit Financial Flows and close down the Tax Havens/Financial Secrecy Jurisdictions which serve as the domicile of these Illicit Financial Flows,” Mbeki said in a statement.
“The undeniable fact is that the Illicit Financial Flows which derive from tax evasion deserve our full attention both continentally and globally,” he added.
Mbeki noted that, according to the Panama Papers, the fourth most used Tax Haven by Mossack Fonseca is an African country. “Worse still, the reports show that this firm only knew the identities of the real owners of just 204 of 14,086 companies it had incorporated in the country.”
The Chair of the High Level Panel stressed, therefore, that no one must rest under the illusion that the issue of Tax Havens does not directly affect Africa and the world at large, because it does.
He urged countries around the world to follow the example of Britain, South Africa and France which have vowed that any of their citizens mentioned in the Panama Papers will be investigated by the relevant agencies to ensure they comply with the laws regarding tax evasion. But it should not end there; other possible destinations of the proceeds from tax evasion must be uncovered, says Mbeki.
German newspaper Süddeutsche Zeitung (SZ) had released the Panama Papers, the biggest leak in the history of data journalism, publishing online 11.5 million documents equaling 2.6 terabytes. SZ analyzed the data in cooperation with the International Consortium of Investigative Journalists (ICIJ) and found out how hundreds of thousands of people, including world leaders, celebrities, athletes, FIFA officials and criminals hid money using anonymous shell corporations across the world.
Mossack Fonseca has denied any wrongdoing, stating that nothing in the documents released suggests that it has been involved in any illegal practices. Mbeki regrets the company may be right, “given the current incomplete global architecture for tackling IFFs, which should include binding international Treaties”.
While the exposures contained in the Panama Papers is a massive blow to financial secrecy, which must be encouraged, Mbeki notes that this no time for celebration or an end in itself. “… rather a time for deep reflection and regret that we have allowed the practice to persist which is made possible among others by the existence of Tax Havens/Financial Secrecy Jurisdictions.”
The High Level Panel Chair urged continued efforts to put political pressure on the countries that enable a high level of financial secrecy opacity or that have laws enabling banking secrecy and the registration of shell companies. “Otherwise harmful tax practices and high levels of opacity in financial transactions as exposed by the Panama Papers will continue to be a scourge that we find ourselves discovering only when there are people bold enough to expose them.”
Mbeki notes that until all countries begin to work together to combat IFFs in all its forms, including by closing down Tax Havens and all activities encouraged by them, there will always be a cavernous opportunity for the exploitation of tax laws at all levels and in all countries for negative purposes.