CURBING ILLICIT FINANCIAL TRANSFER:

A ROLE FOR PARLIAMENTS

Zitto Z. Kabwe, MP
Chairperson PAC, United Republic of Tanzania DSalaam, October 1st 2013

SOME NUMBERS:

Between 1980 and 2009, the economies of Africa lost between US$597 billion and US$1.4 trillion in net resource transfers away from the continent (A May 2013 Joint Report from Global Financial Integrity and the African Development Bank)

While a total amount of $597bn leaving Africa illicitly as proceeds of bribery, theft, kickbacks and tax evasion and avoidance, only around 80bn USD flow into Africa as FDI and Aid combined
The resource drain on Africa over the past thirty years is almost equivalent to Africa's current GDP. (GFI/AfDB 2013)

AFRICA NET CREDITOR?

Capital flight from Africa is USD 420 Billion over a period of 35 years while over the same period Total external debts of African countries is USD 227 Billion - University of Massachussets, Amherst. In every 1 USD coming to Africa, 7 USD illicitly leaves Africa (estimated)

SOME NUMBERS:

The extractive industries sector is central to the illicit outflows of money from Africa Thabo Mbeki, Head of the High-level Panel on Illicit Outflows of Money from Africa Between 1998 2011 total value of minerals exported from 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

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

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 over invoicing 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.

TAX EVASION PROBLEMS

Tax

avoidance and Tax evasion (mispricing) has to be addressed by all African Parliaments. Multinational Corporations use Tax Havens (Offshore) to shift profits they make in African Countries to low Tax Jurisdictions.
Poverty in Africa cannot be understood without understanding the role of Offshore Nicholas Shaxson in Treasure Islands.

Many

TAX HEAVEN

A Tax Haven is a place that seeks to attract business by offering politically stable facilities to help people or entities get around the rules, laws and regulations of jurisdictions elsewhere (Shaxson, N). These Tax Havens are Cayman Islands, Bermuda, City of London, Switzerland, Luxembourg, Jersey etc. Some African countries are Tax Havens as well. Mauritius is a good example.

EXAMINATION OF THE MAURITIUS CASE

FDI

flows into Africa: Multinationals use Tax Havens to channel investments. is a source of many FDIs into many African Countries.

Mauritius

Mauritius

has Tax Treaties with many African

countries.
City of London Investment Companies run Business through Mauritius to finance projects in Africa with countries that have a tax treaty in place with Mauritius Rudolf Elmer, Offshore practitioner.

MAURITIUS POPULAR IN TANZANIA

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 African dubious Nedcor Trading company registered in Mauritius

AFRICAN CHALLENGE: TANZANIAN EXAMPLE

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 and Communications sectors Of 3 largest mobile phone companies in the country, 2 are registered in the tax havens of Holland and Luxembourg (Airtel Holland and Tigo Luxembourg). Vodafone/com? African Barrick Gold has 9 sister companies offshore, just like one of the large oil and gas exploration companies. In June 2013, African Barrick Gold announced that it would close more than 24 companies registered in jurisdictions such as the Cayman Islands

GLOBAL SOLUTIONS:
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 multinationals should report to tax authorities what tax they pay where. 3. Companies should know who really owns them and tax collectors and law enforcers should be able to obtain this information easily. 4. Developing countries should have the information and capacity 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 from such companies.

GLOBAL SOLUTIONS:
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 goods between developing countries.
10. Governments should publish information on laws, budgets, spending, national statistics, elections and government contracts in a way that is easy to read and re-use, so that citizens can hold them to account.

GFI/AFDB
Require banks and tax havens to regularly report to the Bank of the International Settlements (BIS) detailed deposits by sector, maturity, and country of residence of deposit holders. Address the problem of shell companies by requiring that all corporations, foundations, and trusts confirm beneficial ownership information in all banking and securities accounts. Address capacity issues and corruption domestically within African tax authorities. Persue automatic cross-border exchange of tax information on personal and business accounts, ideally on a multilateral basis

LOCAL SOLUTIONS: NATIONAL EXAMPLES

Tanzania : Resolution to task the executive to investigate people with stolen assets abroad. Parliamentary Resolution no 9/2012. No report to the moment

Parliamentary Committees Resolutions (Bagamoyo Resolution SADCOPAC 10th Conference resolutions

BAGAMOYO RESOLUTIONS
Sheria ya Anti Money Laundering ya 2006 irekebishwe ili iweke viwango vya fedha ambazo mtu anaweza kuingia au kutoka nazo nchini bila kuzitaja (declare). Kuna umuhimu wa Waziri wa Fedha kutengeneza kanuni za kutekeleza Sheria hiyo.

Sheria ya The Proceeds of Crime Act, 1991 ifanyiwe marekebisho na kuweka kifungu kinachomwezesha AG/DPP kuwa na mamlaka ya kuomba mahakama kufungua kesi ya madai (Civil Forfeiture) kwa watu wanaotuhumiwa kwa ufisadi.

SADCOPAC ARUSHA RESOLUTION

PACs or similar Committees should encourage their member states to pass legislation to control the use of tax havens by companies and individuals in order to curb illicit money transfer and tax avoidance/evasion.

PACs should initiate investigations on the extent of tax avoidance/evasion and illicit money transfer in their jurisdictions.

PARLIAMENTARY INQUIRY

Tanzanian PAC have decided to conduct Parliamentary Inquiry on extent of illicit financial transfer in Tanzania and Report to Parliament in February 2014. Can GFI support PAC in conducting this inquiry? ToRs and capacity of members to question authorities and demand documentations

AFRICAN SOLUTIONS: ON AGREEMENTS

Africa should withdraw from the tax system recommended by the OECD (OECD Model Treaty) as this form of tax agreement protects large foreign companies rather than developing countries Africa should withdraw from all tax agreements it has entered with tax havens such as Mauritius, the United Kingdom (City of London and British Overseas Territories), Luxembourg, Netherlands, etc.

AFRICAN SOLUTIONS: ON TAX HEAVENS

Any company, foreign or domestic, that has sister companies registered in tax havens should make public their accounts for the past five years so they can be reviewed by Revenue Authorities and the Controller and Auditor Generals Parliaments should pass legislation to control the use of tax havens by companies, particularly in the sectors of communications, mining, oil and gas and others.

THANK YOU VERY MUCH

Asanteni sana

ILLICIT FINANCIAL FLOWS IS A DEVELOPMENTAL CHALLENGE