A new report by the Nigeria Extractive Industries Transparency Initiative (NEITI) has identified three enablers of illicit financial flows (IFFs) in Nigeria's extractive industries.
The report titled: "Averting Illicit Financial Flows (IFFs) in Nigeria's Extractive Industry", said bribery and corruption, illegal resource exploitation, and tax evasion are the main channels of IFFs in the country's extractive industry.
The report was sponsored by TrustAfrica, an independent foundation that works to secure the conditions for democracy and equitable development throughout the continent.
The report described IFFs as all unrecorded financial flows involving capital illegally earned, transferred or generally used by residents to accumulate foreign asset in contravention of controls and regulations.
According to the report, a company might pay a bribe to illegally exploit a resource outside its concession area, while the products could be transported or smuggled outside the country's shores without the payment of the required export duties.
Specifically, the report identified corrupt government officials and crooked companies as beneficiaries of bribes paid or monies embezzled from tax collection and fraudulent budgetary allocations in the extractive industry.
Under illegal exploitation of resources, the report said domestic companies and local subsidiaries of foreign or multi-national companies are the beneficiaries of undeclared corporate revenues.
Also, the report said parent or holding companies as well as exporting companies are the major beneficiaries of tax evasion by way of inflated costs deducted from taxable revenues and smuggling of resources.
A report by ONE Campaign in 2014 put annual losses by developing countries through various shady natural resources deals at over $1trillion.
But, former South African President and Chairman of the African Union High-Level Panel on IFFs, Thabo Mbeki,said Africa's annual loss through menace increased from $50 billion in 2015 to over $80 billion in 2018.
Mr Mbeki was speaking in Abuja in October 2018 at the AU panel's inter-ministerial review meeting on the problem.
The panel said at least 40 per cent of the total IFFs in Africa could be traced to companies carrying out businesses in Nigeria.
A review of various case studies in the report showed illicit financial flows in the involvement of shell companies in the award of licenses and contracts in the industry and involvement of blacklisted and sanctioned individuals and companies in the award of operational permits, licenses, and contracts in the industry.
The other IFF indicators and red flags include abuse of office and conflict of interest by politically exposed persons (PEPs) in the award of permits, licenses and contracts in the industry, or failure to ascertain and verify the ultimate beneficiary owners (UBOs) in the award of operational permits, licenses and contracts in the industry.
The report also identified cases of conflict interest by government officials and those controlling political power in the award of operational permits, licenses and contracts in the industry to themselves and their cronies.
The other red flags include lack of enforcement of anti-bribery and corruption policy that forbids government officials and those with political powers from soliciting for favours, gifts, bribes and other illegal gratuities/gratifications from operators in the industry.
In 2012, the Nuhu Ribadu Petroleum Revenue Special Task Force said in its report the country lost several billion Naira to "briefcase crude oil trading companies" that lifted Nigeria's crude oil between 2002 and 2011, while NEITI said Nigeria lost over $723million, or N221.5 billion through the Offshore Processing Arrangement (OPA) in 2015.
Between 2009 and 2011, the country also lost billions, as the country's expenditure on fuel subsidy increased by more than 900 percent from N245 billion in the 20011 budget to over N2.5 trillion. In the solid minerals sector, there are cases of illegal mining and export of precious metals
On stolen crude oil, illegal oil flows resulted in more than $12billion losses to the US between 2011 and 2014, while another $3billion was lost to China and $839.5 million to Norway during the period, apart from under-reporting of production volumes and liftings by the NNPC and Department of Petroleum Resources (DPR)
In 2015, the Natural Resource Governance Institute (NGRI) said Nigeria also lost billions of dollars through the oil-for-product swap contracts by the Nigerian National Petroleum Corporation (NNPC), apart from the oil subsidy scam.
To curb IFFs, the report called on countries to establish platforms and channels to discourage trading in illegally exploited minerals; enforcement of existing global governance regulations; increased collaboration between mineral agencies, tax authorities, law enforcement, and exchange commission to detect and enforce.
Besides, the report called for the adoption of technology and automation systems in the issuance of permits, licensing, bidding, contracting, monitoring, supervision, and enforcement of regulatory frameworks in the industry.
Key recommendations for checking IFFs include the establishment of civil society network on IFFs; development of anti-bribery and corruption policy framework and development of data management system to help fight the risk and threats of IFFs.