"They (illicit flows) go out as profit or whatever, but they are not well-recorded or the officials of the countries, they really don't know that these flows are illicit. So we've taken the position that the taxing rights in a country should be based on significant economic presence...," she noted.
Iyabo Masha, the director of the Intergovernmental Group of Twenty-Four on International Monetary Affairs and Development (G-24), says a lot of illicit financial flows are actually generated in countries across Africa and other parts of the world via "legal" means.
Ms Masha made this known in an exclusive interview with PREMIUM TIMES on the sidelines of the World Bank/IMF meetings held in Washington DC.
The global economist disclosed that the African Union set up a high-level committee on illicit financial flow chaired by President Thabo Mbeki, former president of South Africa and the committee alluded to the fact that more than $100 billion is lost annually in Africa alone on illicit financial flows and tax evasion.
"So yes, that's a big issue. If a continent is losing $100 billion as a negative flow outside, that is $100 billion that is not available to pursue infrastructure projects, to develop schools, health facilities, and meet both sustainable and climate goals. So that's an important issue," Ms Masha said.
"What we have done in our work is to push for some international mechanisms to address these issues, because it's about both demand and supply. The country where the resource is domiciled is one, and the country where it is being taken to, illegally, is another.
"So the way we have found it useful is to pursue reforms of the international tax cooperation mechanism so as to reduce those kinds of flows."
Illicit Flows
According to the IMF, illicit financial flows refer to the movement of money across borders. Such flows are illegal in its source--as in corruption and smuggling; its transfer, as tax evasion; or its use, as in terrorist financing.
Experts say that illicit and tax avoidance related financial flows (ITAFF) have significant impact on the economic stability of a country and the global financial system as they can drain foreign exchange reserves, distort competition, inflate prices for real estate, lower tax receipts, and reduce government revenue.
Individuals and entities that perpetrate illicit finance divert resources from public spending and cut into the capital available for private investment while such flows can encourage criminal activity, undermine the rule of law, erode trust in public institutions, and threaten political stability.
Many African countries lose billions of dollars in capital to illicit flows, which relate principally to commercial transactions, tax evasion, criminal activities (money laundering, and drug, arms and human trafficking), bribery, corruption and abuse of office.
For instance, the Executive Chairman of Nigeria's Economic and Financial Crimes Commission, Olanipekun Olukoyede, in June disclosed that a whopping $88.6 billion is lost to illicit financial flows in Africa annually.
Last year, the Attorney-General of the Federation and Minister of Justice, Lateef Fagbemi, said Nigeria loses an average of $18 billion annually to illicit financial flows, which could largely be prevented with negotiation, drafting, transparency and patriotic zeal.
For decades, global financial institutions have played key roles in efforts to combat these opaque and destabilizing transfers, with concerns that some flows are not strictly illegal but are associated with tax avoidance.
OECD Framework
Ms Masha noted that in the OECD G20 framework on international tax cooperation, her organisation provided some inputs by allocating the different taxing rights, "because a lot of these illicit financial flows actually go out in a 'legal' way."
"They go out as profit or whatever, but they are not well-recorded or the officials of the countries, they really don't know that these flows are illicit. So we've taken the position that the taxing rights in a country should be based on significant economic presence. We have provided to the United Nations system the request to have protocols on illicit financial flows and tax evasion," she noted.
"And we are also doing that in the context of the UN Framework Convention that is under development. In addition, each of our regional groupings has a kind of association that focuses on taxation. And so the tax authorities from the different countries...they are able to get together to share knowledge."
For Latin America, she noted that they have an organisation while African countries have ATAF, which is Africa Tax Administration Forum. These organisations do a lot to train the tax officers in member countries on how to recognize some of these illicit flows and how to be able to negotiate better for their countries, she noted.
"In addition, part of the work that is being done at a global level is to set up an exchange... automatic exchange of information so that any country that is part of that exchange can get information on other countries.
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"If you have a company operating in your country and you want to get information about what they are doing in another country relating to tax issues, you can get that. So, many of our countries are signatories to that automatic exchange of information. In addition, many members are also signatories to what we call the Beneficial Ownership Convention, which is an agreement that countries will now insist on knowing the beneficial owner of any assets.
"And what that means is that, I mean, it's not just that, 'oh, this particular asset or bank account is registered in the name of a company'. That's not enough. The ultimate beneficial owners, who will be the beneficiaries, are the ones that will be on record."
The Intergovernmental Group of Twenty-Four on International Monetary Affairs and Development (G-24) coordinates the position of developing countries on monetary and development issues in the deliberations and decisions of the Bretton Woods Institutions (BWI).
G-24 specifically focuses on issues on the agendas of the International Monetary and Financial Committee (IMFC) and the Development Committee (DC) as well as in other relevant international fora.
