John Christensen ■ The Offshore Wrapper: a week in tax justice


The Offshore Wrapper is written by George Turner

Tax avoidance in Africa – worse than we thought

Thabo Mbeki heads the high level panel

Thabo Mbeki heads the high level panel

The African Union High Level Panel on Illicit Financial Flows presented its draft report to a meeting of African Union Finance Ministers last week.  The findings are shocking. Africa is losing between US$50-60bn a year in illicit financial flows. This is more than the entire amount received by the continent in Foreign Direct Investment (and since a significant proportion of FDI is round-tripped capital originating from Africa the situation is worse than the figures suggest).

Of these illicit flows, 30% is attributed to criminal activity including drug dealings, smuggling or human trafficking and another 5% is attributed to bribery. This figure does not include capital flight.

Action Aid, the campaign group, estimates that a further $138bn is given away by developing countries in the form of tax breaks to multinationals. For more information see Action Aid’s media briefing here. 


Tanzania Public Accounts Committee gets on the case

One group who may be taking particular interest in the High Level Panel’s report is the Public Accounts Committee (PAC) of the Tanzanian Parliament. The Tanzanian PAC has just launched an investigation into tax evasion and illicit financial flows.

The first session of the committee was attended by the Bank of Tanzania, the Tanzania Revenue Authority, and the Controller and Auditor general and Financial Intelligence Unit.

The evidence provides interesting detail to the headline figures coming from the High Level Panel. The committee heard that illicit outflows from Tanzania boomed in recent years from $390m in 2008 to $917m in 2011, though this was slightly down from $1.313bn in 2010.

Much of the financial inflows come from the world’s tax havens. The largest source of FDI was the UK, which includes the British Overseas Territories and Crown Dependencies.

The committee also learnt that customs exemptions were a considerable problem. One third of income collected by the Tanzanian customs authority, had to be given back through tax exemptions. The Tanzanian government is currently seeking huge spending cuts.


Sold on the cheap

Citizen action led by a Tax Justice Network affiliate in Colombia has forced a judicial suspension of the sale of a power company from the zGovernment. Reuters reports that the Council of State has accepted a petition from Enrique Alfredo Daza questioning the motivation behind the sale of a profitable company. He argues that the company should be left in public hands in order to continue generating value for the country.

Senor Daza is right to be concerned. The experience of many countries has demonstrated that once utility companies are moved into the private sector the country can lose vast amounts of tax revenues through high levels of debt and the offshoring of profit.


How to stop money laundering

The OECD has released a report on how countries can better combat illicit financial flows. At the Wrapper we have recently celebrated the decision of the European Parliament to back a register of beneficial ownership.

But this OECD report reminds of just how much of a hard battle this has been. It provides the sobering analysis that that not one of the member countries has met the group’s recommendations on beneficial ownership. These recommendations have been around since 2003.


Not the reaction we were hoping for

Still, even if some countries are moving in the right direction, there are still others who are proving resistant. And there are some countries who are working hard to plug any leaks in the international money laundering system. Literally.

Here be pirates

Here be pirates

Fans of the Wrapper will know that a huge amount of damage has been done to the reputation of the British Virgin Islands by the International

Consortium Of Investigative Journalism’s leak of a database of BVI companies.

The tiny British jurisdiction is now retaliating. The BVI government is proposing a new set of draconian laws which include a 20 year prison sentence for anyone in the world who publishes leaked information about a BVI company.

Looks like members of the ICIJ won’t be going on holiday in Tortola anytime soon.


 Don’t panic

Finally Computershare, a company which handles shareholder registers on behalf of large companies, has said it has noticed an increase in companies re-incorporating in Ireland.

Dear Reader, there is no reason to be alarmed at this development because Ireland, as we all know, is most definitely not a tax haven.

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