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Tuesday, July 27, 2021

Illicit Financial Flows Will Significantly threaten Economic Stability, Sustainable Development – Finance Minister

Illicit financial flows (IFFs), unless checked, will continue to significantly erode domestic revenues, enable corruption, threaten economic stability and sustainable development, divert money from public priorities and hamper government’s efforts to mobilise domestic resources and recover better, according to Mrs. Zainab Ahmed, Honourable Minister of Finance, Budget and National Planning.

“In Nigeria and across the African continent, we continue to suffer various forms of IFFs, including tax evasion and other harmful tax practices, the illegal export of foreign exchange, abusive transfer pricing, trade mispricing, misinvoicing of services, illegal exploitation and under invoicing of natural resources, organised crimes, and corruption,” she said at the recently held virtual ‘International Conference On IFFs and Asset Recovery’.

Mrs. Ahmed noted that the effects are being especially felt given the ongoing COVID-19 pandemic and the resultant deepening of fiscal constraints and public financing gaps.

According to her, commercial activities (particularly aggressive tax avoidance and tax evasion, through trade mispricing, abusive transfer pricing, profit shifting and tax arbitraging) account for approximately 65 percent of illicit financial flows across Africa.

“The resulting domestic revenue losses are significant, putting developing countries and the entire African region at risk of not achieving sustainable and inclusive development, especially in the wake of the coronavirus pandemic. Furthermore, we in Africa often find ourselves in a ‘race to the bottom’ to attract foreign direct investments (FDIs), as a result of the current international tax practices and treaties,” she also said.

With the recent United Nations (UN) Conference on Trade and Development (UNCTAD) report on the impact of illicit financial flows on African Development, “we have a better appreciation for the scope and disproportionate impact of IFFs on African countries.

In her words: “Commercial tax evasion and other types of IFFs inevitably impact the allocation of already limited government funds, with disproportionate impact on public services benefiting women and youth. Consequently, curbing IFFS can lead to improvements in environmental, social, and economic development in Africa.

Mrs. Ahmed also noted: “As one of the most affected countries, Nigeria has demonstrated strong commitment to addressing illicit financial flows through our participation in the Open Government Partnership and the significant progress made in the extractive industry.  We have demonstrated that technology-enabled improvements in tax collection and compliance help deter tax crime and facilitate public trust.

Noting further, she said: “The mainstreaming of transparency and anti-corruption measures into economic-policy-making processes significantly reduces crime. Similarly, establishing an accurate, up-to-date and public beneficial ownership register, and strengthening the automatic exchange of tax information, helps address the commercial components of illicit financial flows.

On the step towards ensuring accountability, Mrs. Ahmed said that the establishment of the global Financial Accountability, Transparency and Integrity Panel (FACTI Panel) has been an important step towards ensuring accountability and coordination on financial illicit flows.

According to her, there is a need, however, for multilateral organisations to develop specific rules and processes to manage and prevent illicit financial flows. “Furthermore, eradication of the scourge requires sustained cooperation between Africa and multilateral organisations. We encourage the international community to explore and develop specific and targeted measures, including mutual legal assistance, to address barriers to international cooperation on this important matter.

“Let me stress that political will and leadership are key, as is a whole-of-government approach. It is important that we strengthen governance structures and adopt policies that enable legitimate transactions, and address the abuse of tax practices. Africa must have a seat at the table and be well represented ‘during negotiations about illicit funds and their proceeds.

She stated that it is also critical that countries that are the main destination for illicit financial flows and their proceeds take urgent steps to assist in combating the scourge, preventing the inflow of illicit funds, freezing or seizing assets already in the country, and by ensuring that illicit funds and any proceeds are repatriated. She also noted that asset recovery is critical to domestic resource mobilisation, especially in the aftermath of the COVID-19 pandemic.

“Here in Nigeria, we have taken proactive steps towards the recovery of stolen assets, in part through engagement with multilateral stakeholders; bilateral agreements on the return of stolen assets with several critical destination countries including the United States of America (USA) and Switzerland; and the establishment of an independent Financial Intelligence Unit (FIU) within the Central Bank of Nigeria (CBN).

“Moving forward, it is important to deepen efforts and enhance cooperation within government, and with the domestic private sector, civil society, professional organisations, and trade unions. Furthermore, we must work within our countries and across the region as whole to build institutional capacity on international taxation issues.

Not only does the global tax system need reforming, “we in Africa must take a lead in setting the agenda, given the disproportionate impact of IFFs on our collective economic and social development. Where necessary, efforts should be made by the international community to proactively ensure African representation in international tax bodies, potentially where there are barriers to entry that disproportionately impact the region.

Her position is that more needs to be done across Africa to ensure the recovery of stolen assets, and there is need for enhanced support to African countries from the international community in building the capacity and systems necessary to ensure sustained and effective asset recovery.

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Yunusa Tanko Abdullahi
S.A Media and Communications to the Honourable Minister of Finance, Budget and National Planning

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