Transcript Tax Havens and Illicit Financial Flows

Tax Havens and Illicit
Financial Flows – Three
Problems for Africa
Conference on: “Fighting Illicit Flows from Developing
Countries: What next for the EU Agenda”
EURODAD and Task Force on Financial Integrity and Economic Development
Brussels December 7-8, 2010
Africa and Illicit flows: Three problems
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A Hemorrhage Problem
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A Discovery Problem
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Large volume of illicit flows
The handshake: grabbing hand and receiving hand
“It takes two to tango”
A Recovery Problem
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
The banks: lack of transparency
The governments: responsibilities of African governments
& Foreign governments
The Hemorrhage problem


Important: distinguish licit capital flows from capital
flight or illicit flows
Capital flight from Africa: several channels
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Outright smuggling of public funds, including borrowed
funds (the “revolving door”)
Trade misinvoicing
Other unrecorded capital account transactions
Large volumes: for 33 countries 1970-2008

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Real capital flight in 2008 dollars: $734.9 billion
Accumulated (stock) of capital flight: $944.2 billion
Africa a “net creditor” : $767 billion (KF stock – debt
stock)
The Discovery Problem

The origin of illicit flows:
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Destination of illicit flows
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The “grabbing hand”: private actors – national and
foreign
Governance and regulation – corruption
The “helping hand”
Banking secrecy practices
We simply do not know how much
How capital flight hurts African economies
Or what African economies could gain from KF repatriation


Large losses in foregone investment and
growth
Deprivation of the African people due to
foregone public services:
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Education
Health
Infrastructure services
Capital Flight and Poor Tax Performance –Social Costs
Top 10 KF
country
Bottom 10 worst performers: tax, PHE, IMR
capital
flight ($bn) country
Tax/GDP % country
pub health
exp per
capita
country
infant
mortality
NGA
376855
SDN
7
ZAR
2
SLE
156
AGO
79962
COG
8
GIN
2
TCD
124
CIV
66247
CAF
8
SLE
4
MOZ
117
ZAR
48441
ETH
9
ETH
5
AGO
116
ZAF
36431
NGA
9
BDI
6
CAF
114
ZMB
35052
GIN
10
CAF
6
RWA
109
CMR
33256
SLE
10
UGA
6
ZAR
109
ZWE
31338
MDG
11
CIV
8
BDI
109
COG
26903
RWA
12
MDG
9
ZMB
104
ETH
25954
ZAR
12
ZWE
11
BFA
104
SDN
25699
GAB
12
MWI
12
NGA
99
GAB
21854
BFA
12
KEN
12
GIN
95
Color code: Blue = oil-rich; Red = minerals-rich
Large potential gains from KF repatriation
through investment
Investment/GDP (%), average 2000-2004
30
20
10
0
GDI/GDP
SSA
SSA+
25%
Low
Inc.
EA&P
18.9
29.6
21.1
24.2
LAC MENA
23
19.4
S.
Asia
27.4
Note: SSA + 25% = Gross domestic investment achieved following repatriation
of 25 percent of the stock of capital flight.
The Recovery Problem
Justification of capital flight repatriation: two arguments

First, a moral argument:
Capital flight was accumulated from resources
belonging to the African people;
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Second, an economic argument:
Repatriation of flight capital will support sustainable
growth while preserving financial independence
and without mortgaging the welfare of future
generations.
Responsibilities of African governments


Improvement of the regulatory framework and
the overall investment climate to attract
legally acquired private assets.
Governance: demonstrate to asset holders
that repatriated assets will not be subject to
extortion (distortionary taxation),
expropriation, etc.
Responsibilities of Western Governments
and the EU

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Enforce transparency in banking systems.
Utilize economic and financial intelligence
services to track illicit banking transactions
and tax fraud by African “politically exposed
persons” and private operators.
Support, ratify and implement specific
international conventions against fraud,
corruption, and money laundering.
Provide technical assistance in tax
administration and governance reforms
Responsibilities of Western banks

“Willful blindness”: Banks must report
suspected illicit financial transactions.

Banks must share information with
governments of their clients’ countries (where
transactions originate)