By Michele Fletcher, June 26, 2014
Last week, Namibian activists raised concerns about transfer pricing in Africa’s extractive sector in an open letter to De Beers. Their letter comes at a critical time in which transfer pricing and tax havens have contributed to an exorbitant amount of capital flight from developing countries. Namibia’s economy is hugely dependent on the extractive sector, particularly in diamond exports, which alone account for 10% of GDP. With increased scrutiny into transfer pricing just across the border in South Africa’s platinum mines, these Namibian activists have delivered a timely, earnest demand to investigate transfer pricing in their own country.
Multinational corporations (MNCs), especially those which operate in Africa, are coming under increased scrutiny by governments, media, and the public over their bookkeeping and payments to governments. The extractive sector in particular has been the focus of new regulations on financial transparency: an extremely positive development, but one which has so far missed an opportunity address larger issues concerning abusive transfer pricing and how MNCs of all sorts conduct their fiscal operations.
By Tom Cardamone, May 28, 2014
A Quarterly Newsletter on the Work of Global Financial Integrity from January through May 2014
Global Financial Integrity is pleased to present GFI Engages, a quarterly newsletter created to highlight events at GFI and in the world of illicit financial flows. We look forward to keeping you updated on our research, advocacy, high level engagement, and media presence.
This year has been busy so far, with GFI staff traveling to six continents within the first three months alone. The following items represent just a fraction of what GFI has been up to, so make sure to check our new website for frequent updates.
Measurable Change in India
In late April, the Indian Directorate of Revenue Intelligence released a summary of its first two years of increased law enforcement activity targeted at cases of commercial fraud, including illicit financial flows through trade misinvoicing. Their early results have been remarkable: between March 2012 and March 2014, they detected $1.3 billion worth of commercial fraud, and collected $396 million in new revenue.
India is just beginning its effort to crack down on trade-related illicit financial flows, and should serve as an example of the potential that curtailing trade misinvoicing has for development. India began working in earnest to reduce illicit financial flows after a report by Global Financial Integrity showed the economy had lost $462 billion since 1948 due to illicit outflows. Following years of intense political debate and public outcry, the Indian Ministry of Finance declared trade misinvoicing its ‘top priority’ and began working with GFI and others to address it.
Photos from the launch events for our May 2014 report, “Hiding in Plain Sight: Trade Misinvoicing and the Impact of Revenue Loss in Ghana, Kenya, Mozambique, Tanzania, and Uganda: 2002-2011,” which was funded by the Danish Ministry of Foreign Affairs.
These photos were taken from the launch events in Copenhagen, Denmark, and in Accra, Ghana.
While the precise magnitude and consequences of illicit financial flows in African countries — and throughout the developing world — deserve further analysis, it is clear that such flows are wreaking havoc on the continent. Any sustainable approach to global development has to curtail illicit flows and the mechanisms facilitating them. Only then will we be able to mobilize domestic resources for long-term development.
The Little-Understood Practice of Misinvoicing or Re-Invoicing Relies on Legal Grey Areas and Financial Secrecy and Costs the Continent Dearly
Lately, the media has been replete with stories about how Africa is losing billions of dollars a year through a process called “trade misinvoicing.” The concept of trade misinvoicing is simple: companies and their agents deliberately alter the prices of their exports and imports in order to justify moving money out of, or into, a country illicitly.
The practice is very common in Africa. To name just a couple instances, it has allegedly been used to avoid paying import duties on sugar in Kenya and to shift taxable income out of Zambia and into tax havens abroad.
WASHINGTON, DC – As the world commemorates International Anti-Corruption Day on Monday, December 9, 2013, Global Financial Integrity (GFI)—a Washington-based, non-profit research and advocacy organization—reviewed many of the most notable achievements, developments, and shortcomings in fighting corruption and illicit financial flows for 2013.
“2013 has proven to be a landmark year in terms of policy advancements to curtail corruption and illicit financial flows,” said GFI President Raymond Baker, a longtime authority on financial crime. “Years of hard work by policymakers, researchers, and advocates culminated in real, on-the-ground policy achievements that will directly impact the amount of money leaving developing countries. We saw a few setbacks, but overall the year was very encouraging.”
Recent Study Shows Integrity Institutions Lack Effectiveness in Controlling Looting of Wealth
DAKAR, Senegal – Economies in Africa have lost between $597 billion and $1.4 trillion in net resource transfers in the past three decades, despite the growth in integrity institutions on the continent, according to a recent study conducted by Global Financial Integrity (GFI). Illicit financial flows are the topic of a two-day forum organized by the Open Society Initiative for West Africa (OSIWA) and TrustAfrica on December 9th and 10th, at Terrou Bi Hotel in Dakar, Senegal.
The Right Leader for South Africa—and the World—at the Right Time
WASHINGTON DC – Global Financial Integrity today mourned the passing of civil rights leader and former South African President Nelson Mandela, who died yesterday at his home in South Africa at the age of 95. Global Financial Integrity expressed sympathy for the people of South Africa for losing an iconic leader.
After nearly three decades of imprisonment, Mandela was freed in 1990. He publicly responded with a message of reconciliation, rather than vengeance, and helped unite South Africa after the end of apartheid. Later, Mandela was elected as the first black President of South Africa, and pursued an agenda of social welfare and inclusion.
