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The East African : March 24th 2014
The EastAfrican 42 BUSINESS MARCH 22-28,2014 Ha≥ness ≥egional integ≥ation to fight illicit financial flows out of Af≥ica COMMENTARY ALEX COBHAM “Illicit flows involve the hidden movement of profits, transfers of ownership or hidden income streams.” lion dollars from Africa since 1980. These flows undermine the tax base, damage political institutions and exacerbate inequality. With major momentum behind T global countermeasures, there are clear opportunities for progress at the regional level — including through stronger information exchange and co-operation, tax base harmonisation and innovative uses of trade data. Illicit flows involve the hidden movement of profits, hidden transfers of ownership, or hidden income streams. The main motivations are tax evasion, laundering the proceeds of crime and corruption. These will often rely on the manipulation of trade prices and the use of anonymous companies in secretive “tax haven” jurisdictions. Because illicit flows rely on being hidden, the main counter-measures are improvements in specific elements of financial transparency. Growing civil society demands for “tax justice” in many countries, coupled with the sharp rise in fiscal pressures on politicians in many of the Organisation for Economic Cooperation and Development (OECD) economies since the financial crisis that began in 2008, culminated last year in a series of substantive steps in the fight against illicit financial flows. The G8 countries took a lead on the importance of knowing the owners of companies recognising that this is important to well-functioning markets and combating corruption, and that their own lack of transparency has global ramifications. he African Development Bank (AfDB) estimates that illicit financial flows have drained in excess of a tril- There was agreement at the G8 and G20 meetings on the need for automatic, multilateral exchange of tax-relevant information between jurisdictions, and the OECD was mandated to produce a standard. This includes information about ownership of assets and income streams, and beneficial ownership information is necessary to make it function and to tackle not only tax abuse, but also other areas of illicit flows. Last year also saw a spate of high- profile reports, including those from the AfDB and the African Progress Panel, on the scale of illicit financial flows out of Africa. The UN Economic Commission for Africa’s High Level Panel, chaired by Thabo Mbeki will publish a major report later this year. Drawing on two years of technical analysis, case studies and multiple country visits to engage with governments and civil society, the Mbeki report’s recommendations are likely to prove influential both within Africa and in providing clear African leadership in the ongoing global processes. There is no question then that the 1. African policy makers are focused on the issues. They now face three major questions: What national or regional countermeasures are likely to yield ternational processes? The answers to all three are 2. 3. linked, because the opportunity to benefit from international processes will depend on regional and national actions. Consider first the opportunity of engaging in automatic, multilateral exchange of tax information. To meet international responsibilities national policy makers should ensure the collation of, and publishing, registers of the beneficial ownership of their own companies. Failure to Corrupt African governments keep cash in secret tax havens. Picture: File do so means that countries risk providing the secrecy that can promote illicit financial flows elsewhere. This same step is also necessary to provide reciprocity in information exchange, which the new OECD standard makes a general requirement — so if Ghana, for example, wishes to receive information about Ghanaians’ assets in Jersey, Ghana would need to be in a position to reciprocate. This means Accra would need systems in place to identify domestically all overseas beneficial owners and the specific residence jurisdictions thereof. Overall then, establishing effec- tive systems to identify beneficial ownership in the financial system and of companies will have di- benefits by reducing illicit financial flows? What national or regional countermeasures are needed to meet international responsibilities? What scope is there for greater benefits from the ongoing in- If Ghana wishes to receive information about Ghanaians’ assets in Jersey, Ghana would need to be in a position to reciprocate.” rect domestic benefits; will ensure countries meet their international responsibilities; and will provide the basis to participate in the new standard of automatic exchange of tax information, when reciprocity is required. The area of automatic exchange of tax information also provides a powerful example of the benefits of regional co-operation. While unilateral US demands for information under the Foreign Account Tax Compliance Act have forced new openness from some of the most secretive jurisdictions such as Switzerland, the principle of multilateral exchange was pioneered, and the precedent set, by the European Union through its Savings Tax Directive. This regional initiative has also led to the strengthening of member systems domestically in order to facilitate co-operation, and has managed to include those member states that are most opposed to transpar- ency. The equivalent within, for exam- ple, the East African Community, could yield similar benefits. In addition, it would also provide a powerful antidote to some sceptical OECD members and others, who have claimed that lower-income countries would not be able to establish the required systems, nor deal effectively or confidentially with the resulting information. One further area in which re- gional groupings could take a lead in co-operating is in the use of customs data. First, by sharing trade price data, countries automatically expand the dataset against which they can judge and identify abnormal pricing. In the Open Government Guide, I propose working with major trading partners to identify abusive pricing happening at each end of the same transactions. Starting such a process on a regional basis could be powerful and also provide a demonstration to other trade partners of the value of cooperation. Greater regional integration to curtail illicit financial flows has the potential to support a clearer and more credible African position in the international processes which otherwise risk responding to OECD and G20 member priorities, rather than reflecting the diversity of African countries’ situations. Alex Cobham is a research fellow at the Center for Global Development in Europe. Uganda opens up national pa≥ks to investo≥s f≥om No≥dic count≥ies By BARBARA AMONG Special Correspondent UGANDA HAS opened up its national parks and protected wildlife areas to investors from the Nordic countries, who would like to invest in the hospitality industry. The planned investments will be in hotels, cottages, camp sites and will include refurbishing and managing the existing ones. “We have always lacked accommodation and our target is to have investments to increase the current capacity,” said executive director Uganda Wildlife Authority, Andrew Seguya. Uganda is targeting the Nordic countries — Denmark, Finland, Iceland, Norway and Sweden — because of the increas- ing number of tourists from the region, now at 10 per cent of total number of tourists to Uganda. According to UWA, given the high de- mand for investment opportunities within the parks — seen as a safer area for investments by foreigners given the land holding challenges in Uganda — all opportunities in these parks will be publicly advertised in the media and competed for through a process guided by the Procurement Authority regulations. “All investments with- in the Parks are temporary, that is, it is only for a stipulated time, say 10 to 30 years. Thereafter all as- sets revert to UWA,” said Raymond Engena, director Tourism Development and Business Services, Uganda Wildlife Authority. The target areas are Murchison Falls con- $1.8 billion The amount of money Uganda got from tourism last year servation area, where investors will set up a luxury tented lodge close to the Ayago River confluence. This will include a luxury tented camp of 20 to 30 beds within the northern bank. The state is also looking to up a 20-bed mid-budget tented camp within the Karuma Wildlife Reserve. In the Queen Elizabeth conservation area, the government is seeking an investor to refurbish, develop and manage Ishasha bandas with a view to changing it into a mid-market accom- modation facility of 30 beds. The investor will also be expected to construct up-market and mid-market facilities of about 50 beds within the Ishasha sector to cater for visitors interested in watching the tree climbing lions in the area. Tourism has become an important sector in Uganda, bringing in about $1.8 billion last year, making the sector the second foreign exchange contributor after remittances from abroad. Statistics from the Uganda Bureau of Statistics show that the sector fetched $805 million as of August 2012. Uganda prides in its diverse and unique range of nature-based attractions. It has over 3,200 tourism sites and efforts are underway to classify them for better promotion.
March 17th 2014
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