The report of the African Union/United Nations Economic Commission for Africa (ECA) High-Level Panel on Illicit Financial Flows from Africa (The HLP Report) chaired by H.E. Thabo Mbeki, former President of the Republic of South Africa, was adopted at the 24th Assembly of the African Union in 2015. The report details the various means, legal and illegal, by which IFFs take place in Africa. It outlines the practices driving IFFs and the facilitating conditions, including public sector corruption and global secrecy services that make the practice thrive. The report highlights the dominant contribution of commercial transactions, especially those of transnational companies (TNCs) in IFFs from Africa, detailing such mechanisms as abusive transfer pricing, trade mispricing, mis-invoicing of services and intangibles, and the use of unequal contracts, among others, for the purposes of tax evasion, aggressive tax avoidance and illegal export of foreign exchange. These are compounded by excessive tax concessions given to foreign companies.
The HLP Report recommends that Member States take the following actions, among others:
- Adopt a “whole-of-government approach” involving a coordinated approach by multiple institutions such as revenue authorities, financial and other regulatory bodies, anti-corruption agencies, investigating and prosecuting authorities, law reform and law-making institutions, among others.
- Tackle money laundering.
- Examine double tax treaties.
- Tackle base erosion and profit shifting.
- Establish transfer pricing units.
- Build capacity and empower relevant institutional architecture to combat IFFs.
- Establish the ABC of financial transparency, i.e. Automatic Exchange of Tax Information (AETI).
- Registration of the Beneficial Owners of companies (BOs), and Country by Country Reporting (CBCR) of profits made by multinational companies.
- Invest in research and analysis, including organizing and making accessible relevant data.
- Exchange information across nations and empower citizen groups to hold governments to account and contribute to the task of combatting IFFs.
In demonstration of their concern, African leaders endorsed the Report and passed a Special Declaration on IFFs from Africa (Assembly/AU/Decl.5. (XXIV)). The Special Declaration noted that IFFs constitute a drain on the resources required for Africa’s development, particularly given the domestic resource requirements for actualizing the African Union Agenda 2063 and the Post-2015 Development Agenda. The Declaration also called on African governments to take steps to curtail these flows through, among others, institutionalizing prudent legal and regulatory regimes, including fiscal policies that disallow financial secrecy; fighting corruption; strengthening African institutions; building capacity of Member States for contract negotiation and tax administration; and identifying and returning resources lost through illicit financial flows to finance Africa’s development agenda.
Closely following the July 2015 summit, the issue of IFFs was prominent for the first time during discussions at the Third International Conference on Financing for Development (FfD3), held in Addis Ababa, Ethiopia. This was evident in the outcome document of the conference – the Addis Ababa Action Agenda (AAAA) which highlighted the importance of tackling multinational tax avoidance and was evidently instrumental to the inclusion of Target 16.4 to reduce IFFs in the Sustainable Development Goals.
The Declaration of the Second African Union STC on Finance, Monetary Affairs, Economic Planning and Integration held in Addis Ababa, Ethiopia on 16 & 17 April 2018 reiterated the commitment by the Ministers and Central Bank Governors to fully implement the recommendations of the High-Level Panel on Illicit Financial Flows adopted by the African Union Assembly. Additionally, the Declaration on the African Anti-Corruption Year (Assembly/AU /Decl.1 (XXXI)) from the 31st Ordinary Session of the Assembly of African Union Heads of State and Government (July 2018) held in Nouakchott, Mauritania, recalled the Special Declaration on IFFs and called for the efficient recovery and return of stolen assets to Africa with due respect for the sovereignty of States and their national interests. This led to the development of the Common African Position on Asset Recovery (CAPAR) as well as its unanimous adoption reflected in Assembly/AU/Dec.774 (XXXIII) by the Heads of State and Government of the African Union Member States at their 33rd Ordinary Assembly held in Addis Ababa, Ethiopia, on 9&10 February 2020.
For more details download: High-Level Panel report