Botswana Illicit financial flows top P200bn � report
Pauline Dikuelo | Friday April 15, 2016 12:50
IFFs are illegal movements of money or capital from one country to another. GFI classifies this movement as an illicit flow when the funds are illegally earned, transferred, and/or utilised.
According to the 2015 report, between the years 2004 to 2013, up to US$20 billion might have been moved through illicit circumstances in Botswana putting the country in the same boat with other developing countries with cumulative IFFs.
In Southern Africa, Botswana is in the same group as Namibia and Zambia while South Africa, which has been regarded as global conduit for illicit trade has over $400 billion IFFs in the same period.
South Africa made the largest jump from 10th to the seventh spot surpassing Nigeria to become the largest IFF source country on the African continent while Nigeria has dropped from the ninth to the 10th spot.
In the year 2004, about $13.7 billion IFFs were recorded in Botswana with about $1.1 billion recorded in 2004 and US$1.2 billion in 2013. On trade misinvoicing outflows, Botswana recorded a cumulative $12.8 billion, about $880 million recorded in 2003 and US$1.2 million in 2013.
On average, IFFs compared to Gross Domestic Product (GDP) in Botswana were recorded at 10 percent together with its African counterparts, Namibia and Zambia.
According to the report, which was released late last year, the IFFs mostly originated from corruption, illegal resource exploitation and tax evasion, which include smuggling and transfer mispricing. The report, which was compiled by Dev Kar and Joseph Spangers states that illicit flows were usually through organised syndicates which produce goods and services or attract resources legally and illegally from the country.
Trade has been identified as the most used in transfer mispricing, tax evasion compared to the financial sector. This year the report shows illicit outflows of capital have cracked the $1 trillion mark. Each year over $800 billion illicit trade exits between developing countries.
Nearly 80 percent of the total IFFs between 1980 to 2008 were concentrated in a group of 10 countries whereby trade mispricing was dominated by extractive industries. Globally about 60 percent is in form of commercial transaction involving multinational enterprises including tax evasion through transfer and trade mispricing. About 35 percent is through criminal activities such as trade in drugs and smuggling of weapons and people while five percent is done through corruption and theft of public funds.
GFI’s lead economist Kar noted that the IFFs has push factors, which include corruption, weak enforcement and existence of tax havens.
“Illicit financial flows can impact the real sector growth and monetary sector destabilisation by draining hard currency, stimulating inflation and increasing financial liquidity risk. They can also undermine trade and reduce tax revenue and collection,” he added.
In order to curb the IFFs, Kar suggests that governments should establish public registries of verified beneficial ownership information on all legal entities adding that all banks should know the true beneficial owners of any account opened in their financial institution.
“Government authorities should adopt and fully implement all of the financial Action Task Force’s anti money laundering recommendation laws already in place and should be strongly enforced,” he said.
In addition, he said that policymakers should require multinational companies to publicly disclose their revenues, profits, losses, sales, taxes paid, and subsidiaries and staff levels on a country-by-country basis.