The clarion call to action against illicit financial outflows and tax evasion/underpayment by multinational companies resonated recently at the Platform for Collaboration on Tax (PCT) Conference held in New York, United States. Nigeria, at the conference organised by the Organisation for Economic Cooperation and Development (OECD), in collaboration with the World Bank and the International Monetary Fund (IMF), expressed profound concern about illicit financial outflows from the country and tax evasion by International Oil Companies. Nigeria’s worries are understandable, considering the country’s ranking as having the highest annual illicit financial outflows in Africa.
Speaking on tax issues and revenue leakages in Nigeria, the Minister of Finance, Mrs. Kemi Adeosun, noted that illegal financial outflows have continued because foreign countries have placed hurdles on efforts to repatriate stolen funds stashed away in their domains, with the problem worsened by the unwholesome behaviour of some multinational companies operating in Nigeria and other developing economies.
“There is absolute need,” Mrs. Adeosun said, “for a complete understanding of how these multinational companies behave in Nigeria and other developing countries. Many of them operate a completely different standard in Africa, contrary to what obtains globally.” She also accused the defaulting multinational companies of hiding “behind slow legislative processes” to perpetrate wrong activities in the countries from which they derive significant income.
Nigeria asked for the collaboration of the global community to designate tax evasion by multinationals across developing countries as a “foreign corrupt practice”, stressing that such an odious label will help to facilitate the Nigeria’s current efforts to sue the erring IOCs in their own countries. Indeed, Africa, in particular Nigeria, has lost a lot in revenue and image to illicit financial outflows and tax evasion by multinational organisations in the country, which are sometimes in cahoots with unpatriotic Nigerian financial institutions and public agencies.
For instance, the Vice President, Prof. Yemi Osinbajo, told the Federal Executive Council (FEC) at one of its meetings that Nigeria lost about $178 billion to illicit financial outflows in the last ten years. Just last year, the Federal Inland Revenue Service (FIRS) also disclosed that the country lost N306bn yearly to tax evasion by IOCs. This is 13 percent of the capital budget in the proposed 2018 federal budget. According to the FIRS Chairman, Mr. Babatunde Fowler, the amount resulted from the companies’ failure to file true and proper tax returns to government agencies. According to the Sustainable Development Goals (SDGs), Nigeria ought to significantly reduce illicit financial outflows by the year 2030.
A Washington-based think tank, in a recent report, put illicit financial outflows from Africa and other emerging economies at between $2 trillion and $3.5trn yearly. Nigeria, the report said, is the most “vulnerable” country in Africa to the flight of capital needed for investment and other purposes. The report further shows that combined illicit outflows and inflows amounted to 14.1 percent to 24 percent of the developing countries’ total trade from 2005 to 2014, the last year comprehensive data were made available.
While the support of the global community is needed to tackle this problem, Nigeria must take up the gauntlet and move from mere declarations of intent to decisive action to stem the trend. Increased surveillance and tightening of internal controls are necessary. Other measures must include addressing poor governance, weak regulatory structures, which oftentimes aid illegal financial outflows.
We are aware that the government has put some measures in place to address this problem, one of them being the new National Tax Policy. It is also necessary to strengthen independent institutions and the agencies of government responsible for checking illicit financial flows. The authorities should ensure improved cooperation among revenue authorities, financial intelligence units and the law enforcement agencies at domestic and international levels. There should also be improved networks for information sharing. The goal of stemming illegal outflows can also be achieved by strengthening the asset recovery measures already in place, and ensuring that assets recovered as proceeds of corruption are returned to the affected countries.
Nigeria is still having talks with countries where state funds looted by discredited public officials are stashed. In 2016, Nigeria signed a Memorandum of Understanding (MoU) with the United Kingdom on looted assets. Tough legislations that can discourage the movement of stolen funds from one country to the other have become essential. It is also necessary to institute stiff measures against banks which serve as conduits for fraudulent financial outflows. According to the Global Financial Integrity Group, a financial watchdog based in the USA, about $15.7bn illicit funds passed through the Nigerian banking system.
Globally, yearly cross-border flow of proceeds of criminal activities is estimated at between $1trn and $1.6trn, half of which is reported to be from developing and transitional economies. This means that the Central Bank of Nigeria (CBN) and the Economic and Financial Crimes Commission (EFCC) will need to work harder to stem illegal outflow of funds from the country.