Opinion: Africa must take the lead in capital flight

The Pandora Papers, the largest research effort to date to help elucidate the world of offshore financial services, show how serious the challenge of illicit financial flows to Africa is. The documents reveal that many prominent Africans hold assets in major financial centers abroad with the help of professional facilitators who provide them with secrecy, ensure asset protection and guarantee tax exemptions.

The investigation has also shown that these offshore services are not limited to the most popular tax havens. International accounting standard-setters such as the United States and the United Kingdom (directly and through their overseas territories) have shown themselves to be important financial actors in offshore operations, illustrating the hypocrisy underlying discussions of reforms over the past decade. And the Pandora Papers contain further evidence that Asian financial centers have also become major players in offshore operations, underscoring the global nature of the problem.

Some African initiatives have shown early leadership in assessing the problem and developing potential solutions. The African Forum of Tax Administrations, which was created in 2008 and includes 38 African states, has been a notable actor on tax reform issues. The High Level Panel on Illicit Financial Flows in Africa, a joint effort of the African Union and the United Nations Economic Commission for Africa, first met in 2012 and produced a report that was the subject of much discussion in 2015. At the time, it looked like offshore financial services would be a regular part of African Union discussions. Unfortunately, this is fading from the agenda.

In recent years, leadership in the fight against tax evasion appears to have shifted to international organizations such as the United Nations Conference on Trade and Development and the OECD, which launched its program on tax transparency in Africa in 2014. On the continent itself, independent media are playing a bigger role: the Pandora Papers involved 53 african journalists working in 18 countries, often under extremely difficult conditions. Civil society organizations such as the Tax Justice Network Africa are also actively participating in this field of action. But African governments and international organizations located in Africa have refrained from major initiatives.

As a result, there is no African multilateral body taking the lead on this difficult issue and the African organizations that were actively working on it five years ago have taken on what can only be described as a low-key profile. It’s hard to avoid the feeling that many of the continent’s rich and powerful have little incentive to jeopardize the deals that allowed them to move, hide and protect their possessions. Furthermore, the respective lawyers and financial advisers point out that many of these practices are not only legal, but are also common among multinationals active in Africa, particularly in the extractive industries. In this logic, there is no reason for Africans not to take advantage of the strategies pervasive in the global financial system.

This lack of concern by African states with illicit financing is reinforced by the perception that in most countries, most of the time, tax evasion is not an issue that indicates having public opinion. At best, leaders assume that whatever effect the issue has on public trust can be managed. They are certainly wrong, especially with younger voters, but that view shapes their evasive approach.

The role of external organizations and African civil society actors in combating offshore tax evasion is welcome. But the lack of initiative by African governments on this issue is regrettable. It is worrying that the absence of a robust and collective African response invites outsiders to shape the reform process in a way that will most likely continue to favor the major industrial powers. This trend is already visible in the way the reporting and disclosure of tax havens invariably targets micro-states and ignores important encouragers of illicit financial flows, such as the US and UK.

While some African states are never at the forefront of reform efforts in this area, those who have been victimized by these flows must raise their voices and work together to drive global action. Current efforts include the African Parliamentary Network on Illicit Financial Flows and Taxation, which has representatives from 11 countries. Other organizations that played an important role in the past, such as the African Union and the UN Economic Commission for Africa, could also reinvigorate their commitment. Multilateral efforts, such as the African Continental Free Trade Area, which is currently taking shape with strong intergovernmental support, could be used as vehicles to standardize fiscal rules and avoid a “race to the bottom” to attract foreign direct investment .

Illicit financial flows violently deprive governments of the resources they need to deliver the public goods – education, health care and trade and communications infrastructure – that are essential for long-term economic growth and prosperity. Africa’s interest in tackling this problem is as obvious as the need for African leadership to do so.