Nigeria has yet again made the top ten on the list of nations that suffer most from illicit financial flows from among developing countries in the last decade.
This is according to the latest report by Global Financial Integrity released in December 2014. The report finds that developing and emerging economies lost US$6.6 trillion in illicit financial flows from 2003 through 2012.
With $129bn of its wealth illegally shipped abroad through acts of money laundering and tax evasion in the last ten years, the report placed Nigeria at number seven on the list of countries with illicit outflow of resources between 2001 and 2010.
Revealing that developing world lost US$859 billion in illicit outflows in 2010 alone, an increase of 11 percent over 2009 figures, the report asserted that illicit financial flows have increased in every region of developing countries.
The capital outflows stem from crime, corruption, tax evasion, and other illicit activity. According to the group’s report, it finds that illicit financial flows, from 2001 to 2010, developing countries lost US$5.86 trillion to illicit outflows. The real growth of illicit flows by regions over period of study shows as follows: Africa 23.8 percent, Middle East and North Africa (MENA) 26.3 percent, developing Europe 3.6 percent, Asia 7.8 percent, and Western Hemisphere 2.7 percent.
The recent report shows that illicit outflows are increasing at a staggering average rate of 9.4 percent per year. China leads the world over the 10-year period with US$1.25 trillion in illicit outflows, followed by Russia, Mexico, India, and Malaysia. China also had the largest illicit outflows of any country in 2012, amounting to a massive of US$249.57 billion in just that one year.
This is the first report to include estimates of illicit financial flows from developing countries in 2012 which the study pegs at US$991.2 billion.
According to the financial integrity body, illicit financial flows from developing countries are usually facilitated and perpetuated by obscurity in the global financial system. More so, the endemic issue is reflected in many well-known ways, such as the existence of tax havens and secrecy jurisdictions, anonymous companies and other legal entities, and innumerable techniques available to launder dirty money.
The most popular instance is through misinvoicing trade transactions which is often called trade-based money laundering used to move the proceeds of criminal activity.
The GFI recommended that all countries should take whatever steps are needed to comply with all of the Financial Action Task Force (FATF) recommendations to combat money laundering and terrorist financing.
While policy environments vary from country to country, there are certain best practices that all countries should adopt and promote at international forums and institutions such as the G20, the G8, the United Nations, the World Bank, the International Monetary Fund, and the Organisation for Economic Co-operation and Development (OECD).
For instance, Nigeria boasts several anti-money laundering laws, including the Money Laundering (Prohibition) Act, 2011; Terrorism (Prevention) Act, 2011; and the Central Bank of Nigeria Anti-Money Laundering/Combating the Financing of Terrorism Regulation, 2009 (as amended).
The problem is mostly the implementation of these acts. Just few months ago, the Nigerian government violated a number of key anti-money laundering laws in its botched attempt to buy arms and military equipment from South Africa with $9.3 million cash stacked in suitcases.
This is whereas, Section 2 of the Money Laundering (Prohibition) Act, 2011 clearly pegged the cash transfer allowed into a foreign country at $10,000 or its equivalent. The law stipulates that any cash transfer exceeding that limit must be reported to the Central Bank of Nigeria (CBN), the Security and Exchange Commission (SEC) or the Economic Financial Crimes Commission (EFCC) within seven days from the date of the transaction.
Section 2 (5) of the Act states that anyone caught flouting the law by failing to declare such transfer or making a false declaration could risk being jailed for up to two years as well paying a fine of up to 25 percent of the undeclared or falsely declared fund upon conviction.
Similarly, Section 12 (b) of the Foreign Exchange (Monitoring Miscellaneous Provision) Act stipulates that “foreign currency in excess of US $5,000 or its equivalent, whether being imported into or exported out of Nigeria, shall be declared on the prescribed form for reasons of statistics only.”
Further, Section 25 of the same law requires any international cash transfer exceeding $10,000 or its equivalent to be reported to the central bank. Thus in some way, the implementation of the money laundry acts has been low as the authorities are also culpable in some cases.
Furthermore, cases of money laundry continue to drive due to lack of strong enforcement of the regulations. For example, the Nigeria Drug Law Enforcement Agency (NDLEA) says it has handed over 70 cases involving money laundering to the EFCC from 2006 to date. Unfortunately, many of these cases may not have seen the light of the day.
A typical example was when Southwark Crown Court of London convicted former Delta State Governor James Ibori of money laundering and sentenced him to 13 years in prison.
He pled guilty to one count of conspiracy to launder money, five counts of money laundering and one count of obtaining a property transfer by deception over the theft of more than £25 million, while he was governor of Delta State between May 1999 and May 2007. But this was after he was tried by a Federal High Court in Asaba, Nigeria and acquitted on all 170 charges.
The Global Financial Integrity 2014 report thus urged regulators and law enforcement officials to strongly enforce all of the anti-money laundering laws and regulations that are already on the books, including thorough criminal charges and penalties for individuals employed by financial institutions who are culpable for allowing money laundering to occur.
All countries and international institutions should address the problems posed by anonymous companies and other legal entities by requiring or supporting meaningful confirmation of beneficial ownership in all banking and securities accounts.
Additionally, information on the true, human owner of all corporations and other legal entities should be disclosed upon formation, updated on a regular basis, and made freely available to the public in central registries. The United Kingdom2 and Denmark3 have made progress on this front recently, with both countries announcing that they would create such public registries of beneficial ownership information–at least for corporations. Other countries should follow their lead.
There was also a recommendation that, all countries should require multinational corporations to publicly disclose their revenues, profits, losses, sales, taxes paid, subsidiaries, and staff levels on a country-by-country basis, as a means of detecting and deterring abusive tax avoidance practices. Governments should significantly boost customs enforcement by equipping and training officers to better detect the intentional misinvoicing of trade transactions.
Trade transactions involving tax haven jurisdictions should be treated with the highest level of scrutiny by customs, tax, and law enforcement officials, given the greater potential for abuse.
As the GFI aims to reduce illicit financial flows related to trade misinvoicing by 50 percent by 2030, government of nations were urged to take stringent measures against money laundry and related financial offences. More so, focusing on trade misinvoicing, which is the most common method for moving money illicitly, as this report shows, will target more than three quarters of global illicit financial outflows from developing economies.
Finally, all countries should actively participate in the global movement toward the automatic exchange of financial information as endorsed by the G20 and the Organisation for Economic Co-operation and Development (OECD).
Again, the G20 and the OECD need to do a better job at ensuring that developing and underdeveloped countries are able to participate in the process and are provided the necessary technical assistance to benefit from it.
The coming year is expected to present a spectacular opportunity to tackle the scourge of illicit financial flows. As the Millennium Development Goals (MDGs) are set to expire in 2015, the United Nations will formally transition to its post-2015 development agenda, known as the Sustainable Development Goals (SDGs), which will set the global development agenda for the next 15 years.
With developing and emerging economies haemorrhaging roughly US$1 trillion in illicit financial flows per year—as this report demonstrates—there may be no better area on which to focus the global development agenda in order to achieve sustainable results. This is why GFI is calling on the United Nations to adopt a clear and concise target.