By Racheal Ishaya and Ifeanyi Nwoko
By most accounts developing countries especially in Africa are worst hit by illicit financial flows even as multinational companies and rich individuals evade taxes.
The 2015 leaks by the Panama Papers reports showed how many countries had lost huge sums as monies, carted away to offshore accounts and tax heavens.
Indeed, the leak came as a surprise as many countries realised that there were grave loopholes through which they were being short-changed.
Having identified the problem, the solution lied with countries agreeing to share information with one another to checkmate such activities.
The G20 and the Organization for Economic Cooperation and Development (OECD) have drafted a Common Reporting Standard (CRS) to serve as a foundation for a global network of automatic exchange of information.
The goal is to allow a country to exchange the financial information of foreigners, like names, addresses, tax identification numbers and account balance information, at regular intervals with the account holder’s home country government.
That way, a country like Nigeria can know all the businesses being entered into by its citizens in other countries and can monitor the financial flows of such a citizen and companies owned by such individual.
However, this seeming solution to the problem may not be a solution at all for developing countries as a report by Financial Transparency Coalition shows that African countries were being “Blindfolded” in this “fight” against secrecy.
It is not enough to sign the CRS as the report tagged “Unequal Exchange” showed that countries were not bound by the CRS to automatically share information and as such a pattern had been established over time were rich countries only share information with fellow rich countries.
Perhaps it could be argued that the rich countries have more financial flows from their countries, but when compared in relation to percentage of Gross Domestic Products (GDP), then developing countries are being ripped off even way more.
For instance, the report quoted that: “the Democratic Republic of Congo had nearly five times more offshore wealth connected to the Swiss Leaks scandal than Germany, when considered as a percentage of GDP.
“Similarly, the exposure of Central African Republic was eleven times that of the USA and the figure for Kenya nine times that of Canada. The list goes on.
“And this is not a theoretical concern. With the information made available through Swiss Leaks, in 2015 Spain claimed it recovered roughly 340 million dollars in taxes and fines.
“When applying a similar rate of return to the money connected to Sierra Leone, for example, the potential revenue could be about 4.95 million dollars
“Though 5 million dollars may sound paltry at the onset, the fact that the potential tax revenue from just one bank in just one secrecy jurisdiction could equate to roughly 19 per cent of the country’s health budget is simply shocking,” it stated.
An estimate from the report shows that about 33 per cent of all assets of the Middle East and Africa are held offshore while Latin America has 25 per cent of its assets offshore.
One then wonders why the pattern of information flows seems to favour the developed countries like the U.S. and other European nations while the developing countries of Africa who suffer the most are left blindfolded and in the dark.
In Africa, only South Africa had established sharing relationships with European countries: Nigeria just signed the report but it is said to come into effect in 2018.
According to the statistical map made available by the report, no other African country was receiving any information from the rich economies.
Conceivably, these information sharing treaties, developed by the Western countries are originally skewed to further favour the developed countries rather than the developing countries.
According to the report: “When the OECD and G20 began designing the CRS, they did so without meaningful consultation of low-income countries.
“The result was a system designed by wealthy nations, with wealthy nations in mind, making many of the prerequisites impossible for countries that don’t have sizable tax administration budgets or advanced technical capacity.
“To make matters worse, some wealthy countries are choosing to share information predominantly or exclusively with other wealthy countries.
“In our analysis of information exchange agreements in place around the globe, we found a stark political reality in which high-income countries receive the lion’s share of information, while some of the World’s poorest are receiving none at all.
This therefore may explain why a country like the United States of America receives information from 113 countries but only shares with 57 while other rich countries in the West only shares information with other wealthy countries.