U.S. tax policy can help Africa fight illicit financial flows – Foreign Policy

An expert’s point of view on a current event.

May 17, 2021, 05:49

As US presidential candidate, Joe Biden declared that he “would lead international efforts to bring transparency to the global financial system, attack illicit tax havens, seize stolen assets and make it harder for rulers who steal their people to hide behind corporations anonymous screens “. Nowhere will his intervention be more welcome than in Africa.

According to the United Nations Conference on Trade and Development, illicit financial flows outside Africa stood at $ 836 billion from 2000 to 2015, while the continent’s external debt for 2018 was $ 770 billion. Each year, Africa loses an estimated $ 88.6 billion to illicit financial flows, nearly double its annual official development assistance, valued at $ 48 billion, and almost half of its funding gap. annually, valued at $ 200 billion, to achieve the Sustainable Development Goals.

Stemming illicit financial flows and returning stolen assets are therefore an absolute priority in countries on the continent wishing to finance national development. It would be extremely beneficial for Africa if Biden made the fight against illicit financial flows a central element of US policy in Africa. After all, the United States is partly to blame for Africa’s financial hemorrhaging problem.

This is because Washington, as the major shareholder of the Bretton Woods institutions, imposed capital account liberalization on African countries as part of the structural adjustment programs of the 1980s and 1990s, even though African countries did not ‘had not put in place adequate protections to guard against illicit financial flows. , which has skyrocketed with the influx of multinational corporations.

the 2015 Report of the High Level Panel on Illicit Financial Flows from Africa (also known as the Mbeki report named after former South African President Thabo Mbeki, who chaired the panel) found that 65% of illicit financial flows from the continent came from the business activities of multinational companies through the biased transfer pricing, bogus commercial billings, bogus billings for services and intangibles, treaty shopping and unequal contracts; the remaining 35 percent are linked to criminals and funds stolen by government officials.

A Brookings Institution Report also revealed that from 1980 to 2018, the United States was only the second destination after China among the main destinations for illicit financial flows from sub-Saharan Africa. The United States hosted $ 129 billion, representing 9.1% of illicit financial flows from the region during this period.


The United States continues to be a destination of choice for illicit financial flows from Africa, thanks to its status as a “jurisdiction of secrecy” facilitating offshore private tax evasion. For the second time in a row, in 2020, the United States ranks second out of Tax Justice Network Financial Secrecy Index, overtaking Switzerland. Meanwhile, U.S. Foreign Account Tax Compliance Act (FATCA) law has made it difficult for U.S. citizens to store money abroad.

While FATCA requires foreign financial institutions and signatory governments to disclose to US authorities information about the holdings of US citizens in their jurisdiction, the US government is waiving its reciprocal obligation to provide the 113 participating governments with information on the holdings of US citizens. assets of their citizens held in the United States. The United States has also resisted joining more than 100 countries that have so far adhered to the Organization for Economic Co-operation and Development Common Reporting Standard, an inspired and modeled after FATCA platform for automatic exchange of information on foreigners’ financial accounts. with the governments of their country of origin.

The reluctance of the United States to disclose information about the assets of foreigners has made it a preferred offshore tax haven, effectively attracting more transparent tax haven funds. The US financial system also provides a lifeline for African criminals who exploit it to support illicit activities such as money laundering; drug, arms and human trafficking; contraband contraband; and the financing of terrorism. Funds from these criminal activities constitute 30% of illicit financial flows from Africa, according to the Mbeki report, while the remaining 5%, part of which also infiltrates the US financial system, comes from corruption and theft of money. public funds by representatives of the African government.

Although the United States recently passed beneficial ownership law as part of the National Defense Authorization Act, the new law is not ambitious enough improve the ranking of the United States in the Tax Justice Network Financial Secrecy Index.

The many exceptions to beneficial ownership reporting and the limited categories of businesses required to report mean that criminals and tax evaders can still own entities in the United States without disclosing their identity. In addition, the US government does not provide open access to beneficial ownership information, unlike the UK, which provides public access to such information, and the European Union, which also requires member countries to provide public access to information on beneficial owners.


The United States would benefit from supporting Africa’s fight against illicit financial flows. The US government will commit fewer financial resources and security personnel to tackle insecurity in Africa when the financiers of conflict and terrorism on the continent are denied access to illicit funds.

The US government will also spend less on foreign aid to a more economically independent Africa and see a decrease in illegal immigration from the continent. And while American programs such as the Young African Leaders Initiative provide important training and opportunities for a few selected (and arguably advantaged) young Africans, a multitude of young Africans will realize their potential and spur the continent’s growth if the money which is currently being siphoned off from the continent is funneled into increased access to quality education and employment opportunities.

Supporting Africa’s fight against illicit financial flows is also a moral issue, especially since Biden is committed to tackling systemic racism against African Americans. The defense of the economic rights of Africans (through supporting Africa’s fight against illicit financial flows) must go hand in hand with efforts to combat discrimination against African Americans. As long as Africa remains underdeveloped, people of African descent all over the world will face discrimination.

Stopping illicit financial flows will also provide the United States with an opportunity to claim high moral standards against China, which America accuses of exploiting Africa. The Brookings Report estimated illicit financial flows from sub-Saharan Africa to China from 1980 to 2018 at $ 226 billion (almost double the illicit flows to the United States during the same period), with 85 percent of these illicit flows that occurred between 2010 and 2018 as China’s trade with Africa has grown rapidly.

The United States must show the strength of its example when it comes to illicit financial flows. The recently announced proposal by United States Secretary of the Treasury Janet Yellen for a global minimum corporate tax rate of 21% (in the wake of the Biden plan to increase the corporate tax rate in the states United at 28%) mainly favors the rich countries by reducing the incentive for their multinationals to divert the revenues of their countries to tax havens for companies.

Multinationals that pay corporate tax rates below 21% in foreign jurisdictions should always pay the difference to their home government. According to this proposal, African countries would continue to lose income through profit shifting, as their statutory corporate tax rates are much higher. The average statutory corporate tax rate in Africa for 2021 is 27.5%, according to at KPMG. Tax rates for sectors such as mining, oil and gas can be as high as 35 or 40 percent. The U.S. government should protect the interests of African countries and other developing countries by including an element of unitary taxation in the proposed minimum corporate tax, to ensure that developing countries receive taxes commensurate with the volume of taxes. sales and employment of multinationals in their country.

The United States must also demonstrate its commitment to increasing the transparency of the international financial system by providing public access to beneficial ownership information and by adhering to the Common Reporting Standard. The US government can further support Africa by easily providing details of Africans’ holdings in the United States to their governments through FATCA and national financial intelligence units. Better access to this information will accelerate efforts by African governments to return stolen assets to the continent.

Finally, the United States could partner with African countries through technical and financial support to their international tax services, the majority of which are understaffed and underfunded, and would thus face challenges in audit of multinationals and compliance with reporting obligations vis-à-vis platforms such as the Common Reporting Standard. Government organizations and agencies should also support more good governance programs, journalists and whistleblowers in Africa to control corruption on the continent and expose financial crimes.

Accountants and lawyers at American firms, such as the Big Four accounting firms and consulting giants, have been accused of largely being partner in crime in the illicit transfer of money from Africa and would have helped African kleptocrats and money launderers who hide money abroad.

US authorities must crack down on these companies by adopting and enforcing strict regulations to prevent them from dealing with suspicious transactions from suspected criminals and politically exposed persons. The US Financial Crime Network must also stop US banks from handling of suspicious transactions when banks file suspicious activity reports. To deter these powerful US banks from continuing to serve suspicious customers even after receiving huge fines and deferred prosecution agreements, the US government should fully prosecute the leaders for violating these regulations.

Global financial transparency will increase dramatically with the power and political will of the United States. Biden should start by imposing comprehensive tax policies that favor all countries over those that closely serve American interests. This will strengthen the status of the United States as a world democratic leader.


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Alan Adams

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