How to steal from Africa, all perfectly legally

When UK PM David Cameron opens the Anti-Corruption Summit on 12 May, we should be aware that the greatest fraud perpetrated on the majority of the world’s citizens is all perfectly legal.

The City of London, arguably the heart and headquarters of a network of international tax havens. Credit: Michael Garnett.

The City of London, arguably the heart and headquarters of a international network of tax havens. Credit: Michael Garnett.

Africa loses at least $50 billion a year — and probably much, much more than that — perfectly lawfully. About 60% of this loss is from aggressive tax avoidance by multinational corporations, which organise their accounts so that they make their profits in tax havens, where they pay little or no tax. Much of the remainder is from organised crime with a smaller amount from corruption. This was the headline finding of the High Level Panel on Illicit Financial Flows from Africa, headed by former South African President Thabo Mbeki, a year ago.

This amount is the same or smaller than international development assistance ($52 billion per year) or remittances ($62 billion). If we take the accumulated stock of these illicit financial flows since 1970 and factor in the returns on this capital, Africa has provided the rest of the world with $1.7 trillion, at a conservative estimate. Africa is a capital exporter.

The rest of the world didn’t take much notice of the Mbeki Panel’s findings until the Panama Papers revealed the extent to which this is just part of a global phenomenon. The rich aren’t being taxed. The rest of us pay for everything.

The OECD calls the phenomenon ‘base erosion’ (referring to the emasculation of the tax base of the affected countries) and ‘profit shifting’. The beneficiaries are a small fraction of the world’s wealthiest 1%, and the secrecy jurisdictions (aka tax havens) where they sequester their money. These locations include the City of London, numerous British overseas territories, Switzerland, and new entrants to the global business of looking after the monies of the hyper-wealthy and ordinarily wealthy, who would prefer not to pay tax. Countries including Mauritius, the Seychelles, Botswana and Ghana are seeking to enter this competition.

And the vast majority of this is perfectly legal.

Accountants’ alchemy

Two hundred years ago, the slave trade was legal. One hundred years ago, colonial occupation and exploitation were legal. This time the legal immiseration is done by accountants.

This dimension of unethical financial activity isn’t captured by Transparency International (TI) and its Corruption Perceptions Index. That index is, as it says, a measurement of perceptions. But of what andby whom? As the UN Economic Commission for Africa recently observed, it relies on asking key power players in a nation’s economy what they think of the level of corruption. Many of those are foreign investors. Using this approach a country like Zambia will unsurprisingly tend to rank high on corruption – 76 worst out of 168. Meanwhile, Switzerland will rank low – 7th.

But the perfectly legal transfer of the wealth of Africa to Europe isn’t captured by this index. As TI notes, “Many ‘clean’ countries have dodgy overseas records”. Consider this: the number one destination for Zambian copper exports is Switzerland, which in 2014 accounted for 59.5% of the country’s copper exports. Yet Switzerland’s own imports that year scarcely contained any mention of copper at all. Had the African country’s main exports just vanished into thin air? The 2015 figures suggest that in fact much of these exports were destined for China (31%), though Switzerland remained the number one destination (34%).

The answer to where the money goes lies in accountants’ alchemy. International corporations present their books in such a way that they pay as little tax as possible in either Zambia or China. And they don’t pay much in Switzerland either – because the Swiss don’t demand it.

Suddenly the ranking of Switzerland, 69 places ahead of Zambia in the honesty league, looks a bit suspect. But of course it’s all perfectly legal.

From Zambia’s point of view, what counts as corruption is defined by the rich and powerful. When their country is robbed blind by clever accounting tricks, against which their government and people have no recourse, it is just the operation of a free market controlled – as free markets so often are – by corporations that have enough power to set the rules.

Political money in a political marketplace

Another little noticed but significant feature of illicit financial flows from Africa is that there are occasional reverse flows. The movements back into African countries aren’t as big as the outflows, but they are important. What is happening here is “round-tripping”: spiriting funds away to a safe place so they can be brought back, with their origins unexplained, and no questions needing to be asked.

The same multinational corporation that is defrauding an African country can pay money into the offshore account of one of its political leaders. Or that leader can whisk funds away by other means. Our main concern here isn’t the money invested in real estate in France, yachts, fast cars, or foreign business ventures. These are personal insurance policies in case things go wrong at home, or tickets to the global elite club. Rather, our concern is the cash kept liquid, to be brought back home when needed – the money brought back to fix elections, buy loyalties and, in sundry other ways, secure leaders in power. These are political budgets par excellence: the funds used for discretionary political purposes by political business operators.

In the United States, almost any kind of political funding you can think of can be done in a perfectly legal manner, given a smart enough accountant and lawyer. Political Action Committees can spend as much money as they like in support of a candidate. Campaign finance is essentially without a ceiling.

In Africa, political finance laws range from lax to non-existent. Spending vast amounts of money on winning political office – or staying in office – offends no law. The monetisation of politics is one of the biggest transformations in African political life of the last 30 years. It is generating vast inequalities, consolidating a political-commercial elite which has a near-monopoly on government office, fusing corporate business with state authority, and making public life subject to the laws of supply and demand. Political markets are putting state-building into reverse gear, transforming peace-making into a continual struggle against a tide of mercenarised violence, and – most perniciously – turning elections into an auction of loyalties.

Political money is discrediting democracy. Some of the transactions that constitute Africa’s political markets are blatantly corrupt, but many are simply the routine functioning of political systems based on the exchange of political services for material reward.

Yes, there is corruption in Africa, just as there is corruption in international trade and finance. But when Prime Minister David Cameron opens the Anti-Corruption Summit next week on 12 May, we should be aware that the greatest fraud perpetrated on the majority of the world’s citizens – notably those living in Africa – is all perfectly legal.

Alex de Waal is the Director of the World Peace Foundation. 

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15 thoughts on “How to steal from Africa, all perfectly legally

  1. Well put, I have struggled for years to put into words what you just did in this article. Great job.

  2. Well Alex I would rather the multinational corporations move monies out of the country in tax havens than declare all their profits for tax purposes , because in Africa the govt and so called leaders will amass more wealth by corruptly mismanaging and misappropriating those tax dollars .

    At least the multinationals create employment and some of those siphoned dollars come back as inflows .
    If anyone Tabo Mbeki, his past administration and present govt are “base eroders”of their own countries and citizens “wealth” . Pity his paper did not mention the vile and corrupt African leaders that stagnate growth in this continent by siphoning money into their own pockets .Guess what “only in Africa it is perfectly Legal because it is the African way to govern “

  3. Stealing from Africa is not new.It has been going on for a long time and has been discussed by academics and journalists with comparable integrity to the distinguished professor Alex de Waal.In the aftermath of the Panama Papers,let us consider the following:if 1% of the effort devoted to strangle Sudan’s banking and economy was devoted to tracing offshore tax evasion, money laundering, drug and crime funds,the international financial system would have gained a great deal.The mechanisms used against Africa are also instrumental in stealing from Western tax payers and ordinary citizens.

  4. Deven. Thank you for your contribution. I’m afraid Alex wants to perpetuate the so-called White Man’s Burden – Europeans saving Africa from Africans. The former National Security Adviser of Nigeria, whose position properly had no executive powers, is currently being tried for the theft of $2.4 billion. Just one man, just one incident, just one country. Part of this was money recovered in the accounts of a former Nigerian Head of State. Until Africans start to take responsibility themselves for harnessing and properly applying their resources, they will be prey to whatever means of outflows that are prevalent. Spare me the White Man’s Burden plea

  5. Well thought out piece! African leaders are NOTHING but Bamboozled Puppets! Their Bureaucratic System that their masters(Westerners) so called approved of are the same “political tools” used to siphoned African resources. So it’s not NEW that the MASS are always manipulated for the SAKE of the POLITICAL ELITES! IT’s A DOGGY DOG WORLD!

  6. As a young African living in China for over a decade and aspiring to be a leader in Nigeria this articled has added to my knowledge of the atrocities being committed by MNC’s in Africa.

  7. Thanks for this piece. it brings out the real rot and how we are all loosing out to the 1%. Its just not an African problem anymore. I also like the way you have put out the inadequacy of the TI Corruption Index. It is something that we have pointed out for many years.

  8. The issues of international corporate taxation, of offshore tax evasion, and of bribery and corruption are all real. However the issues and numbers are often confused and conflated.

    This article for example suggests that the OECD’s ‘Base Erosion and Profit Shifting’ (BEPS) agenda is about preventing the hyper-wealthy using secrecy jurisdictions to evade tax. BEPS is an action plan to update international corporate tax rules – this is not the same thing.

    Similarly, the article quotes the Mbeki Panel findings as indicating that ‘60% of this loss [$50billion] is from aggressive tax avoidance by multinational corporations’. This is a widely held misunderstanding. If you look at the Mbeki Panel’s calculations their $50 billion figure does not represent a tax loss. Nor is it possible to apportion a percentage of it to multinational corporations. It is simply a different number.

    Nor is it ‘perfectly legal’ for multinational corporations to pay money into the offshore account of political leaders. The distinction matters!

    It would be great if it were possible for countries to simply increase tax revenues by a sum comparable to aid, by taxing incoming FDI more, at no cost to anyone but the 1%. But I fear this is wishful thinking.

    (More on the numbers and issues http://www.cgdev.org/publication/can-stopping-tax-dodging-multinational-enterprises-close-gap-development-finance )

  9. Until we, as Africans, understand these systems well enough to be able to hold a view on them or even understand the flaws in our laws that allow for these things to happen. We, and our countries, will remain powerless and vulnerable to the exploitation.
    We are so far behind, in our learning and understanding of world systems that there really isnt anything we can do or will be able to do decades to come. Our education systems need to be transformed and structured in ways where we actually are taught things that are relevant to the functioning of the world. The knowledge systems we have in place currently arent even designed by us, so why would the people who design these systems structure them to empower us with what we need to do know to be able to make the changes that are needed for the true liberation and progress of our countries?

    Being a former employee of one of South Africa’s largest Banks, and Private Banks, I had first hand exposure to the gravity of the looting of our countries.. more particularly of South Africa.
    And I will be honest in admitting to a severe level of hopelessness regarding the resolution of this issue.

    African Leaders, corrupt as they may be, don’t even get access to the significant portions of wealth that Africa is being robbed of on an annual basis.

    What is happening is that the future potential for progress of our countries is being eroded at such a high rate than by the time we actually formulate solutions to resolve and stop the looting, there will hardly be anything left to save!

    Thabo Mbeki continues to be the forward thinking Leader that lacks in our current cabinet in South Africa, and by the time relevant individuals wake up to what he keeps trying to achieve while its still possible to address and resolve… It will be too late, as it has been with previous pursuits he has undertaken.

  10. Great article I concur especially with your passing reference to the role of the “free market” in all this. In Myanmar democracy is being sold as being synonomus with a “free” market economy. This is the deliberate lie being sold by the internal and external cosmopolitan elite to ensure the power that was held by the Generals here during the military dictatorship is transferred to corporate elites in Myanmar and abroad which they are now part of. Thus economic power and wealth is being transfered from the totalitarian military state to the same elite (+ international corporate elite mates) who will still run the country and steal the wealth from the country but now in a legal and internationally acceptable way – as economic leaders within a capitalist democracy operating a “free market”.

  11. I am sorry to say this NGO clap trap. The fact that 60 per cent of Zambia’s copper goes to Switzerland is because the world’s laargest base metals trader Glencore is based there.

    Nothing more. Just that is enough for me to consider the rest of the article junk. The conference another joyride and drink up for the leeches and ticks of the NGO and Aid circuit.

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