On Tuesday June 18, G8 leaders signed the Lough Erne Declaration in Northern Ireland  – promising greater transparency about company ownership to flush out firms who deliberately avoid paying tax.

In a global push against tax evasion the UK, US, Germany, France, Italy, Canada, Japan and Russia signed the declaration that many campaigners said had more ‘should’ and didn’t promote openness.

British Prime Minister David Cameron said the declaration would support nations including the poorest in the world and would help ensure ‘proper tax justice’. The declaration indicated:

Governments have a special responsibility to make proper rules and promote good governance. The G8 countries committed themselves to ‘make a real difference’ by:

  • Tackling corruption by requiring extractive industries like mining, oil and gas to report payments to all governments – and requiring governments to publish their income from such companies;
  • Ensuring that minerals are sourced legitimately, and not plundered from conflict zones;
  • Requiring land transactions to be transparent and to respect local communities’ property rights;
  • Rolling back protectionism and agreeing new trade deals to boost growth and jobs;
  • Cutting wasteful bureaucracy at borders, particularly in the developing world;
  • Publishing official information about laws, budgets and spending to allow citizens to hold them to account.

In May  Oxfam showed that while Africa’s oil, gas and mineral exports amounted to $333bn in 2010, illicit financial outflows — achieved, for example, through tax evasion and trade mispricing by extractive industries — were estimated at $200bn annually, dwarfing the development aid that the continent received.

Global Financial Integrity and African Development Bank report released in May looked into recorded and unrecorded flows of capital to and from African countries between 1980 and 2009.

The report found that Africa suffered between US$597 billion and US$1.4 trillion in net outflows between 1980 and 2009 after adjusting net-recorded transfers for illicit financial outflows.

“The resource drain from Africa over the last 30 years—almost equivalent to Africa’s current GDP—is holding back Africa’s lift-off,” said Prof. Mthuli Ncube, Chief Economist and Vice-President of the African Development Bank.

In February last year, the Economic Commission for Africa (ECA) and the African Union (AU)  put in place a High Level Panel (HLP) on Illicit Financial Flows from Africa to address “the debilitating problem of illicit financial outflows from Africa estimated at $50 billion a year.

Illicit financial flows constitute, among others, undocumented commercial transactions and criminal activities characterized by over pricing, tax evasion and false declarations facilitated by some 60 international tax havens and secrecy jurisdictions that enable creating and operating of millions of disguised corporations, shell companies, anonymous trust accounts, and fake charitable foundations.  Other techniques used include money laundering, transfer pricing and corruption.

It is no wonder that as the G8 leaders sat in Northern Ireland, this panel sat in Lusaka Zambia chaired by President Mbeki, former president of South Africa.

The 10 member panel has been tasked to determine the nature, pattern, scope and channels of illicit financial outflows from the continent; sensitize African governments, citizens, policy makers, political leaders and development partners to the problem; mobilize support for putting in place rules, regulations, and policies to curb illicit financial outflows; and influence national, regional and international policies and programmes on addressing the problem of illicit financial outflows from Africa.

Oxfam statement at the G8 had figures that are worth a look. 

In the two days of G8, $2.2 billion will have hemorrhaged from developing countries into tax havens, which is enough to pay for the entire education budget of Tanzania and Kenya combined. Tax evasion is not only for companies but many elite and Oxfam estimates that at least #18.5 trillion is being held by wealthy individuals in tax havens. More than 40% of this offshore wealth is being held in tax havens under the G8 jurisdiction.

Some of the effects of illicit financial outflows are the draining of foreign exchange reserves, reduced tax collection and  hence a worsening of poverty.

The G8 declaration only said developing countries ‘should have information and capacity to collect taxes owed to them and doesn’t necessarily guarantee the information to citizens of these countries.

It emphasizes that only ‘tax collectors and law enforcer’ should have access to information about the ultimate owners of companies which means there’s nothing binding about making such information public.

While countries and institutions in Africa can now use follow up on this declaration to get more information on companies, unfortunately the declaration does not give citizens and civil society access.

In the previous posts I wrote that whatever the G8 does will not easily trickle down to people in developing countries unless we tackle our own systems failure to deliver for the people and hence giving way for corruption.

It is this corruption in our countries that facilitates mega-companies from G8 countries and some powers like China to effectively take over our lands continue illegal trade in minerals and tax evasion.

A step in tax transparency in G8 countries is a good one and could be see governments in developing countries hold companies accountable. The outflows from Africa could reduce with reduced tax evasion but we can’t easily benefit from transparency in foreign capitals in we still have governments that are unaccountable to citizens.