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Kenya is among African countries losing $50Billion every year in illicit financial flows such as tax evasion and money laundering, a new UN study shows.
The United Nations Conference on Trade and Development’s (UNCTAD) report released on Monday further shows that the projected amount could be higher than most previous estimates as governments and multinational companies engage in fraudulent schemes aimed at avoiding tax payments.
Titled Tackling Illicit Financial Flows for Sustainable Development in Africa, the 248-page dossier also noted that the $50 billion stolen per year, dwarfs the amount the continent receives in development aid each year.
“Illicit financial flows – cross border exchanges of value, monetary or otherwise, which are illegally earned, transferred or used – cost African countries around $50 billion per year, dwarfing the amount of official development assistance the continent receives annually,” it reads in part.
Illicit financial flows strip government treasuries of needed resources for development expenditure- with the report’s findings confirming that such financial flows are high in some notorious countries like Nigeria, Zambia and Kenya among others have been increasing over time.
“These illicit flows rob Africa and its people of their prospects, undermining transparency and accountability and eroding trust in African institutions. African Governments face significant constraints to widening their tax base,” said Mukhisa Kituyi, the Secretary-General of the United Nations Conference on Trade and Development, adding that such countries are faced with high capital flight, tax avoidance and a marked dependence on corporate income taxes.
Available estimates show that Kenya for instance has been losing an average of Sh40 billion every year through illicit financial flows since 2011, as government, local firms and multinationals engage in fraudulent schemes to evade tax payment. That figure is thought to be just a cosmetic measure.
Perpetrators according to the UN report use fake charitable organizations to facilitate money-laundering, warehouse disguised corporations and conceal anonymous trust accounts with the help of well-connected attorneys and powerful well placed bureaucrats with the offence ranging from tariff, duty and revenue offences, tax evasion, corporate offences, market manipulation among others.
Indeed, more recently, publications by investigative journalists have uncovered the magnitude of African private wealth in offshore accounts including Kenya which is also suspected of using Double Taxation Agreements (DTAs) it signed with certain countries – and whose sincerity is now being examined by some quotas who believe those jurisdictions are used in promoting financial secrecy and opacity in the negotiation of treaties and their linkages to tax havens.
Tax Justice Network Africa and Katiba Institute last week moved to High Court to oppose Double Taxation Agreements (DTAs) Kenya signed with 10 countries; Iran, Kuwait, Seychelles, South Africa, Qatar; Korea, the United Arab Emirates (UAE), India, the Netherlands and Mauritius arguing that the treaties were being used by certain companies for money laundering to avoid forfeiting local taxes.
“If in one exposé you are able to estimate that a country loses Sh 6 trillion, that points to how our knowledge of the problem is just the tip of the iceberg,” explains Alvin Mosioma, the Executive Director of TJN – who also believe trial agencies like Directorate of Criminal Investigations (DCI) and Ethics and Anti-Corruption Commission (EACC) have not done enough to bring to book some ‘known’ criminals.
Hundreds of billions of shillings is being laundered out of the country through Europe and certain countries like Dubai, Seychelles, South Africa, Netherlands and Mauritius which are ranked as the most aggressive and extensive tax haven jurisdictions that are used by multinational enterprises to avoid paying tax, thereby eroding revenues of other countries.
A trove of leaked documents in a report titled Dubai’s Role in Facilitating Corruption and Global Illicit Financial Flows published in July details how corrupt and criminal actors from around the world operate through or from Dubai.
It suggested that Kenya was among African countries that may be losing huge amounts of tax revenue with investors using Dubai’s attractive tax regime to stash the stolen money.
Dubai’s property market is also seen as a magnet for tainted money for most moneyed Kenyans – with the sector built to attract foreign buyers, the emirate is dominated by towers of upscale flats and man-made islands studded with luxury villas.
Property developers and real estate agents are also said to accept huge sums from politically exposed persons—individuals entrusted with a prominent public function, as well as their families and associates—and other suspicious buyers.