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New tool to track dirty proceeds launched

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By Steve Umidha

A new tool launched yesterday by Tax Justice Network (TJN) is hoped to be the key to identifying money flows in and out of the country – most of which is believed to be illegal.

The Illicit Financial Flows Vulnerability Tracker measures and visualizes each country’s vulnerability to various forms of illicit financial flows over different periods of time.

Illicit financial flows are transfers of money from one country to another that are forbidden by law, rules or custom. The vice has the potential to hurt economies, societies, public finances and governance of countries if left unchecked over a long period of time.

“A key challenge to tackling illicit financial flows is the difficulty countries face in identifying which financial flows carry the largest risk to their economies. The launch of Illicit Financial Flows Vulnerability Tracker will help countries identify the trading partners and channels that pose the greatest risks to their economies,” reads a statement from the tax network.

The tracker, developed by Thibi and funded by GIZ (German Corporation for International Cooperation), is expected to help countries like Kenya that continue to bear the brunt of a noxious status in its financial secrecy rankings – in future fiscal planning.

The new tool will rely on data collected on banking positions from the Bank for International Settlements, foreign direct investment from the Coordinated Direct Investment Survey series of the International Monetary Fund, portfolio investment from the Coordinated Portfolio Investment Survey series of the International Monetary Fund and trade data from UN COMTRADE database.

Kenya’s financial sector is among the most secretive globally, according to a new report by Tax Justice Network, and the most second-most rigid in Africa after Algeria and among the top 30 in the world in the latest Financial Secrecy Index of 2020.

The annual index shows that Kenya’s secrecy rate stood at 76 per cent, meaning the country is a prime souk for fraudsters to stash ill-gotten private financial wealth and other illicit financial flows (IFFs).

“Although the country’s share of the offshore world is not large, it has increased since 2018 and it may be set to increase further as the government positions Nairobi as the latest African International Financial Centre,” TJN said in that report.

A report published in 2018 christened ILLICIT FINANCIAL FLOWS IN KENYA: Mapping of the Literature and Synthesis of the Evidence by pasgr.org, estimates that Kenya has been losing an average of Sh40 billion every year through illicit financial flows since 2011 with government, local firms and multinationals on the forefront in fraudulent schemes to avoid tax payments.

In Kenya for instance, tax evasion through IFFs occur mainly through mis-invoicing, transfer pricing, trade in contraband goods, corruption and trafficking of persons and drugs.

Some of the illicit financial flows take many forms including those done through grand corruption scandals involving the transfer of illicit money by the ruling political elites since independence.

With weak money-laundering laws coupled with a toothless Judiciary, Kenya has been left open to dodgy and highly-placed business individuals who continue to loot the country dry at the mercy of defenseless and voiceless tax payers.

Although the country’s anti-money laundering laws adequately define beneficial ownership, minor shortcomings in the requirements of legal entities to maintain information on all-natural persons who exercise ownership or control of the legal entity are known.

In November last year, the Government through Treasury Cabinet Secretary Ukur Yatani committed to tackle illicit financial flows (IFFs) following the signing of the Yaounde Declaration.

The Yaounde Declaration is a continental declaration calling for curbing of illicit flows within the continent. Additionally, it calls for fight against tax evasion to enhance domestic resource mobilization.

The declaration is hoped will help Kenya curb illegal financial flows out of the country.

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