The Panama Papers’, a data leak of client documents belonging to Panama-based law firm Mossack Fonseca, were exposed by German newspaper, SüddeutscheZeitung, in conjunction with the International Consortium of Investigative Journalists (ICIJ). These controversial documents haveraised some ethical and legal questions around financial disclosure and transparency; and the role of tax haven jurisdictions in the facilitation of tax evasion, trade-based money laundering, organised crime, illicit financial flows (IFFs) and other issues of grave concern to the international community.
Although holding ownership of a shell company or an offshore account, in most cases is not unlawful, some negative practices have come to be associated with financial activities in secretive jurisdictions. In general, countries could prosecute individuals and corporations involved in the operation of offshore business interests, in instances where:
- a public official has failed to disclose the offshore accounts;
- the funds held in the offshore account are the proceeds of crime;
- the offshore accounts facilitate the evasion of tax liability for an individual or corporate entity.
What has the response of African states been to the Panama Papers? The Economic and Financial Crimes Commission of Nigeria declared that it would investigate the nationals implicated in the scandal. Despite the existence of legislation enabling the prosecution of parties involved in the illegal use of offshore accounts, months of silence ensued, and after much protest, the Nigerian government eventually announced the names of prominent individuals to be prosecuted. Instrumental in this achievement were the concerted efforts by the Nigerian civil society which demanded that strong action be taken against those individuals with financial dealings in secretive jurisdictions.
It is interesting to note that before the data leaks such as WikiLeaks and the Panama Papers put a spotlight on offshore accounts, Nigeria and Kenya had already prohibited the use of foreign banking accounts by public officials in their respective Constitutions. Although Nigeria has disclosed the names of the individuals who will be prosecuted, there are no known prosecutions, intended or otherwise, relating to the Panama Papers in Kenya.
The South African Code of Conduct for Public Servants on the other hand, does not forbid the use of foreign banks by public officials and a proposed amnesty for those who declare their financial interests in offshore accounts, makes no distinction between voluntary disclosures to be made by public officials and individuals not in public service. There are also no known prosecutions in South Africa, relating to the Panama Papers or the holding of offshore accounts and companies. African responses have largely focused on individuals in public service and little attention has been placed on the role of corporate entities in IFFs and tax evasion.
The Panama Papers not only confirmed the losses that the continent suffers as a result of IFFs but also brought to light the existence of IFFs in other commercial industries. Tour operator agencies and companies operating in Southern and Eastern Africa have found themselves embroiled in the Panama Papers scandal; with at least 30 offshore Safari companies revealed to have been incorporated through Mossack Fonseca. Many of these companies are officially registered in the British Virgin Islands while their daily operations continue from Southern and East African countries such as Zimbabwe, Namibia, Botswana, Tanzania and Kenya.
Like the extractive industries, tourism is a major contributor to the economies of African countries. In 2014, tourism on the African continent contributed $798 million, with a total GDP input of 10.5%. The total number of jobs supplied by this industry in 2014, amounted to 543,500, which accounts for 9.2% of Africa’s jobs. Tourism is not only a major contributor to the GDP but is also a key foreign exchange earner as many tourists bring foreign currencies. In countries with weak financial controls, foreign currencies can more easily be channeled out to tax havens than the local currency. The inability to adequately control forex can impact a country’s balance of payments and adversely affect the viability of import and export markets.
Despite the devastating revelations brought forth by the Panama Papers, few African countries have taken decisive action with regard to the investigation, prosecution and subsequent recovery of assets of individuals and corporations linked to the Panama Papers.
At the regional level, the African Union’s (AU) Advisory Board on Corruption issued a statement to the effect that each country should conduct its own investigations into the persons mentioned in the Panama Papers. Although the AU Advisory Board on Corruption has the mandate to advise and develop disciplinary and investigation procedures for corruption and related offences in the public service, with the exception of a call for investigations, no guidelines for the investigation and prosecution of public officials linked to the Panama Papers have been issued. The inconsistent and often lax responses to the Panama Papers across the continent indicates the need for the harmonization of standards.
The Mbeki Panel Report on illicit financial flows in Africa highlighted that IFFs, organised crime and money laundering are negatively affecting the African continent’s ability to develop. The billions of dollars syphoned out of Africa’s reserves could be used for education, healthcare and other basic provisions, yet civil society in the countries most affected by IFFs, money laundering and tax evasion are not vocal about these serious impediments to sustainable development. In order to curb this major stumbling block to development, African states must take responsibility for the regulation and monitoring of funds transferred to offshore and secretive jurisdictions.
Blog written by Olwethu Majola-Kinyunyu Maendeleo Group’s Senior Analyst based on her research and article published by the Anti-Money Laundering Journal of Africa (AML Journal of Africa).