Financial Transparency Coalition

The Africa Progress Panel, a group headed by former UN Secretary General Kofi Annan, launched the 2014 report “Grain, Fish, Money” today at an event in London. The report touches on everything from income inequality to illegal fishing activities that are quickly depleting Africa’s oceans and gulfs. But no matter what topic was being discussed, a broader theme kept resurfacing: financial transparency.

For example, the report highlights the plight of illegal fishing activities that surface when “rogue vessels” come to the fertile waters in places like the west coast of Africa, or the shores of Madagascar. According to the report, the illegal catch is cutting into the livelihood of peoples who have been fishing the waters legally for decades. Yet, government officials have little to no capacity for enforcement of these unknown commercial entities.  One reason is that the illegal fishing is done with help from financial secrecy:

Many commercial fishing vessels operating in Africa are registered to states that are either unwilling or unable to carry out their regulatory responsibilities. This transfers the burden of controlling “rogue vessels” to African governments that often lack the capacity for effective regulation. “Flags of convenience” are a maritime equivalent of tax havens.

The system makes it possible for beneficial owners to hide behind shell companies or nominees. Here, too, the International Maritime Organization could establish a registry of fishing vessels sailing under a flag of convenience. This would give African governments the option of avoiding agreements with such vessels. 

In large-scale logging, too, issues of secrecy in business deals continues hinder African countries’ ability to reap the full benefits of their resources. The report recommends concrete solutions for tackling opacity in the logging sector:

All commercial logging concession contracts should be subject to full disclosure, along with the beneficial ownership structures of the companies involved. 

Make public concession contracts and disclose beneficial ownership structures to deter corrupt and illegal practices and enable tax authorities to ensure companies are paying the right amount of tax in line with their contracts and the requirements of the fiscal regimes. 

But international norms must be better standardized and enforced, while technical knowledge is increased, to make it harder to shift profits out of developing countries where the resources are initially extracted:

All too often, however, authorities in Africa lack the technological, financial and wider capabilities needed to manage forestry, fisheries and other resources, and to prevent tax evasion.

This is a global issue. Many of the companies most closely associated with tax avoidance and evasion are global multinationals, with offices in several jurisdictions. Their accountants shift profits from one country to another with ease.

With growing scrutiny on the practices of profit shifting and tax avoidance, the report also cites a “race to the top on transparency” as a potential additional driving factor to future compliance in the private sector:

All companies including foreign investors should engage in a race to the top on transparency, supporting the efforts of global initiatives and meeting the demands of civil society in Africa. While there are tentative signs of improvement, some companies are either opposing enhanced transparency or delaying action.

Other companies should follow the example of Rio Tinto and Tullow Oil, which have set up a gold standard for project-by-project disclosure in line with the spirit of a European Union directive that will oblige oil and mining companies to publish tax, royalty payments and other transfers to foreign governments. 

Companies operating in Africa and financial regulators in the countries where they are registered should make public the full beneficial ownership of their interests, including those registered in offshore financial centres.

There is some evidence that public scrutiny could push companies and corporations to become more compliant and less secretive. A recent PricewaterhouseCooper survey of Chief Executive Officers around the world was highlighted by the fact that 59% actually supported publishing financial information on a country by country basis, which could help curb profit shifting and illicit flows.

But alongside voluntary movement, it is vital that regulators continue to ramp up the efforts to enhance financial transparency oversight on the global scale. The report laid out concrete steps that must be taken:

Multinational corporations operating in Africa should fully disclose their financial operations and tax payments. Building on current initiatives, governments should accelerate the automatic exchange of tax information and build Africa’s capacity to benefit from this information. All governments, including those of financially secretive jurisdictions, should establish public registries of beneficial ownership of companies and trusts. Multinational corporations can lead the way by publishing a full list of their subsidiaries, as well as information on global revenues, profits and taxes paid across different jurisdictions.

Below is a great infographic from the 2014 report on the volume of illicit financial flows streaming out of the African continent: