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Senate probes phenomenon of illicit financial flows

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Says Nigeria, others have lost over US$200 yearly to Illicit Financial Flows

As Nigeria loses US$15 billion annually to Offshore Tax Evasion

Moves for the creation of a Tax Amnesty for the voluntary repatriation of funds to Nigeria

Senate probes phenomenon of illicit financial flows

By Henry Umoru – Abuja

The Senate has begun a probe into the phenomenon of Illicit Financial flows, just as it is moving for the creation of a Tax Amnesty for the voluntary repatriation of funds to Nigeria.

According to the Senate, the Tax Justice Network and the International Monetary Fund estimated that developing countries, including Nigeria, have lost over US$200 billion per year to illicit financial flows as multinational corporations neglect, fail and refuse to pay taxes in these countries where they generate substantial amounts of profit.

The Senate said that Nigeria loses approximately US$15 billion annually to offshore tax evasion and this has resulted in consistently low tax revenue as a percentage of Gross Domestic Product,  GDP, as low as 5.7% in 2017.

Consequently, the Upper Chamber, on Wednesday, mandated its Committees on Finance, Anti-Corruption & Financial Crimes, Banking, Insurance, and other Financial Institutions to carry out a holistic investigation into the Loss as well as appraise the Federal Government’s current policy framework to curb the continuous loss of Nigeria’s revenue to illicit financial flows.

The Senate has also asked its  Committees on Finance, National Planning, Anti-Corruption and Financial Crimes, Banking, Insurance, and other Financial Institutions and to appraise the Federal Inland Revenue Service’s (FIRS) current framework for tracing, identifying, preventing and sanctioning cross-border tax evasion and other illicit financial outflows.

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As part of the investigation, the Senate has summoned the Minister of Finance, Zainab Ahmed and the Executive Heads of the Federal Inland Revenue Service (FIRS), the Acting Executive Chairman of the  Economic and Financial Crimes Commission (EFCC), Ibrahim Magu; the Governor of Central Bank of Nigeria, CBN, Godwin Emefiele to address the Committee on the continuous loss of government revenue to illicit financial flows and to present reports on the measures being sought to curb revenue losses, particularly the coordinated implementation of the automatic exchange of information standard, in order to prevent further revenue leakages and curb tax evasion and money laundering activities.

Also invited are the  Independent Corrupt Practices Commission (ICPC), Nigerian Financial Intelligence Unit (NFIU), the Nigerian Export-Import Bank (NEXIM), Nigerian National Petroleum Corporation (NNPC) and any other relevant institution.

Resolutions of the Senate were sequel to a motion titled, “need to review the domestic legal framework against Illicit Financial Flows and to consider the creation of a Tax Amnesty for the voluntary repatriation of funds to Nigeria.

The motion which was sponsored by Senator Gershom Bassey, Peoples Democratic Party, PDP, Cross River South, was Co-sponsored by nine other Senators

The Senate has also mandated the Committee to advise the Senate on a holistic legislative framework on how to repatriate lost revenue due to IFFs, mitigate future unabated illicit financial flows, and provide an efficient strategy for the re-investment of these repatriated resources into the Nigerian economy.

Earlier in his presentation, Senator Bassey said that “the Senate: Aware that the Nigerian economy and its socio-economic development have deeply suffered from the unabated cross-border financial draining of the nation’s revenue by illicit financial flows (IFF). IFFs are widely understood as the cross-border transfers of capital that are illegally earned, transferred, or utilized. IFFs often consist of commercial money laundering, tax evasion and proceeds of corruption and criminal activities;

“Alarmed that according to a 2014 Global Financial Integrity Report, Nigeria lost a minimum of US$140 billion to illicit financial flows between 2000 and 2014, mainly to crude oil and commercial activities mispricing. This enormous economic loss to the country was not abated, as Nigeria was ranked among the global top 30 countries of illicit financial outflows by dollar value, with US$8.3 billion in the illicit financial outflow from Nigeria in 2015.”

According to him, the Senate is “F?further alarmed that the Tax Justice Network and the International Monetary Fund estimated that developing countries, including Nigeria, have lost over US$200 billion per year to illicit financial flows as multinational corporations neglect, fail and/or refuse to pay taxes in these countries where they generate substantial amounts of profit. Nigeria loses approximately US$15 billion annually to offshore tax evasion. This has resulted in consistently low tax revenue as a percentage of GDP, as low as 5.7% in 2017.

“Such statistics are alarming, especially when compared to the 17.2% average of 26 African countries in the same year;

Concerned that this incessant financial drain on Nigeria’s economy continues to have negative implications for domestic resource mobilization and long-term economic growth and development.

IFFs continue to pose serious obstacles to development, as approximately 5% of the IFFs from Africa can be attributed to corruption, while 95% of IFFs come from commercial and criminal activities.

“These unrecorded and untaxed cross-border financial transfers could have been mobilized as part of government revenue and injected into Nigeria’s formal economy towards sustained development and economic growth;

“Concerned also that statistics show that the amount of revenue lost annually by Nigeria is more than the sums provided as development aid. For example, the net official development aid received by Nigeria in 2017 was US$3,358,790,000.

“Additionally, the United States Agency for International Development (USAID) has donated over US$526.7 million in humanitarian assistance to Nigeria and the Lake Chad Basin, since 2017. Neither of the above figures matches the estimated US$15 and US$18 billion Nigeria loses to IFFs annually.

It is therefore unsurprising that Nigeria continues to struggle with growing inequality, poor infrastructure, and lacking service delivery;

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“Further concerned that there are at least 12 Nigerian institutions and agencies with responsibilities that align with tackling IFFs and related crimes. Yet, Nigeria continues to be menaced by weak regulatory structures and the complicity of other financial secrecy jurisdictions, among others.

With estimates that 60% of IFFs from Nigeria is predominantly committed by multinational corporations, these challenges continue to drive the cross-border siphoning of the country’s revenue, to the direct and/or indirect benefit of foreign economies;

“Observes that international information sharing and domestication of relevant policies has become a global priority, in order to ensure cross-border cooperation to tackle this global threat to national revenue generation and its negative economic and developmental impacts;

“Further observes that this global awareness has prompted governments to develop measures and policies aimed at eradicating the perpetuation of IFFs, such as the Organization for Economic Co-operation and Development’s (OECD) Common Reporting Standard (CRS); a set of principles for the cross-border implementation of financial information automatic exchange between countries, to assist tax authorities to track offshore holdings of taxpayers;

“Notes that in an effort to ensure the domestication and implementation of the above international legal framework, the Federal Inland Revenue Service (FIRS) published the Income Tax (Common Reporting Standard) Regulations, 2019. Through this framework, Nigeria aims to commence the implementation of a standardized automatic exchange of information this year, in order to curb future revenue losses due to tax evasion;

“Further notes that although Nigeria is taking steps to curtail IFFs, especially from tax evasion, billions of dollars have already been lost to IFFs. A CBN Financial Stability Report (2014) estimated that 35% of illicit financial flows out of Nigeria could be attributed to oil bunkering. Until the recent economic recession, the oil sector accounted for 95% of Nigeria’s foreign exchange earnings and 80% of Nigeria’s total budgetary revenue.

It has, therefore, become imperative to recover some of these funds so as to increase short-term national revenues, particularly to alleviate the pressures of the current Covid-19 pandemic, while implementing a mechanism to prevent further IFFs;

“Aware that international best practices and examples from countries such as South Africa and Italy have shown that a carefully formulated funds and asset repatriation scheme, that consists of specific timeframes; an effective legislative framework that enforces anti-money laundering and anti-corruption measures; competent enforcement authorities; adequate resources and cooperation (both international and domestic), could have multiple benefits for a country.

This could provide an avenue for Nigeria to repatriate lost resources, provide relevant authorities with otherwise unavailable information about illicit cross-border transfer channels, and potentially deter future IFF practices.”

He further said that the Senate is “Convinced that in order to foster the repatriation of Nigerian offshore funds, the Nigerian government could introduce an appealing, yet legally acceptable offshore repatriation framework, with legal and economic incentives to taxpayers and Multinational Corporation to repatriate such resources.

Such a framework could allow Nigeria to reclaim billions of lost revenue, which could be injected into the economy to boost economic growth. In light of the recent global crisis, it is critical that Nigeria enhances its national revenue to revive the economy and support its citizens and local businesses, in the wake of the COVID-19 pandemic.”

Vanguard

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