Uganda needs to tackle illicit financial flows

May 19, 2015

The global financial report released in 2013, revealed that Africa is estimated to be losing more than $50b a year in illicit financial flows. Uganda loses an average of $509m in illicit outflows per year.

By Nelly Busingye

The global financial report released in 2013, revealed that Africa is estimated to be losing more than $50b a year in illicit financial flows. Uganda loses an average of $509m in illicit outflows per year.


Illicit financial flows refer to money illegally earned, transferred or used relating to its origin or during movement or use. The flow of money that has broken laws is considered illicit. Various means are used including: undocumented commercial transactions, purely criminal activities like overpricing, transfer pricing, tax evasion, money laundering, corruption and false declarations.

In February 2012, The High-level Panel (HLP) on Illicit Financial Flows from Africa was inaugurated following Resolution L8 of the Fourth Joint Annual Meetings of the Economic Commission for Africa (ECA) Conference of African Ministers of Finance, Planning and Economic Development and African Union Conference of Ministers of Economy and Finance.

The Panel chaired by former Southern African President Thabo Mbeki, was tasked among other things to determine the nature and patterns of illicit financial outflows from Africa and Propose policies and mobilize support for practices that would reverse such illicit financial outflows. The Panel presented and adopted their findings and recommendations in a report titled “Track it. Stop it. Get it” at the 24th African Union Summit in Addis Ababa on January 31, 2015.

The report revealed that the prevalence of illicit financial flows in Africa and the inability to check this growing trend is caused by various factors including: lack of political will, lack of transparency, the dependence of Africa on natural resource extraction which makes them vulnerable to illicit financial flows furthermore corruption, weak national and regional capacities which impede efforts to curb illicit financial flow.

The report further notes that the practice by which multinational corporations shift profits to subsidiaries in low-tax or secrecy jurisdictions is one of the biggest single sources of illicit outflows. In many cases, those subsidiaries exist on paper only, mostly with one or two employees, while the bulk of the activities of the company occur in another country.

Illicit financial flows are also strongly linked to capital flight, scholars have defined capital flight as movement of funds abroad to secure a better return or protect them in response to an unfavorable event in the country of origin. It can both be legal or illegal. Capital flight becomes illegal when it is unrecorded and results from illegal activities thus “illicit flows”.

Uganda is among the countries that adopted the Mbeki Panel report, it is therefore imperative for Uganda to clearly establish a mechanism of implementing the recommendations of the report. One of the recommendations in the report is to establish or strengthen the independent institutions and agencies of government responsible for preventing IFFs.

Institutions like Uganda Revenue Authority needs to be strengthened to curb illicit financial flows and eliminate transfer pricing.

Uganda‘s Financial Intelligence Authority is a welcome initiative, however it is very important that time and effort is prioritised to strengthen the Authority to tackle illicit financial flows and work with other institutions and entities like banks, and Private Sector Institutions and civil society organisations to track and stop illicit financial flows.

Ugandans need to be vigilant in advocating for an end to illicit financial flows, and hold our governments accountable. However, citizens also need to take responsibility and desist from operating illegal financial schemes that rob Uganda of billions of shillings that would otherwise be used to Finance our country’s Development.

The writer is the programme officer with SEATINI Uganda

 

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