It is important for countries to ensure they have the right legislation in place to fight illicit financial flows, which is on the rise on the African continent and elsewhere, South Africa’s Finance Minister Pravin Gordhan said.

“Africa must move swiftly. We must ensure we have the right legislation. We must also build capacity of not only of our tax and customs authority but of our policing and prosecuting services as well. Strong cooperation between agencies is vital,” Gordhan said.

Speaking at the opening of the Illicit Financial Flows Tax Conference at the University of Pretoria, he said illicit financial inflows and money laundering undermine good governance, which could reduce inequality and the quality of life of the poor.

The continent continues to lose money annually as a result of illicit financial flows. It is estimated at $50 billion every year.

The Minister said the dangers of illicit financial inflows – which in their nature are difficult to quantify – were identified as a priority under South Africa’s first democratic President Nelson Mandela.

“The first administration of President Mandela recognised that illicit flows and money laundering pose a danger that should be taken very seriously by all countries,” he said.

Failure by countries to take action against illicit flows not only means massive potential financial losses, but societal losses as well, Gordhan said.

In 2003 South Africa joined the Financial Action Task Force (FATF), an inter-governmental body which develops and promotes policies to combat money laundering and terrorist financing. The General Assembly of the United Nations (UN) in 2003 adopted a convention against corruption that focuses on those who steal public funds and abuse their office. South Africa signed up for this in December 2003.

The use of complex ownership structures, said Minister Gordhan, is now the most commonly used way of hiding ownership of assets.

However, illicit financial flows cut deeper than tax evasion and various legislation and procedures must be improved in order to reduce this.

“The illicit economy ranges from drug and human trafficking to bribery and fraud. It’s in the interest of Africa that we quickly develop our capacity to implement the concept of beneficial ownership. The establishment of beneficial ownership is fundamental to detecting and preventing illicit financial flows,” he said.

Protecting Africa’s security integrity

The Minister said the African Union has prioritised the importance of eliminating illicit financial flows.

However, cooperation between law enforcement agencies and tax authorities are essential elements in countering corruption, bribery and illicit flows.

In March the International Monetary Fund (IMF) said money laundering and the financing of terrorism, if unrecognised, can significantly undermine the integrity and stability of financial institutions and systems.

“This can impact on investment. For example, the Panama Papers leakages, which covered over 11.5 million leaked documents, once again demonstrated how wealthy individuals are able to conceal their personal wealth,” said Minister Gordhan.

There should be a focus on increasing the capacity and integrity of tax and customs agencies and strengthening legislation to better address the abuse of tax systems between countries.

Gordhan said it is important for multinational companies to pay their fair share of taxes in the countries in which they operate.

Source: Name News Network