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Global corporate marauders of the despicable kind
Photo source: Encyclopedia Britannica

The legacies of colonial rule, both generally and in particular categories of colony, have and still continue to affect post-colonial economic development in Africa through the extraction of resources and illicit funds. The new agency for this is the “Corporation”, which has its origins in the East India Company sanctioned by Queen Elisabeth I as a royal charter. 

The Corporation, which was a revolutionary European invention contemporaneous with the beginnings of European colonialism, and which helped give Europe its competitive edge – has continued to thrive long after the collapse of European imperialism. It was arguably one of the West’s most important exports to the colonies, and the one that has for better or worse changed the trajectory of most countries in Africa as much as any other European idea. 

These companies have now become a new way of life. Moreover, this should not come as a surprise, especially given the power of multinationals in a globalised world. They have surreptitiously plundered the boundaries of sovereign states and effectively become the new oligarchs of the political economy of global trade. They are the new symbols of global economic power. Ironically, the politics of globalisation and the multinationals are rewriting the societal rules of the power game – with the legitimacy of a modernisation process that has deftly come to pass.

In this respect, the process of globalisation has only served to exacerbate the situation. Globalisation has also come to mean “politicisation”. The process allows the owners of these new multinational juggernauts to play key roles not only in the economies of host countries, but in society as a whole – if only because they have the power to almost “legally” withdraw the material resources from society. 

Globalisation is also playing out unexpectedly as governments, multinationals, and individuals around the world are connected to one another at an unprecedented rate. One of the most important but overlooked dynamics, given its national security implications, has been the pervasive networking of professional services providers with power brokers and their acolytes from corrupt authoritarian states. 

These corporations continue to transform themselves and are responsible for illegal financial flows from most fragile developing countries of Africa, to destinations known as “tax havens” or “secrecy jurisdictions”.

Contrary to public impression, tax havens or secrecy jurisdictions are not remote from the mainstream political economy and that in practice they are major and integrated features of globalised financial markets, operating as a corruption interface between licit and illicit cross-border financial flows.

Less well recognised, however, is that these “secrecy jurisdictions” and the bankers, lawyers and accountants who operate from these jurisdictions, actively encourage and support corrupt practices by facilitating illicit financial flows through an “offshore interface” between the illicit and licit economies. 

Financial market liberalisation has contributed to this problem by not addressing the “secrecy space” comprised by banking secrecy, non-disclosure of ownership of corporations and other legal entities, lack of accounting transparency for multinational companies, and the lack of provisions for effective exchange of information between national authorities.

Certain elements within the legal, financial, and influence communities, seeking new markets, clients, and profits among an emerging global class of super wealthy actors with fortunes of dubious provenance, have begun offering their services to transnational kleptocrats linked to authoritarian regimes. 

These professionals have become “enablers” of authoritarian influence by facilitating the concealment, insertion, and deployment of kleptocrats’ illicit funds within Western economies and using their skills and expertise to help kleptocrats establish networks of influence inside democratic societies. This relationship between Western professionals and authoritarian elites has not only fuelled a boom in money laundering, but it has transformed significant elements of the most distinguished, influential professions into wholesale importers of transnational corruption.

Enablers have found new insidious means to reach out with their tentacles of exploitation. Their operation is a powerful mix of power, capital and generally, unaccountability. They are sapping the foundations of national economics and national states, unleashing sub-politics on quite a novel scale and with incalculable consequences.

Financial market liberalisation has contributed to this problem by not addressing the “secrecy space” comprised by banking secrecy, non-disclosure of ownership of corporations and other legal entities, lack of accounting transparency for multinational companies, and the lack of provisions for effective exchange of information between national authorities.

Beyond the damaging economic impact of the overall capital outflows, illicit financial flows have a negative and subversive impact on governments, victims of crime, and society. They facilitate transnational organised crime, foster corruption, undermine governance, and decrease tax revenues.

Every dollar that leaves one country must end up in another. Very often, this means that illicit financial outflows from developing countries ultimately end up in banks in developed countries like the United States of America and United Kingdom, as well as in tax havens like Switzerland, the British Virgin Islands, or Singapore. 

This does not happen by accident. Many countries and their institutions actively facilitate—and reap enormous profits from—the theft of massive amounts of money from developing countries. 

The outcome of this failure to ensure sufficiently transparent financial flows has been the creation of a criminogenic environment, in which illicit flows are easily disguised and hidden amongst legitimate commercial transactions, encouraging capital flight and tax evasion on an awesome scale. 

These tax shelters and illicit financial flows are shifting from the twilight to the centre stage of the development discourse and little attention had been paid to the role played by tax havens in depriving African countries of their domestic resources through facilitating illicit financial flows and tax evasion. 

It is estimated that in Africa between US $1.2 trillion and US $2.7 trillion has left the continent in illicit financial flows between 1980 and 2016—roughly equal to Africa’s current gross domestic product, and surpassing by far the money it received from outside over the same period.

The numbers tell only part of the story. It is a story that exposes how highly complex and deeply entrenched practices have flourished over the past decades with devastating impact, but barely made it into the news headlines. “The illicit haemorrhage of resources from Africa is about four times Africa’s current external debt,” says a joint report by the African Development Bank.

At the same time, it is also recognised that the corruption debate, which until recently has largely focussed on the demand side, and in particular on bribe taking and payments of commission kickbacks, needs to widen its focus to include those who provide the supply side of corrupt practices. 

This should include the financial intermediaries, such as law firms, auditing firms, tax consultancies and other related financial agencies who create and administer the elaborate legal structures through which illicit cross-border financial flows are routed via offshore financial centres into mainstream banking systems. 

In respect of the above, the controversial Gupta escapade in South Africa and the alleged complicity of auditing firms such PricewaterhouseCooper and McKinsey come readily to mind. South Africans will vividly remember how monies allegedly stolen from the Estina farm were routed to Dubai in Saudi Arabia and then sent back to another “legitimate” Gupta-related shell company in South Africa. The monies where then used for a “legitimate” Gupta wedding at Sun City.    

Critically, the secretive legal instruments used by corporations and high net-worth individuals for tax-dodging purposes are also used for a wide variety of other criminal activities, including market rigging, insider trading, payment of illicit political donations, embezzlement, fraud and payment of bribes and commission kickbacks. This underlines the role of tax havens in providing a supply-side stimulus that encourages and enables grand-scale corruption by providing an operational base for “legitimate” financial, legal and auditing and their clients to exploit legislative gaps and fragmented regulation.

The free flow of illicit funds is changing rapidly. It is increasingly recognised that steps to assist poorer countries to move beyond aid and debt dependence will require measures to tackle capital flight, tax evasion and unnecessary tax exemptions. It is also recognised that international aid makes governments accountable to donors, whereas tax enforces accountability to citizens and tax evasion undermines this basic pillar of civil accountability and reduces respect for the rule of law.

Unless this supply side of corruption is tackled there is little prospect for an end to aid dependency and sovereign indebtedness or the creation of economically stable and democratic states able to provide food security, education and healthcare to their citizens.

The most effective way to limit illicit financial flows is to increase financial transparency. All developing countries should enact policies to detect and deter cross-border tax evasion, eliminate anonymous shell companies and improve transparency of multinational corporations.

Imagine what these funds can do for infrastructure and industrial development in Africa and the challenges of youth unemployment? All the developing countries of the world need to unite to fight this despicable phenomenon of the third kind.


*Professor Dhiru Soni is an academic and researcher and writes in his personal capacity.