OPINION: Is South Africa taking adequate steps to combat Illicit Financial Flows?

Widely publicised media reports on the contentious practice of illicit financial flows (IFFs) out of the country, together with the growing political concern over billions lost to the country’s fiscus, have thrust the issue into the forefront of broader economic policy discussions.

A recent statement released by Global Financial Integrity (GFI), international monitoring organizational group shows that South Africa, ranked 13th in the world in terms of illicit financial flows in developed countries, lost over $100.7 billion over the period of 2002- 2011.

IFF’s directly impact on tax revenue loss which could otherwise be used for development and also aiding other criminal acts such as terrorism

The call by non-profit organizations and some political parties for tougher legislation has gained momentum and is forcing government to implement practical measures to deal with IFFs.

However civil society leaders and policy experts would dispute that not nearly enough is being done to combat IFF’s; and that government agencies continue to struggle with the complexity of the problem.

This has been echoed by the chairperson of the standing committee on finance in Parliament, Yunus Carrim, who in a recent media report, acknowledged that South Africa is failing to effectively tackle IFF’s and that the the county is bleeding potential tax revenue in the process.

During a panel discussion in Johannesburg titled Illicit Financial Flows: a helping hand to poverty  last month,  deputy president of Economic Freedom Fighters (EFF) Floyd Shivambu noted that government was not doing nearly enough to curb what it labelled a “phenomenon”.

Shivambu added that according to reserve bank governor, SA has more than 50 cases of illegal money movement, which involved the banks, audit firms and prominent individuals; adding that the South African Police Service (SAPS)  had no capacity to investigate financial crimes.

Shivambu has called for the implementation of a cross agency task team, involving the Reserve bank, tax revenue service, prosecuting authority, police and theFinancial Intelligent Centre, as a step towards curbing IFF’s. 

“We are calling for a national prosecuting authority that will have a dedicated focus on this phenomenon and have a massive capacity with highly skilled lawyers, accountants who will be able to detect these things,” said Shivambu.

But is this enough? And is government treating such calls to action with the immediacy they deserve?

During his maiden address to the National Assembly in March this year, deputy president, David Mabuza fielded questions by MP’s requesting clarity on which steps the Presidency will take in order to enable the South African Reserve Bank to curb and ensure that the public purse does not continue to bleed due to illicit financial flows and profit sharing.

Worryingly, in his address, Mabuza described measures by the Reserve bank, SARS, the Financial Intelligence Centre and all law enforcement agencies as “seamless”.

He explained that government had implemented a number of interventions to enable the fight against IFF’s.

The Deputy President stressed that  government had “generated sustained cooperation necessary to tackle the IFF problem at a “multinational level” but when pressed by MP’s to qualify his statement (as South Africa currently does not have laws which punish or penalise tax avoidance) Mabuza did not directly answer the questions posed.

This presents a very obvious problem, as no official interaction with the South African Reserve bank and financial services center and SARS pointed to the suggestion that anything substantial was being done about tax based erosion.

This uncertainty takes place on the backdrop of some the world’s largest economies, namely the United Kingdom and the United States of America, having set policies such as the US Foreign Practices Act of 1997, the US Foreign Accounts Act of 2010 and the UK Bribery Act of 2016, as a largely effective countenance to IFF’s.  

The Tax Justice Network (TJN) which recently published its Financial Secrecy Index for 2018, shows that certain countries are not forthcoming about their offshore financial activities.  

According to TJN, “the South African Revenue Service (SARS) has indicated that the country faces very high risks of IFF’s, and is particularly vulnerable to transfer pricing.”

The index further shows that some of the largest companies listed on the Johannesburg Stock Exchange (JSE,) the likes of SAB Miller and Anglo American, have been implicated in tax avoidance practices in other countries.

So in this regard, one would ask themselves whether South Africa, not unlike certain countries, may be guilty of deliberately turning the other cheek in regards to tax avoidance or in the very least, complacency, in an attempt to attract foreign investment by “aiding a more desired climate”.

Which begs the question, should South Africa look to reforming  publication requirements for companies in order to aid in transparency and legislating multinational companies to operate with the confines of the laws of the country and such companies breaking the law should face legal ramifications.

And are enough steps adequate steps being taken? The finance committee has discussed this issue extensively over the years and adopted several recommendations (including a multi agency committee) but on the ground it appears not much is happening.

Perhaps the announcement by SARS in last week’s finance committee meeting that nine companies are currently being investigated is a first step towards dealing decisively with the complex issue of IFF’s. 


See Also:  The Personal Touch to Managing Outsourcing Risks (1)

This story was produced by Mashudu Malema. It was written as part of Wealth of Nations, a pan-African media skills development programme run by the Thomson Reuters Foundation. More information at wealth-of-nations.org

Leave a Reply

Please Login to comment
Notify of