Extractive sector is major source of illicit financial flows – Ali-Nakyea


… gov’t indifference to menace worrying

Tax expert Dr. Abdallah Ali-Nakyea has cited the nation’s extractive sector as a breeding point for the massive Illicit Financial Flows (IFFs) which have resulted in some current economic challenges – top among them being the European Union anti-money laundering blacklist.

According to him, the case has come to the fore a number of times but seems to be getting little or no attention from government as the nation’s revenue continues to leak. For him, it is time to review financial arrangements with players in the extractive sector and put in a secured mechanism to address the growing menace.

Speaking at the 8th Pan African Conference on Illicit Financial Flow and Taxation in Accra, Dr. Ali-Nakyea said previous editions of the conference have iterated the point, but there has been little improvement to report.

“Ghana has abundant mineral and petroleum resources, making the extractive industry a vital source of revenue for government; however, being a vital source of revenue, leakages from the sector directly affect domestic revenue mobilization.  nonetheless, the extractive sector is one significant area of concern in relation to IFFs,” he said.

Dr. Ali-Nakyea suggested the need to “strengthen the capacity of the country’s financial institutions – particularly revenue authorities and the ministries responsible for negotiating mining and petroleum contracts to monitor transfer pricing, thin capitalisation among others”.

He also added that the relevant law enforcement institutions must be properly equipped and empowered to monitor the sector and implement its laws – especially institutions involved in tracing, tracking and dealing with IFFs in Ghana.

“Considering the pandemic’s severe impact on the economy, the country should improve the transparency and accountability required of companies in the extractive sector by ending secretive tax jurisdiction and tax havens. This will however require strict adherence to ‘publish what you pay’ and compliance with the beneficial ownership register required under the provisions of section 35 of the Companies Act, 2019 (Act 992),” he said.

The senior lecturer at the University of Ghana School of Law indicated that the enormity of the extractive sectors contribution to the economy makes it difficult for it to be labelled a conduit of IFFs – but a critical scrutiny of their books would expose some practices which amount to unhealthy financial transactions.

He said the sector contributes about 10 percent of GDP and 18 percent of government revenues, yet the sector is highly exposed to IFFs and the state continues to lose billions of dollars.

Recounting the 2019 Global Financial Integrity report, Dr. Ali-Nakyea said Illicit Financial Flows are undoubtedly one of the major avenues of revenue leakage, especially in a developing country, resulting in massive revenue shortfalls to the benefit of the individual companies’ shareholders – mostly expatriates – and to the state’s detriment with the minerals.

The 8th Pan African Conference in Accra on illicit Financial Flow and Taxation was themed ‘The Ghana We Want Post COVID-19; Optimising Domestic Resource Mobilisation from Extractive Sector for Africa’s Transformation’. The Pan Africa Conference on Illicit Financial Flows and Taxation is an annual conference that brings together key stakeholders involved in efforts to curb IFF and enhance domestic resource mobilisation in Africa.

Executive Director for the Ghana Integrity Initiative (GII), Linda Ofori-Kwafo, said corruption is not only an issue for low-income countries but equally for rich countries; and that it is important actions are taken on cross-border corruption, foreign bribery, tax evasion and related illicit financial flows – which collectively deprive countries of about US$1.26trillion per year.

She said the conference will explore strategies to strengthen coordinated pan African action and global solidarity to stop the ‘bleeding’ of public revenues from Africa’s extractive sectors.

Mrs. Ofori-Kwafo said the GII believes that when an enabling environment is created for businesses to thrive and the private sector is well-included in government’s fiscal policies, the propensity to indulge in bribery, tax evasion and tax avoidance will be greatly minimised.

Dr. Steve Manteaw, Executive Director of the Integrated Social Development Centre (ISODEC), also said the extractive sector presents high money laundering and illicit financial flow risks, yet the Financial Intelligence Centre is not integrated into the permitting process to help with due diligence assessment (Know Your Customer process) of applicants concerning financial security and money laundering risk assessments.

He said Ghana’s Extractive Industries Transparency Initiative report revealed that Customs officers stationed at mines to observe the gold smelting process and to record the production volumes, in many cases, stayed at particular mines for more than a decade – often fed and housed by the mines; and this situation, he said, could compromise the integrity and effectiveness of the monitoring arrangement.

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