How International Financial Centres Have Aided Corruption In Africa (With Specific Reference To Three African Countries)
There are criticisms on the role played by International Financial Centers in facilitating the illicit financial flow of public resources from the African continent to undisclosed foreign accounts and treasuries. African leaders are offered the options of secretive banking systems that conceal the true identity of foreign account holders or the limited disclosure banking system that prevents tracking of looted funds. Proceeds from foreign exchange and sale of crude oil in Nigeria, Angola and Algeria are mostly paid through international financial institutions where African leaders have a major stake to the detriment of their respective nations. Also, international financial centers provide a safe haven for corrupt African leaders to deposit and launder internally generated revenue through offshore banking that do not scrutinize the sources of this stalked wealth. Under-development, infrastructural deficit, political instability, insecurity and high level of poverty are the outcome experienced in most African countries due to the aid given by International Financial Institutions to African leaders in money laundering and illicit flow of public resources in an unaccountable manner. This seminar examines the nature of international financial centers and the role they play in aiding corruption in African Countries. The seminar shall also examine the various mediums used in looting public treasuries in Africa and stalking in foreign accounts. In addition, the seminar shall further examine the economic and social effect of the role played by International financial centers in secret banking and undisclosed illicit financial flow of public funds to offshore accounts. In conclusion, the seminar shall suggest measures on how to prevent and combat illicit flow of public funds through lessons derived from developed countries outside the African continent.
1.1 Key Words: International Financial Centres, Aid, Corruption, Illicit Flow
Introduction
Illicit money outflows are draining Africa’s domestic resources, depriving it of crucial investment funds.Tackling corruption particularly illicit financial flows is a matter of survival for Africa’s development and must be treated with urgency. According to the Economic Development Report 2020 by the United Nations Conference on Trade and Development, Africa loses about 88.6 billion dollars annually in illicit financial flows through foreign bank accounts operated on bank secrecy. Despite the recommendation that countries should ensure that financial institution secrecy laws do not inhibit implementation of the FATF, trade mis-invoicing, tax abuse, cross-border corruption and transnational financial crime are still been aided by international financial institutions who uphold bank secrecy policies that drain resources designated for sustainable development.This act has worsened inequalities, political instability, economic hardship, infrastructural deficit and damage public trust. Recently in Nigeria, about 43, 000, 000 pounds were recovered from the former Minister of Petroleum Resources, Diezani Alison-Madueke een public funds illicitly concealed through international financial centers. Research on the illicit flow of finance from Africa to financial institutions shows that while some of the private assets held outside the continent by African nationals may be legitimate, the bulk of such funds are certainly not. Due to the preference of African investors for the use of foreign currencies in bilateral and multi-lateral trade, the African continent now has share in private external assets in other continents with the aid of international financial institutions. The proceeds of international trade that should be for infrastructural and developmental purposes are retained by these foreign institutions on the instructions of local political leaders who have retained such proceeds for their personal benefits. This seminar shall examine the medium and strategy employed by African leaders and the foreign financial institutions in corrupt financial practices.
Definition of Concepts
1. International Financial Centres: International Financial Centers are institutions, bodies, agencies or locations that render foreign financial services all over the world. They engage in asset management, banking, insurance and equity trading. They can also be referred to as physical areas from which financial services are provided to people in other countries.
2. Corruption: Corruption is the abuse of entrusted power for private gain.
3. Illicit Flow: According to the International Monetary Fund (IMF), illicit flow or illicit financial flow refers to the movement of money across borders that are illegal in their sources either as proceeds of corruption, smuggling, tax evasion or terrorists financing.
The Role Played By International Financial Centres In Aiding Corruption In African Countries
In the Republic of Congo, Denis-Christel Sassou Nguesso, the son of the President of Congo was accused of embezzling public funds in dollars from the Country’s oil sector through the instrumentality of Shell Companies which aided him in purchasing luxury real estate in Florida. The role played by Shell in aiding corruption in the Republic of Congo was to “aid the diversion” of public funds generated from the sale of the Country’s petroleum resources and to act as a “luxurious real estate acquisition agency” for Dennis-Chrsitel to the detriment of infrastructural, social and economic in the Republic of Congo.
Research discloses that properties, bank accounts and luxury goods spread abroad across 74 jurisdictions amounting to approximately 3.7 billion dollars are looted from the African continent and held abroad far from where the corruption originally occurred. The styles adopted by African leaders and International Financial Centres in moving funds from Africa as follows:
1. Anonymous Companies
The British Virgin Island (BVI), Panama and Seychelles are listed by the Transparency International as top incorporations that serve as hub for anonymous companies used in concealing assets and stolen funds. Due to the corporate personality principle, corrupt leaders in Africa attribute looted funds to a corporate entity whereas the majority shareholders and executives of these entities are African leaders and politicians. The doctrine of lifting the veil to aid discreet unraveling of corruption via a corporate entity does not seem to be effective in its operation due to their registration in secrecy and in jurisdictions where information o real owners of such corporate entity is difficult to access.
2. Real Estate and Trust Holding:
Due to the growing desire for industrialization and development in Africa, foreign direct investments are often invited from countries outside the African continent. In the Petroleum sector, leases and licenses are issued by the governments in African countries to multi-national incorporations in return for taxes and royalties. African leaders adopted the style of acquiring real estate with the proceeds of these taxes and royalties through the aid of these multi-national corporations in their domicile countries. In the United Kingdom, United Arab Emirates and the United States, Transparency International reports that Nigerian leaders and politicians including the former Vice President Atiku Abubakar own unaccounted and undisclosed developed properties in these locations acquired with funds looted from government’s treasuries. In order to conceal the corrupt practice, the multi-national companies operating in Africa pay their taxes and royalties to foreign real estate companies who then acquire real estate and hold same in trust for corrupt African leaders.
3. Bank Accounts:
Foreign banks offshore are often interested in shady dealings with political and business elites in Africa on a continuous basis. Looted public funds and proceeds of corruption in Africa are stalked in undisclosed foreign bank account usually operated in the dollar currency. Corruption in Africa is facilitated by banking institutions in Europe, North America, Switzerland, Britain and France which accept financial instruments from African leaders without questioning the source of such funds.
In the regime of late General Sanni Abacha, a former military leader in Nigeria, Tell Magazine reported on 7th October 2002 that between 12bilion dollars and 16billion dollars were looted and received by foreign financial institutions in Australia, New Zealand Banking Group Frankfurt Branch; ANZ London; ANZ New York; Bank Len Zurich; Banking Trust Company Frankfurt and a host other foreign institutions.
The former President of Garbon, President Omar Bongo who was brought before the French Court in 2009, was found to have nine foreign bank accounts containing several millions of euros being proceeds of corruption in Garbon. The bank accounts were frozen by the French Court.
In Kenya, research disclosed that the Kenya’s Moi and his family bought several multi-million-pound properties in London, New York and South Africa while the majority of Kenyans live in slums and in rural areas with little roofing over their heads and lacking water and other basic necessities of life.
In a swift reaction to the excruciating state of the African Countries occasioned by the rising level of public corruption and financial embezzlement, Countries under the African Union are mandated to adopt such measures necessary to empower their courts or other competent authorities to order the confiscation or seizure of banking, financial or commercial documents for the purpose of unraveling banking secrecy on doubtful accounts.
4. Kick Backs by Western Corporations:
Western Corporations encourage corruption, bribery and stealing of public funds in Africa by paying bribes and kick backs to induce government officials to award them lucrative contracts in African Countries. In September 2002, the Canadian firm, “Acres International” was convicted by a High Court in Lesotho in the Southern African Region for paying 260, 000 dollars bribe to secure an 8billion dollars dam contract.
When the contracts are awarded to these foreign corporations, public funds designated for the execution of such contracts are shared among the facilitators with the aid of foreign accounts and foreign financial institutions. The corrupt practices by Western Companies seeking contracts in Africa are one of the reasons poverty and underdevelopment still persists in Africa.
5. Foreign Banking Operations and Mediums that Aid Corruption:
As part of the strategy designed by foreign financial institutions to aid illicit flow of public funds in Africa, certain unregulated bank practices were initiated and introduced to African leaders. African leaders see these banking practices as beneficial in their continuous attempt to divert and covert entrusted public resources for their personal gains. These banking practices are as follow:
a. Creation of Global Bank Account with Business name: Due to the nature of a registered business name, it does not have any form of corporate entity that can be sued or charged for corruption related offences. The identities of the proprietors of these business names are concealed while the particulars of the business are used to initiate financial transactions of foreign nature.
b. Electronic Transactions and E-Wallets: Foreign financial institutions initiated e-payment platforms powered by ACH, Domestic wire, SWIFT, CHAPS and SEPA. These platforms can author any form of financial transfer from any part of the world without restrictions by internal banking policies. The applications designed to work on this banking platform are linked directly to designated foreign accounts where the funds are diverted to.
c. Multi-purpose Credit and Debit Cards Operations: In order to ease the movement of funds, foreign financial centres introduced multi-purpose automated teller cards for financial transactions beyond domestic boarders. The account liked to the card operations are funded locally within African Countries while the funds are withdrawn in dollars in designated international financial institutions.
Effect Of Corruption In Africa Aided By Foreign Financial Centres
In determining the effect of corruption in Africa aided by Foreign Financial Centres, the following two African Countries with Civil and Military rule respectively shall be looked at:
Nigeria: In Nigeria where democratic and civilian rule is practiced, corrupt practices of political leaders and public officials aided by foreign banking institutions have resulted in economic decay, social and political instability. Epileptic electricity supply, lack of good roads, kidnapping and banditry as well as internet fraud are the reoccurring events due to government’s neglect of the welfare of the citizens.
Public and elected offices are seen as ventures for self enrichment and foreign assets acquisition through the aid of foreign bank platforms. Foreign investments in Nigeria have gradually been crippled due to lack of public trust, lack of conducive working environment for foreign expatriates employed by multi-national oil corporations and frequent vanadalization of industrial installations.
Burkina Faso: Sub-Saharan Africa report discloses that corruption aided by international financial institutions is pervasive in all sectors of the economy including agencies and organs of the government in Burkina Faso. Transparency levels at the border are very low which makes illicit trans-border movement of national resources easy for corrupt public officials.
The former director of Customs in Burkina Faso, Ousmane Guiro was convicted and sentenced to a two year jail term for his role in aiding the diversion of 1.5 million dollars from public treasuries. Procurement procedures in Burkina Faso are marred with corrupt practices and the funds awarded for such contracts are shared and looted with the aid of foreign banking platforms.
Measures To Prevent and Combat Corruption In Africa Aided By Foreign Financial Institutions
In order to address the rising tide of corruption in African Countries, the following measures are necessary:
1. International Cooperation: The United Nations Convention against Corruption enshrines the principle of “strengthening international cooperation in preventing and combating the transfer of funds of illicit origin derived from acts of corruption and money laundering. States who are parties to the convention are required to aid one another in tracking the illicit flow of public resources from one country to another with the aid of foreign banking institutions through the effective implementation of anti-corruption policies that promote transparency in banking and accountability of funds originating from external sources.
2. Comprehensive Domestic, Regulatory and Supervisory Regime for Banks: Banks and financial institutions within States that are parties to the UN convention must operate under the regulatory and supervisory scheme instituted by their host countries in both local transactions and foreign deposits in order to deter and detect all forms of money laundering. The identity of customers and beneficial owners of lodged funds must be disclosed at the point of every lodgment. Electronic funds transfer must be scrutinized and the originator disclosed as well as the source of such funds. Financial institutions should be prohibited from keeping anonymous accounts in fictitious names.
In order to overcome the obstacles of bank secrecy in domestic investigation, States that are parties to the UN convention are enjoined to take appropriate mechanisms available within the convention in investigating offences related to corruption.
3. Freezing, Seizure and Confiscation: On the basis of international cooperation, and recommendation 4 of the Financial Action Tax Force, States that are signatories to the United Nations Convention should take steps as may be necessary to identify, trace, seize or freeze any proceeds of crime within their jurisdictions. If such proceeds of crime have been intermingled with property, transformed or transferred into other property, the property shall be confiscated up to the value of the intermingled proceeds.
4. Sanctions: African Countries should criminalise money laundering on the basis of the Vienna Convention and the Palermo Convention. In addition, signatories to the African Union Convention on Preventing and Combating Corruption, should ensure that there is a range of effective, proportionate and dissuasive sanctions whether criminal or civil or administrative, available to deal with natural or legal persons including directors and senior management officials who aid the illicit flow or diversion of public funds.
5. Asset Declaration and Prohibition of Illicit Enrichment in Public Service: As part of commitment of State parties towards preventing and combating corruption aided by international financial institutions, asset declaration by public officers should be properly enforced at the point of entry into public offices and such declaration of asset done periodically in compliance with the public service rules in Nigeria. This measure will help to prohibit illicit enrichment.
6. Centralized Foreign Exchange Platforms Supervised by the Central Bank:
In order to regulate the inflow and outflow of foreign exchange and foreign transactions, the Central Bank policies in African Countries regulating foreign exchange and foreign transactions should be enforced effectively.
Agencies and Bureau De Change engaged in foreign transactions should be registered, licensed and supervised by the Central Bank in order to avoid an abuse of their platforms by corrupt public officials. In Nigeria, the Central Bank issued revised regulatory and supervisory guidelines for Bureau De Change operations in Nigeria to regulate the foreign exchange market and prohibit money laundering. The effective implementation of this regulation is still in its infantry stage.
Lessons From Other Jurisdictions
a) Canada: In order to prevent illicit flow of financial resources from public confine, the Canadian government created the Financial Transactions and Reports Analysis Centre (FINTRAC) that mandates financial institutions to report suspicious activity through anti-money laundering regulations. At the borders, individuals must declare any currency or monetary instruments exceeding 10, 000 Canadian dollars when entering or leaving Canada. This measure if adopted in Nigeria and other African Countries will help to check the rise in illicit cash flow from Africa to foreign financial institutions.
b) Australia: Large cash transactions in Australia are monitored for anti-money laundering purposes through the Australian Transaction Reports and Analysis Centre (AUSTRAC). The Australian Prudential Regulations Authority regulates banking transactions locally and internationally in Australia as well as insurance and superannuation funds in order to prevent money laundering. Accounts originating a financial transaction and the beneficiary account are properly monitored and documented to check money laundering.
Conclusion
There is need to harmonize strategies and synergy among African Countries in implementing the provisions of regional and international conventions on financial corruption and money laundering in order to check leakages and illicit flow public funds aided by international financial centres. The governments in various African Countries should demonstrate a proactive commitment towards ensuring that financial policies that aid looting of public funds are eradicated. Above all, the goodwill and economic development of the African people should be the utmost priority of every government in the African continent.
About Author
Lawrence Ehidoze Odigie
