Africa's Bane: Tax Havens, Capital Flight and the Corruption Interface
Africa’s Bane: Tax Havens, Capital Flight and the Corruption Interface (WP)
John Christensen WP 1/2009 - 8/1/2009
Corruption is widely recognised as harmful to sustainable development. Less well recognised, however, is that secrecy jurisdictions (also known as tax havens) 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.
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. Sub-Saharan Africa (SSA) has suffered a net accumulated outflow of capital amounting to over US$600 billion since 1975, and for every dollar of external debt borrowed by SSA countries 80 cents has flowed outwards as capital flight in the same year.
The situation is deteriorating, not least because the Government of Ghana has recently announced its intention to support the development of offshore banking services in Accra, which could contribute to a significant increase in the volume of cross-border illicit financial flows in the West African region.
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.