Illegal flow of money from SA estimated at R80bn
ABOUT R80bn is leaving SA illegally each year in what is known as illicit financial flows (IFFs), a parliamentary workshop on base erosion and profit shifting heard.
Base erosion and profit shifting are defined as “businesses exploiting gaps in the international tax system to artificially shift profit and avoid paying tax”.
MPs from various parliamentary committees were reminded on Friday that the movement of capital in and out of SA was not illegal, but IFFs, which include the movement of the proceeds from corruption, the drug trade and commercial tax evasion, are a crime.
The United Nations Economic Commission for Africa says: “Illicit financial flows out of Africa have become a matter of major concern because of the scale and negative impact of such flows on Africa’s development and governance agenda. By some estimates, illicit flows from Africa could be as much as $50bn a year.”
According to the commission, this amount was about “double the official development assistance that Africa receives and, indeed, the estimate may well be short of reality as accurate data do not exist for all transactions and for all African countries”.
Kathy Nicolaou-Manias of the Financial Intelligence Centre told the workshop “organised crime, the illicit economy and IFFs affect democracies and the functioning of financial markets … across the globe.
“Illicit traders generate vast amounts of cash that need to be laundered by morphing cash into instruments that enable the movement of funds into global electronic financial systems.”
The Financial Intelligence Centre is a statutory body established to fight money laundering and terror financing.
The global annual flow of IFFs was more than $1-trillion and was growing at 8% a year, Ms Nicolaou- Manias said. Africa’s share was about $60bn of which SA’s was about 13% .
“The main components globally are 60% in the form of commercial transactions involving multinational enterprises including tax evasion through transfer and trade mispricing; 35% is through criminal activities such as trade in drugs and smuggling of weapons and people; and 5% is corruption and the theft of public funds,” Ms Nicolaou-Manias said.
Treasury deputy director- general Ismail Momoniat said capital flows were an integral part of a growing economy and these legitimate flows included trade and dividend payments.
By definition it was impossible to know the exact amount or level of illicit capital flows “as those who break the law do not voluntarily report on their criminal actions”.
