Illicit financial flows and the extractives sector on the African continent: Impacts, enabling factors and proposed reform measures
This article is based on research in the literature on illicit financial flows (IFFs) in the context of the African extractives sector. It summarizes the adverse economic, political, and environmental impacts of IFFs and identifies key gaps in current legislation and policy and weaknesses in national tax systems. Specific actions to strengthen the effectiveness of current legal and regulatory measures are proposed.
Legislative and policy gaps and weak taxation systems in African countries have allowed legislation to be circumvented or interpreted by mining companies or governments in a way that perpetuates IFFs, for example through manipulation of local content requirements or transfer mispricing. Weak taxation systems mean that mining companies do not pay tax commensurate with earnings. Where beneficial ownership full disclosure is not implemented, complex corporate structures lead to lack of transparency and linkage to politically exposed persons open to corruption.
To address these shortcomings taxation systems must be strengthened by improving the quality of human resources in taxation agencies. Beneficial ownership requirements should be strengthened, and local content requirements reformed and implemented effectively.