Illicit financial flows, profit shifting and wage evasion perpetuate inequality, conference told
Illicit financial flows, profit shifting and wage evasion costing Africa more than $86-billion annually, an amount that could quite possibly wipe out Africa’s foreign aid debt. South Africa alone loses $27-billion on an annual basis because of this.
The Alternative Information & Development Centre (AIDC) and Tax Justice Network Africa hosted a conference to discuss the impact of Illicit Financial Flows (IFF), Profit Shifting and Wage Evasion and how this could be combatted. In attendance were members of civil society, academia, trade unions, government and community movements.
Embattled mining corporation Samancor was used in a case study that detailed an ongoing court case stemming from a whistle-blower who accused the corporation of “shifting profits” out of Samancor while giving themselves ‘kickbacks’ and robbing workers of money. The sum is estimated to be in the region of $500-million.
At the conference, Samancor worker and member of the Association of Mineworkers and Construction Union (Amcu), said that workers at the company had been given a 4% shareholding, for which they had had to take out a loan. However, he said that the profit share of the company had not been forthcoming. He said the last time they had received dividends was in 2013, to the tune of R4,000 each which was not representative of the amount due to them according to the percentage of their shareholding. “We are the people bearing the brunt of all this corruption,” he said.
Addressing conference attendees, Johan Lorenzen, who is the lawyer pursuing the case against Samancor on behalf of Amcu, said that it was important to highlight how profit shifting adversely affected workers. “It’s easy to get lost and look only at taxes. It’s easy to downplay the impact but that is blood and sweat that’s going unrewarded when we have profit shifting schemes like this.
“The law of shareholders is not developed to keep up with the fact that the minerals legislation creates newly empowered shareholders who are not set up to defend their rights as conventional shareholders would be,” said Lorenzen.
This, Lorenzen said, is what enabled majority shareholders in corporations like Samancor to take advantage of minority shareholders, by affording the ability to enter into transactions that “disproportionately benefitted” the bigger fish.
Coordinator of the Stop the Bleeding (STB) consortium, Mukasiri Sibanda told the conference that the multidisciplinary consortium and its subsequent campaign to end illicit financial flows was precipitated by a 2015 report, led by former president Thabo Mbeki. The report revealed that Africa was losing over $50-billion to illicit financial flows at the time.
Sibanda said that the aim of the campaign was to get continental political buy-in in order to stem the tide of IFFs and pointed out that the ‘epicentre’ of IFFs was in the extractives sector. “What we are losing through illicit financial flows is enough to wipe out the continent’s debt,” said Sibanda.
He added that it was estimated that Africa is losing upwards of $86-million annually. He said this was not an abstract construct but one that “we are confronted with it every day”.
Senior economist at the AIDC Dick Forslund said that when unions got involved in contracts with corporations it is important they read through the contents thoroughly. He said, if necessary, unions should engage the services of an economist to help interpret financial statements so that union officials could better understand corporations’ operating methods.
Forslund was adamant that unions needed to interrogate and ask questions about the percentages of profits that were shifted to companies outside of South Africa by corporations they entered into profit-sharing contracts with. DM/MC
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