Opinionista Joseph Kraus 10 September 2014

The Trillion Dollar Scandal and its impact on Africa

If you’d spent $100 million dollars every day since Nelson Mandela’s inauguration address in May 1994 – in which he called for “justice for all” – you still would not have spent the amount of money that leaves developing countries illicitly each year: $1-trillion.

The Trillion Dollar Scandal, a ONE transparency report published on Thursday, reveals a staggering injustice: developing countries lose at least $1-trillion every year as the result of corrupt activities, including shady deals for countries’ natural resources, the use of anonymous shell companies, money laundering, and tax evasion.

As a member of the G20, South Africa is well positioned to help put an end to this haemorrhaging of funds out of the developing world by pressing other G20 leaders to take concrete actions at the upcoming G20 Summit in Brisbane, Australia, in November.

To put the trillion-dollar scandal into perspective, $1-trillion could buy a 2014 Toyota Hilux for every South African citizen. Put another way, an amount roughly equivalent to the combined GDPs of Africa’s 10 largest economies goes missing from developing countries every year.

This missing money far surpasses the total foreign direct investment that developing countries receive annually. This financial loss not only acts as a damper on economic growth, but also puts at risk the gains made globally – and especially in Africa – over the last 20 years to cut extreme poverty by half.

Corruption is a killer. When developing countries lose finite resources that could have otherwise been invested to improve healthcare systems, food security, or basic infrastructure, people die.

In Guinea, for instance, one of the countries hardest hit by the recent Ebola outbreak, lost tax revenues from illicit financial flows are an estimated $125 million per year, more than the Guinean government’s entire health budget in 2012. In the midst of a crisis in which even basic medical equipment such as rubber gloves are in short supply, it’s not hard to imagine the very tangible impact that missing revenue could be making.

Where is the missing trillion going? There is a lot of blame to go around. In part, this is a story about bad actors – corrupt individuals and irresponsible businesses preying on the poor for the sake of private gain. Examples abound of corrupt government officials that have treated the public purse like personal bank accounts. Like recently deposed Ukrainian president, Viktor Yanukovych, whose alleged corruption led to his downfall, or former Nigerian president, Sani Abacha, who reportedly stole between $3-billion and $5-billion during his five-year tenure.

There are dodgy businesses too, such as the five anonymous shell companies used to buy valuable mining rights in the Democratic Republic of the Congo at a fraction of their value under suspicious circumstances before ‘flipping’ them and pocketing substantial profits that should instead have accrued to the people of a country plagued by decades of poverty and conflict.

But fundamental to the trillion-dollar scandal is the fact that developed countries – including many in the G20 – help facilitate corruption in developing countries. Lax or opaque regulatory environments enable the corrupt and criminal to launder their dirty money into places like the United States, United Kingdom, or Hong Kong. Without assistance from accountants, lawyers and banks, it would be much more difficult for criminals to launder, hide, and spend their ill-gotten gains.

To meet their commitments to help the world’s poorest countries develop, world leaders must enact smart policies that put an end to the secrecy that facilitates corruption in developing countries.

For starters, other G20 members – including South Africa – should follow the lead of the EU, US, and Canada and implement mandatory disclosure laws that require oil, gas and mining companies to publicly disclose their payments to governments. This would provide the citizens of South Africa – and elsewhere – with information critical for ensuring natural resource deals are fair and the revenues are effectively managed.

G20 countries should also put an end to the use of anonymous shell companies – secretive entities easily and often misused for criminal purposes – by requiring that the actual (‘beneficial’) owners of companies be publicly disclosed. This would make it much more difficult for corrupt individuals and businesses to hide behind a cloak of secrecy to rob developing countries of much-needed resources.

In his inaugural address, Mandela noted, “out of the experience of an extraordinary human disaster that lasted too long, must be born a society of which all humanity will be proud”. The siphoning away of resources from the world’s poorest countries serves to perpetuate extreme poverty – the human disaster of our time.

It’s well past time for South Africa and other world leaders to put an end to the trillion-dollar scandal and help create a global society in which we can all be proud, and prosper. DM


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