Analysing the billions that SA loses via illicit financial flows

Despite Government's preventative measures, South Africa continues to lose billions of Rands due to illicit financial flows. Namhla Mniki-Mangaliso, the Director of African Monitor joined Alec Hogg on CNBC Africa's Power Lunch to discuss the magnitude of the problem.

The numbers are astronomical.  Has organised crime been brought into this or does it only touch on 'above-the-line' stuff?

The international organisation that's been doing this quite well over the years is called Financial Integrity.  They look at all forms of illicit financial fraud.  The numbers we've used are essentially, extrapolations from those global numbers, to look at what's happening in South Africa.  Incidentally, Thabo Mbeki is in Addis today, launching a report on what's happening with the Africa continent and those numbers are even more astronomical.  In South Africa, in 2011, the figures were R237bn p.a.

How much of that is illegal?

I'm not currently able to tell you those figures in terms of that bulk of R237bn.  We can make that information available.

Mispricing is one issue, but surely illicit gain through organised crime, dwarfs that?

Actually, those global figures tell us that between 80 and 85 percent in South Africa is mispricing.  In the African continent, that number increases to 90 percent.

What do you mean by mispricing?

Well, if you look at illicit financial flows, there are outright illegal activities for example, money laundering, drug trafficking, and human trafficking etcetera.  That only looks at what the source is of the financing and the source is illegal.  The rest of the bulk, which is about tax evasion and is about overpricing, exports, under-pricing imports, as well as all the other forms of evading tax are part of mispricing.

Are you saying companies are doing this?

In South Africa and across the African continent, the data tells us that particularly international companies do this.  The vehicles they use are e.g. if they have multiple companies across different countries, they are able to shift assets around so that they can partly avoid paying tax as well as partly avoid and take advantage of some of the bilateral trade agreements exist in the countries.

Like the scandal that arose around Google and some of the other companies in the U.K.

Of some of the big companies that are known to do this, Apple is one example of that.  SABMiller in our country has been said to have done this.  Action Aid did some research on this and SABMiller was one of the organisations that in Ghana, and a number of other African countries, was said to be doing this.

What proof do you have of that?  That's a big allegation.  SABMiller is one of the biggest employers in South Africa and one of the biggest taxpayers in South Africa.

That's why I'm referencing that.  We didn't do the work ourselves.  We simply don't have the capacity.

How legitimate is the organisation that you take information from?

Action Aid is an international company.

How legitimate/credible is this organisation?

The fact that I would come here Alec, and quote them means that I trust their credibility.  They've been doing work on money laundering and illicit financial flows for decades now.  They have the expertise that small African NGO's such has us, don't have.  Global financial integrity does not particularly look at specific companies, but the figures that they present are figures that are referenced by African Governments and global Governments, so their data is the most reliable that we have.

It makes sense because if they can pull the wool over the eyes in the highly sophisticated countries of Europe, it should be much easier here where the capacity is not quite as high. How do we bring them to book?

Let me say two things around the capacity issue.  One of the things that's encouraged us, having looked at South Africa, is that South Africa has no shortage of laws in terms of the Acts that are supposed to deal with this.  We have FICA and a number of other Acts that are actually supposed to be governing this.  The big gap is that they actually focus on the assumption you are making on money laundering and they have systems in place to track that.  The bit around corporate misbehaviour and illegal activities is left completely unchecked, though.  SARS recently issued a report a month or so ago, where they said that in the last three years, they've only been able to audit 30 reported cases and they've recovered R20bn in South Africa.  That's a whole team over a three-year period, only doing 30 cases.  The technical capacity that's required for this kind of work is fairly sophisticated.

We are told that companies here and internationally employ teams of legal experts, etcetera, to be able to do these types of activities.  Currently, the only way of doing it is saying 'this is something we want to pay some attention to because these are resources that we could be using for development financing'.

But anybody who steals from the country has to be brought to book.  It's a fascinating subject.  We do know that when SARS got on top of the corporate tax scene 10/15 years ago, companies became compliant because they were scared they would be hit with fines.  Many of them got big fines first.  Maybe it's time for some kind of a multinational focus on the multinationals who are not playing the game and not paying the taxes they should.