The United Nation’s new app to track huge illicit cash transfers

Date published on source: 
26 May 2015
Moses Michira
Source organisation: 
The Standard

Nairobi:  Kenya could soon get a breakthrough in monitoring the movement of illegal cash shipped out of the county by multinationals through a new tracking tool developed by the United Nations. The new application could see Kenyans follow all international payments exceeding a specified threshold on the Illicit Financial Flow Web tracker developed by the UN’s Economic Commission for Africa (ECA).  The commission is based in Addis Ababa, Ethiopia.

The move aims at enhancing transparency and checking the illegal movement of cash out of Africa estimated at Sh4.9 trillion or $50 billion a year. "It will be available first on Android for anyone to check on real-time cash transfers,” Adeyinka Adeyemi – a senior advisor at ECA told Business Beat.

Though country specific estimates of the actual losses are not available, various organisations have projected the annual revenue losses for Kenya to be about Sh97 billion. He however noted that not all transactions are illegal, though this was the only way citizens and tax authorities could detect and arrest the ‘dirty’ flows.

Already, Central Bank bosses from several countries have committed to supporting the initiative that is a follow-up from a recent resolution by the African Union Heads of State. “We would want to know who is transacting what amounts, and what the funds are for,” he added.

President Uhuru Kenyatta was among the heads of government who converged in Addis Ababa in February, where former South Africa leader Thabo Mbeki presented findings on how much the continent was losing money through fraud and tax evasion. Multinational firms were accused of leading in the illicit cash transfers, which included profit shifting and transfer mis-pricing. This has ensured that subsidiaries in Africa report little profit and sometimes even losses.

Subsidiaries in jurisdictions offering lower tax rates would be beneficiaries of the funds shipped out, often as payment for services such as management and license fees.  Such costs for local subsidiaries are not easily quantifiable, meaning that the parent companies are able to pick up the profits in different tax-friendly countries such as Mauritius and the British Virgin Islands.  The Kenya Revenue Authority is currently battling “hundreds” of such cases, according to insiders, but limited capacity has meant that the perpetrators have often prevailed.

Adeyemi said the tracking tool is only one among the various measures that are at different stages of implementation as it becomes clearer that Africa, which is rich in minerals and hosts thousands of Western-owned businesses, hardly gains form the resources. He said through the intervention of the UN, the multinational firms will be required to publish a breakdown of how they made their money, by jurisdiction, from 2017.

A tax policy analyst at the Organisation for Economic Co-operation and Development, Siva Pattanam, said that country reporting could be the single-largest step in curbing illegal cash flows from the continent. “There have been measures to tackle illegal transactions, but the country-by-country breakdown is the most significant for developing nations,” Mr Pattanam said at a tax conference in Nairobi recently.

That measure, he explains, would enable KRA to compare and query how much a local subsidiary of a multinational operating in Kenya had reported to its parent.

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