Financial Fraud And Information Sharing


By most accounts, developing countries especially in Africa are worst hit as multinational companies and rich individuals evade taxes.
The 2015 leaks by the Panama Papers Reports showed how many countries had lost huge sums as monies carted away to offshore accounts and tax heavens.
Indeed, the leak came as a surprise as many countries realised that there were grave loopholes through which they were being short-changed.
Having identified the problem, the solution lied with countries agreeing to share information with one another to checkmate such activities.
The G-20 and the Organisation for Economic Cooperation and Development (OECD) have drafted a Common Reporting Standard (CRS) to serve as a foundation for a global network of automatic exchange of information.
The goal is to allow a country to exchange the financial information of foreigners, like names, addresses, tax identification numbers and account balance information at regular intervals with the account holder’s home country government.
That way, a country such as Nigeria can know all the businesses being entered into by its citizens in other countries and can monitor the financial flows of such a citizen and companies owned by such individual.
However, this seeming solution to the problem may not be the headway at all for developing countries as a report by Financial Transparency Coalition shows that African countries were being “blindfolded’’ in this “fight’’ against secrecy.
It is not enough to sign the CRS as the report tagged “Unequal Exchange’’ showed that countries were not bound by the report to automatically share information.
Such a pattern had been established over time where rich countries only shared information with fellow rich countries.
Perhaps, it could be argued that the rich countries have more financial flows from their countries, but when compared in relation to percentage of Gross Domestic Products (GDP), then developing countries are being ripped off even way more.
For instance, the report quoted that: “the Democratic Republic of Congo had nearly five times more offshore wealth connected to the Swiss Leaks scandal than Germany, when considered as a percentage of GDP.
“Similarly, the exposure of Central African Republic was 11 times that of the USA and the figure for Kenya nine times that of Canada. The list goes on.
“And this is not a theoretical concern. With the information made available through Swiss Leaks, in 2015, Spain claimed it recovered roughly 340 million dollars in taxes and fines.
“When applying a similar rate of return to the money connected to Sierra Leone, for example, the potential revenue could be about 4.95 million dollars
“Though five million dollars may sound paltry at the onset, the fact that the potential tax revenue from just one bank in just one secrecy jurisdiction could equate to roughly 19 per cent of the country’s health budget is simply shocking,’’ it stated.
An estimate from the report shows that about 33 per cent of all assets of the Middle East and Africa are held offshore while Latin America has 25 per cent of its assets offshore.
One then wonders why the pattern of information flows seems to favour the developed countries like the U.S. and other European nations while the developing countries of Africa which suffer the most are left blindfolded and in the dark.
Conceivably, these information sharing treaties, developed by the Western countries are originally skewed to further favour the developed countries rather than the developing countries.
“When the OECD and G20 began designing the CRS, they did so without meaningful consultation of low-income countries.
“The result was a system designed by wealthy nations, with wealthy nations in mind, making many of the prerequisites impossible for countries that don’t have sizable tax administration budgets or advanced technical capacity.
“To make matters worse, some wealthy countries are choosing to share information predominantly or exclusively with other wealthy countries.
“In our analysis of information exchange agreements in place around the globe, we found a stark political reality in which high-income countries receive the lion’s share of information, while some of the world’s poorest are receiving none at all,’’ a report says.
This, therefore, may explain why a country like the United States of America receives information from 113 countries but only shares with 57 while other rich countries in the West only share information with other wealthy countries.
In Africa, only South Africa has good sharing relationships while other African countries have either one relationship or none at all as they have either not signed on or no country has agreed to information share with them.
In some cases, a developing country may only have a relationship with a fellow developing poor economy.
“Of what use will information exchange between Nigeria and Kenya be if all the money stolen from both countries are hidden in offshore accounts in Europe and America.”
Switzerland, a favourite hiding place for kleptocrats and the corrupt, has agreed to exchange information with just nine high-income jurisdictions under the CRS (in addition to members of the European Union, under a separate EU agreement).
None of the world’s 31 low-income economies are on the receiving end of any automatic information exchange, while just 21 of the world’s 109 middle income economies receive automatic information.
Sometimes, when the poor economies receive the information, they do not have the capacity to digest it or make meaning of them.
Vice-President Yemi Osinbajo at the launch of the Voluntary Assets and Income Declaration Scheme (VAIDS), announced that Nigeria was now party to the Automatic Exchange of Information through the CRS, which comes into effect in January, 2018.
In his excitement, he said: “this means that Nigeria will automatically have all the information to successfully pursue tax evaders across the world.
“Specifically, we will have information on beneficial owners of assets held abroad, including those in tax havens.’’
However, a source at the Federal Inland Revenue Service (FIRS) said that looking at all the requirements and a procedure to get access to information through the CRS, Nigeria is likely to start getting automatic information by 2019.
The source explained that the process was highly technical and staff of the FIRS and the Federal Ministry of Finance, who would be getting direct access to this information when it comes into effect, would require intensive capacity building in the meantime.
“Once we meet the requirements, our focus areas would be information about Nigerians with properties in Europe. Yes Nigerians are everywhere, but we believe that a large chunk of the stolen assets are hidden in Europe,” the source said.
Also, The FTC Media and Digital Officer, Mr Christain Freymeyer, said that solely joining the CRS did not mean Nigeria would have access to all the data from whatever country it wanted.
“This barrier to access is what we tried to highlight in the Unequal Exchange report.
“Because Nigeria isn’t entering until 2018, doesn’t mean they shouldn’t already have some exchange relationships set up.
“For example, Switzerland is not joining until 2018/2019, but it has already entered into preliminary exchange agreements with other countries in the CRS,” he said.
Analysts are of the view that one of the main problems of the CRS is the undemocratic process by which it has been designed and defined by the OECD, a club of developed countries.
They believe that it will make more sense to have a truly international and more representative institution such as the United Nations Tax Committee to be in charge of the Country Reporting Standards.

Ishaya & Nwoko write for News Agency of Nigeria (NAN).