IN 2005, US lawyer George Nagler was contacted by Rosalina Romo, the executive assistant of Teodoro Nguema Obiang Mangue, son of Africa’s longest serving president and who is on course to extend his 37-year rule over oil-rich Equatorial Guinea.
Romo and Nagler together set up Sweet Pink Inc, which named Romo as its CEO, secretary and chief financial officer. Mangue was listed only as “assistant treasurer”, but under questioning in a US Senate investigation, the lawyer said it was his understanding the younger Nguema was the sole owner and source of funding.
A few days later, Mangue’s then girlfriend, well-known US rapper Eve Jeffers was appointed the firm’s president. The company was among those known to have been used by Mangue to between 2005 and 2007 move more than $110 million into the US and buy property.
Under pressure from authorities, his US banker eventually closed the accounts, according to the resulting Senate report that was captured in a 2011 World Bank report on stolen assets, The Puppet Masters, and which also in part spotlights how public officials including presidents and state governors from Nigeria and Zambia to Kenya used corporate and financial structures to obscure money trails.
The big people eat it all
Equatorial Guinea has a population of about 760,000 people and on paper a GDP per capita of $20,500—the highest in Africa. Yet three quarters remain mired in poverty, despite its natural-resource riches, with oil exports constituting 80% of its GDP.
The stashing away of such funds in tax havens and global financial centres and which would otherwise build schools, hospitals and infrastructure, costs Africa heavily.
But it was only last year that the continent put a figure to the haemorrhage, when a joint panel headed by former South Africa president Thabo Mbeki in a much-anticipated report (pdf) showed that between 2000 and 2008, Africa lost at least $50 billion annually to illicit outflows.
On the back of the resulting uproar, the continent’s policy community set to work to show just how much of a difference such amounts would make to the region’s development.
The money was enough to simultaneously cut poverty and inequality on the continent by half, organisations from the African Union to the UN’s Economic Commission for Africa, which both backed the report, said.
It is also regularly highlighted that the total outflows from the continent every year were more than the amount of official foreign aid into the continent, which in 2012 was set at $46.1 billion.
But at the release of the findings from its two-year investigation, the Mbeki panel had a caveat: the amount fell “well short of reality”—an acknowledgment of the continent’s well known data problem, but also of just how difficult it is to track flows that by their nature are intended to be hidden from view.
The leak of the so-called Panama Papers has reinvigorated the debate and delighted many leading African names, giving a coveted glimpse into the secretive world of offshore structures. The leaked data from the legal firm Mossack Fonseca featured many African names, even as the distinction is strenuously made that they are not inherently illegal and some have their legitimate uses.
Could be worse
Now the panel says the problem could be worse than previously thought. The continent is losing at least $80 billion, Mbeki said Monday at a press briefing in Johannesburg, as the panel continues to burrow into newer numbers.
Mbeki said that after looking closer at the figures, the number had increased to an estimate of between $80 billion and $90 billion dollars—or nearly the amount the World Bank in 2009 said the continent would need to spend annually for 10 years to narrow the gap with the rest of the world.
“This could either be because more thorough work has been done or in fact there is in actual increase in the activity,” Mbeki said.
While the focus tends to be on the criminal activities such as tax evasion, corruption and trafficking, legally allowed tactics actually account for the bulk of outflows.
Mbeki said the commercial sector is responsible for handling two thirds of capital illicit outflows from the African continent.
Measures to clamp down on funds lost illicitly are being rolled out, but as the former president pointed out, the majority of such flows pass through the systems of banks, as he urged central banks to help track the money.
“This money is not leaving the continent in plastic bags, it goes through financial systems.”
One study showed that African countries lost up to $407 billion between 2001 and 2010 from trade misplacing alone—the misrepresenting of data about imports or exports.
The UN’s trade and development body UNCTAD says profit shifting costs poorer countries—the majority of which are in Africa— up to $100 billion a year.
In one famous case, an American construction conglomerate had almost 30% of its employees in Asia and Africa, made 30% of its sales in Asia and Africa—but recorded only one percent of its profit in Asia and Africa. Eighty percent of its profit went to a tax haven.
In July, a proposal by the continent for multinationals to be more transparent on tax avoidance was heavily watered down by wealth nations.
Mbeki also called for efforts to strengthen the ability of tax authorities on the African continent to keep up with the ever-adapting nature of such outflows, as there were institutional weaknesses.
Without understanding the nature of methods and structures used, it is very much shooting in the dark.
“We need to find a way of tracking these outflows so that we are able to measure whether the measures are working, leading to a reduction of the outflows,” Mbeki said.
Mbeki said the panel is consulting with countries and financial institutions such as the Organisation for Economic Co-operation and Development (OECD) and the European Central Bank.
He said the OECD has agreed to work with the panel in tracking and reducing the illicit outflows, and to develop measures of whether progress has been made.
With wealthy nations under pressure following the Panama leak, the outcome of a landmark anti-corruption summit in London next month will be closely watched by the continent, where leaders are turning up the campaign to have those funds found to be illicit to be repatriated to finance development.