Africa’s Pandora Papers Revelations Are About More Than ‘Legality’

Nearly 50 politicians and public officials from 18 African countries have connections to secretive offshore financial structures and trusts in tax havens, according to the Pandora Papers investigation. The leaders implicated by the leaked files—the latest effort of the International Consortium of Investigative Journalists, or ICIJ—include Kenyan President Uhuru Kenyatta, President Denis Sassou Nguesso of Congo-Brazzaville, Gabonese President Ali Bongo Ondimba and Prime Minister Patrick Achi of Cote d’Ivoire.

The revelations come at a time when debates over taxation, sovereign debt and capital flight from Africa are raging, against the backdrop of the coronavirus pandemic’s economic fallout. The pandemic’s impact has underscored the difficulties faced by countries in Africa and the rest of the Global South in supporting their economies, providing social protection for the most disadvantaged, rolling out vaccination campaigns and even implementing the Sustainable Development Goals, or SDGs, which have a decade left to run.

Before the Pandora Papers, two major recent reports had already put the problem of illicit financial flows and, more broadly, capital flight from Africa in the global spotlight. One was the product of a 2015 joint African Union-United Nations High Level Panel on Illicit Financial Flows from Africa led by former South African President Thabo Mbeki, known as the “Mbeki Report.” The other is a 2020 report titled “Tackling Illicit Financial Flows for Sustainable Development in Africa,” prepared by the U.N. Conference on Trade and Development, or UNCTAD.

Another report by the High Level Panel on International Financial Accountability, Transparency and Integrity for Achieving the 2030 Agenda, also known as the “FACTI Panel,” expands on the major themes of both reports, albeit from a more global perspective.

“From the Pandora Papers, we have seen that Nigerian elites feature prominently in pushing suspicious funds across jurisdictions,” said Taiwo-Hassan Adebayo, a Nigerian investigative journalist affiliated with Premium Times, the ICIJ’s Nigerian media partner. Premium Times’s investigations have detailed the offshore activities of a former vice presidential candidate, a Nigerian governor and a leading member of President Muhammadu Buhari’s ruling All Progressives Congress party. According to Adebayo, Nigerian public officials involved in these transactions typically register an offshore firm in a tax haven like the British Virgin Islands, which they then use to acquire properties in the U.K., long the investment destination of choice for Nigerian elites. In this way, they block not only British authorities from determining ownership of the assets and conducting due diligence investigations, but also Nigerian authorities from knowing about assets the officials might possess but did not declare publicly.

And while these offshore holdings might be technically legal—a point repeated ad infinitum by their defenders—both the Mbeki Report and that of UNCTAD found that misaligned tax incentives, porous revenue collection systems and global financial secrecy jurisdictions contribute a great deal to capital flight from Africa.

To put the problem in perspective, even before the outbreak of the coronavirus pandemic, Africa was said to have an annual SDG funding gap of $200 billion. The 2020 UNCTAD report found that an estimated $88.6 billion per year leaves the African continent through capital flight. A significant volume of this loss of revenue comes from multinational corporations cheating African governments out of vital revenues by engaging in a practice called trade mispricing, where companies set artificial prices for goods or services sold between their subsidiaries, thereby masking their true value to avoid taxation. Another common practice is trade misinvoicing, which involves the falsification of the value, volume and/or type of products in international transactions.

Many advocates for tax justice argue for a broader definition of illicit financial flows to include legal practices that effectively contribute to the same social outcomes.  

“The focus on legality of these offshore havens misses the point altogether,” Mariga Thoithi, a Kenyan researcher and activist, told me. “Shell companies, secret foundations and trusts, and offshore accounts through which tens of millions of dollars of wealth is funneled through and hidden aren’t illegal, but that’s far from saying that they’re alright.” He notes that the Pandora Papers revelations about the secret holdings of the Kenyatta family—as detailed in a documentary by Africa Uncensored—reveals the hypocrisy of Kenyatta “stashing away money secretly in offshore accounts, when speaking about building the country and financial accountability,” a reference to Kenyatta’s many stated anti-corruption pledges.

It is important to be clear that offshore tax havens, trade mispricing and trade misinvoicing all refer to distinct phenomena and do not neatly fit under the category of illicit financial flows, at least legally speaking. They can also be driven by concerns other than simply tax avoidance. Tichaona Zindoga, a Harare-based journalist, told me that in Zimbabwe—where billionaire businessman Billy Rautenbach and associates of President Emmerson Mnangagwa were named in the Pandora Papers—offshore accounts and shell companies were likely used in part because of the sanctions the country faced from Western governments, as well as to sidestep difficulties selling the country’s alluvial diamonds due to an inability to clear the Kimberly Process Certification Scheme on so-called conflict diamonds.

Nevertheless, many advocates for tax justice, on the continent and globally, argue for a broader, more normative definition of illicit financial flows to include legal tax avoidance and tax optimization by multinational corporations and “high net worth individuals,” arguing that they effectively contribute to the same social outcomes. The Pandora Papers revelations also shed more light on the globalized nature of illicit practices occurring on the African continent, involving local elites aided and abetted by international actors. 

Despite a broadly shared pessimism about any hopes for accountability, some observers still hope that international jurisdictions will tighten up their laws to prevent the kinds of opaque transactions detailed by the investigation. Adebayo, of Nigeria’s Premium Times, pointed to a good place to start: The U.K., “which doesn’t require ultimate beneficial ownership disclosures when offshore companies attempt to purchase properties.” 

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Civil Society Watch

One of the most challenging consequences of the coronavirus pandemic has been the management of elections infrastructure, from voter registration drives and campaign rallies to the management of Election Day polling centers. While this phenomenon was on display across the world, nowhere were these concerns more acute than in Africa, where many election infrastructure systems are still fairly analog.

Against this backdrop, local civil society organizations have played an even more crucial role than they historically have in the conduct of the many elections held across the continent in the past 18 months, given the restrictions on physical movement of people, fears of diminished turnout and risks of the virus’s spread. In particular, Ghana’s civil society organizations and the country’s electoral commission stood out last year for the steps they took well ahead of the elections in registering voters, creating digital line management systems and the comprehensive public sensitization campaigns they undertook regarding compliance with COVID-19 regulations and how to stay safe at the polls. 

Culture Watch

Monique Ilboudo was the first woman to write and publish a novel in her native Burkina Faso and is one of the most prominent authors in francophone African literature. Coming from a relatively small country that scarcely gets any international attention, Ilboudo writes and speaks extensively about controversial socio-political topics in Burkinabe society, including female genital mutilation, polygamy, rape, witchcraft and the underrepresentation of women in mainstream politics. 

Late last year, Ilboudo published a novel titled “Carrefour des veuves,” or The Crossroad of Widows. She continues to advocate on behalf of women’s and human rights in her country, and spoke to Mar Pozuelo Castillo in a discussion with Equal Times.

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Chris O. Ogunmodede is an associate editor with World Politics Review. His coverage of African politics, international relations and security has appeared in War on The Rocks, Mail & Guardian, The Republic, Africa is a Country and other publications. Follow him on Twitter at @Illustrious_Cee.

SAKHRI Mohamed
SAKHRI Mohamed

I hold a Bachelor's degree in Political Science and International Relations in addition to a Master's degree in International Security Studies. Alongside this, I have a passion for web development. During my studies, I acquired a strong understanding of fundamental political concepts and theories in international relations, security studies, and strategic studies.

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