Humanising Illicit financial flows: What media need to know

Africa is confronted with deep and multi-faceted developmental challenges. Curbing illicit financial flows (IFFs) has been identified as a fundamental tool to shore up resources to finance the continent’s sustainable development agenda. Therefore, media have the prominent role to play in holding the powerful such as governments, corporates, and wealthy individuals to account. –They also must raise public awareness and unearth harmful tax practices. How media report on the problem of IFFs is quite important. Certainly, African media must frame issues related to IFFs in a way that reflect a certain ideology, raise popular narratives, help in putting issues on the government agenda, simplify and package issues in a digestible format, thereafter, cascading these issues to citizens.

Basically, the problem of IFFs is quite complex and it requires media to walk an extra mile to make sure that the public has good appreciation of what IFFs are, the drivers, opportunities, and challenges linked to identifying, tracking, and recovering lost monies through IFFs. To perform these functions effectively and efficiently on issues of IFFs, media should have a profound understanding of IFFs, their components and mechanisms, the politics, and narratives around IFFs and the various strategies to stem them. There is often a disconnection between IFFs and human development and this often makes it difficult for the general populace to understand and relate with IFFs’ issues. It is therefore important for media to bridge this gap through humanising IFFs; this entails producing and publishing media products that put citizens first and help them see themselves and relate to published stories.

With this background in mind, the African Forum and Network on Debt and Development (AFRODAD) organised a media conference on debt and development, which included topics such as humanising debt and illicit financial in Africa. The main aim for this presentation was to connect IFFs to the daily lives of the citizens.  Notable, AFRODAD is part of the big tent for pan African civil societies in Africa that are fighting to curb IFFs from the continent – Stop The Bleeding (STB) Campaign. Along with African Women’s Development and Communication Network (FEMNET), Pan African Lawyers’ Union (PALU), Trust Africa, Tax Justice Network Africa (TJNA), International Congress of Trade Union (ITUC-Africa). AFRODAD is part of the steering team behind the STB Campaign.

The politics of defining IFFs

Generally, there are some challenges when defining IFFs especially when it comes to devising strategies to curb them. We can only effectively deal with something that we know and understand. Some definitions are comprehensive, and some are not. Incomprehensive definitions are mostly put forward by actors in the global north who are the major beneficiaries of IFFs. They benefit through being home to Multi-National Corporations (MNCs) operating in Africa and are notoriously known to evade and avoid tax. A study by Tax Justice Network has brought to light that 68% of IFFs go to the Organisation for Economic Co-operation and Development (OECD) countries. Available definitions of IFFs are incomprehensive because they are void of harmful practices that are not necessarily illegal but morally wrong. However, there is growing consensus on a more all-inclusive definition that includes harmful tax practices such as tax avoidance, aggressive tax planning etc.

IFFs are defined as involving the transfer of financial resources earned through illegal activities such as corruption, transactions involving contraband goods, criminal activities and efforts aimed at sheltering wealth from tax administrations. Cumulatively, therefore, the net effect of IFFs is the facilitation of the cross-border movement of monies obtained illegally. The problem of IFFs as defined by the AU/UNECA High Level Panel on IFFs from Africa, is both criminal and moral, because the result is the same – syphoning of resources meant for financing Sustainable Development on the continent. Politics around the definition of IFFs is therefore important for media to push for comprehensive definitions that will enable them to portray a true picture of the human face in relations to IFFs. The question that one may ponder is which definitions of IFFs are various media house using?

Legality and morality of IFFs

IFFs include harmful tax practices that are not necessarily illegal. These are tax avoidance and aggressive tax planning that manipulates weaknesses in the design of tax regimes using bankers, accountants, and tax experts. It is not legally wrong to avoid paying tax, but the major concern is on the implications of avoiding tax. Not paying tax results in reduced government revenues which in turn leads to underfunding of budgets therefore negatively implying on health and education. These budget deficits may lead to debt accumulation. Negative implications of avoiding tax then become morally wrong because resources that are meant for clean and portable water, procurement of Covid-19 drugs, good roads, government pay outs to vulnerable members of the society are syphoned and stashed in tax havens to which African countries do not have access to. It is important for media to be aware of these issues so that they can tell a story that explains why it is important to include harmful practices that are not necessarily illegal but have a clear negative bearing on human development.

Manifestations of IFFs

To humanise IFFs it is important for media to have a profound understanding of the various mechanisms through which IFFs take place. It is from these manifestations that some of the politics and narratives on IFFs emanate from. For example, if there is little or no understanding of tax evasion and tax avoidance, it is likely that one may go for an incomprehensive definition of IFFs. This will in turn have a bearing of where countries bleeding from IFFs put their efforts. As articulated in a paper titled “Illicit Financial Flows And Domestic Resource Mobilisation In The Extractives – A Policy Dialogue for African Countries” by Dr Ezra Chidzamira with African Tax Administrators Forum (ATAF), some of the key manifestations that  media need to fully understand include but are not limited to:

• Abusive transfer pricing – through multinational enterprises employing multiple structures to shift profits from normal rate tax jurisdictions to low or no tax jurisdictions.
• Trade mispricing – through falsifying of quality, price or quantity of traded goods, often through over-invoicing imports or under-invoicing exports.
• Mis-invoicing – this is often found in intra-group transactions for goods and services and often takes the form of royalties and management fees. It is often a sub-set of abusive transfer pricing methods but exists independently of the transfer pricing framework.
• Unequal contracts- which present themselves as secret contracts relating to resource extraction.
• Thin capitalisation- this is another way of domestic tax base erosion where Multinational enterprises (MNEs) employ excessive leveraging. These companies often tend to borrow from their affiliates, rather than raising capital through shares, because accrued interest on debt is deductible against tax liability.

These mechanisms of IFFs are generally technical, it is therefore important for media to have a profound understanding of them and be able to it   decode it and package it in a form that is easily understood by the general populace. Increased understanding of the mechanisms of IFFs is key in ensuring the participation of citizens and exerting pressure on governments to step up efforts to stem IFFs.

Victims cannot be side-tracked in providing mechanisms to stem IFFs

There are several initiatives from different players to stem IFFs. Some of these initiatives which are being imposed on the African continent are not effective as they ignore the peculiarities within the continent. The OECD for example has made some recommendations to curb IFFs from Africa but these recommendations are tilted towards the global north as their impact is more positive towards the OECD countries. This is worrying because the current global financial architecture is designed in a way that is benefiting capital exporting countries in the global north more than the global south, capital importing countries. It is therefore important for media to have a profound understanding of the configuration of the global financial architecture. Of course, media must always bring to fore the fact that Africa is a net creditor to the world, a far cry from the narrative which shows foreign direct investment as the panacea to the continent’s socio-economic woes.

At this juncture, pertinent political questions that media should seek to answer are: Whose recommendations should we implement? Whose agenda should we champion? Should we trust and implement the OECD’s recommendations given that Africa will not benefit much and that most of the MNC’s involved in IFFs are housed by OECD countries? Till when should we push other’s agenda and ignore our own?  It is also the role of media to challenge the narrative that Africa is a follower and not a rule maker. The AU/UNECA HLP report on IFFs from Africa details what Africa needs to do. Further, the UN FACTI Panel report offers recommendations to stem IFFs. It is important to promote the implementation of our own initiatives which are sensitive to our daily lives, challenges and opportunities. Media should contribute to building the momentum, raising awareness and encouraging our governments to implement home grown solutions to stem IFFs.

Why and how media must humanise IFFs

In general, IFFs are quite technical and complex to the public, if not given the human impact dimension, simplicity can be lost. Numbers on the scale of IFFs are quite important but they are not the only data available for story telling concerning IFFs.  It is also about ensuring that big numbers on IFFs are analysed, decoded, and presented in a way that makes a connection with the public. A picture can say a thousand words, for example, to depict the disconnection between mining activities and living standards of surrounding communities. The struggle to curb IFFs is not the end game. The impact of IFFs is visibly seen through the degradation of human rights. Further, the implications of IFFs are multidimensional, therefore, a multi-dimensional approach is needed when we talk about them. They have a bearing on elections, shrinking civic space, poor wages, poverty, inequality, limited employment opportunities, economic malaise, conflict, insecurity, corruption, climate change and environmental harm, and the list could go on.

Media should not be tempted to always paint a gloomy picture but should rather tell the story in a manner that depicts what the positive impact would be if IFFs were curbed. For example, if the continent could manage to stem the USD 89 billion that it is losing annually, what could it do with it? What will be the impact of this on poverty and inequality? The answer to this pertinent question is provided by the UNCTAD report entitled ‘Tackling Illicit Financial Flows for Sustainable Development in Africa’ that shows that by plugging IFFs, half of the continent’s finance gap for SDGs would be closed. Another example could be the case of awarding profit-based tax incentives to a platinum project in Zimbabwe at a time when government is hard pressed for resources to cushion its citizens against the health crisis, increased poverty and inequality brought by COVID-19. Media should always strive to put those facts in a way that help citizens understand how those facts affect their daily lives thus inspiring action. Cartoons, humour, video skirts, poetry, blogs, and infographics are some of the ways we can depict the drivers, identify, track, quantify, and recover money lost through IFFs.

Conclusion

The fight against IFFs requires a holistic approach and media is an important piece of the jigsaw puzzle in holding to account the powerful including governments, corporates, and the wealthy on curbing IFFs.  Media are one of key stakeholders that need to sensitise and capacitate citizens on IFFs. They can do this by humanising IFFs so that citizens can see themselves and relate to various media products. Certainly, this article is not exhaustive, but it gives some important tips to media on how they can improve their coverage on the elusive phenomenon of IFFs.

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Authors: Rangarirai Chikova – Policy Officer, Domestic Resources Mobilisation, AFRODAD & Mukasiri Sibanda – Stop the Bleeding Campaign Coordinator, TJNA