‘Africa Loses $50Bn A Year In Illicit Financial Flows’ 21 May 2020

The Supreme Court of Zambia has just delivered a fundamental and remarkable Judgement. It has fined Mopani Copper Mines $13 million! This is a case in which the Zambia Revenue Authority (ZRA) has been battling with Mopani Copper Mines and its Swiss parent company Glencoe since 2009. Glencore PLC is a British multinational commodity trading and mining company with its headquarters based in Baar, Switzerland. The background is that the ZRA conducted an Audit of Mopani Copper Mines for the period 2006 – 2009, which revealed that the transactions between the company and its Swiss parent multinational, Glencore International AG (GIAG) violated the Arm’s Length Standards (ALS). An arm’s length transaction refers to a business deal or transaction in which a buyer and seller act independently without one party influencing the other.

…Despite the tremendous wealth inherent in this sector, Zambia has been struggling to obtain significant financial benefits through taxes from the sector.  This is due to various factors including the volatile mining tax regime policies but also the increasing tax-avoidance  schemes perpetrated by mine houses that might appear legal but are aggressively aimed at reducing the amount of tax payable. Multinationals increasingly abuse transfer pricing as a mechanism to avoid paying tax. Developing economies are now increasingly aware of these schemes especially the abuse of transfer pricing. African governments are now establishing robust legislative and administrative frameworks to deal with transfer pricing issues.

…Over the last 50 years, Africa is estimated to have lost in excess of $1 trillion in illicit financial flows (Kar and Cartwright-Smith 2010; Kar and Leblanc 2013). This amount excludes capital flight. Capital flight is a large-scale exodus of financial assets and capital from a nation due to events such as political or economic instability, currency devaluation or the imposition of capital CONTROLS. This process could entirely be legal or licit. To resolve the crisis of illicit financial flows and outflows from Africa, the African Union and the United Nations Economic Commission for Africa tasked the fourth Joint African Union Commission and United Nations Economic Commission for Africa (AUC/ECA) Conference of African Ministers of Finance, Planning and Economic Development held in 2011to handle the matter.