Malawi to lose more revenue due to illicit financial flows -report

Malawi has lost USD 4,691 million between 2001 and 2010 due to illicit financial flows where Companies and individuals are able to avoid paying taxes by shifting large sums of money from one jurisdiction to another.

According to Global Financial Integrity’s December 2012 report on illicit flows, Malawi will lose more money if the government does not embrace policy recommendations in the next decade.

The organizations then observes that Malawi faces a challenge in taming illicit financial flows… due to the increasing number of mining companies granted rights to explore and extract resources within the nation’s borders.

Currently, Malawi ranks 75th out of 143 countries for largest average illicit financial flow estimates for 2001 to 2010.

Bande Participated at the conference
Bande Participated at the conference

During the recent Mining Indaba held in Cape Town , South Africa, where Malawi’s Minister of Mines John Bande also participated, Alvin Mosioma of the Tax Justice Network Africa disclosed that the top 10 global mining companies have an estimated 6 000 subsidiaries.

“It is impossible for any government to know how much profit is generated from its mineral wealth.

“How is it possible that you have 3 000 employees in Malawi and three in the Cayman Islands and you can attribute 70 percent of your profit to the operation in the Cayman Islands?” Mosioma queried.

He noted that there is very limited capacity within governments to negotiate good mining contracts especially with multinational companies.

“In most cases, the multinational companies have skilled personnel and negotiators while governments do not. Mining companies may bring consultants, bankers, economists and lawyers to the negotiating table and often outnumber government […] teams.”

Currently, the Malawi Government is increasingly under pressure from various stakeholders to renegotiate the contract for uranium mining investment at Kayelekera.

But the Australian headquartered Paladin Energy Limited argues that Malawi cannot currently renegotiate the mining deal, saying doing so would be breaching the provisions of the agreement.

Global Financial Integrity, through the Task Force on Financial Integrity and Economic Development, has made five policy recommendations that will enable governments to reduce illicit financial flows.

“They must require that all multi-national corporation to report sales, profits, and taxes paid in all jurisdictions in their audited annual reports and tax returns.

“Require that the parties conducting a sale of goods or services in a cross-border transaction to sign a statement in the commercial invoice certifying that no trade mispricing in an attempt to avoid duties or taxes has taken place and that the transaction is priced using the Organization for Economic Co-Operation and Development (OECD) arms-length principle,” the organization said.

It also asks governments to require that the beneficial ownership, control and accounts of companies, trusts and foundations be readily available on public record to facilitate effective due diligence.

“Also explicitly require, and enforce, that financial institutions identify the ultimate beneficial owners or controllers of any company, trust or foundation seeking to open an account,” it said.

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