Tanzania among Africa’s top safe havens for dirty money

13Feb 2018
The Guardian
Tanzania among Africa’s top safe havens for dirty money
  • • Despite scoring a high financial secrecy score, the country’s 0.1 per cent share of the global market for offshore financial services makes it a tiny player in the dirty money industry compared to other secrecy jurisdictions such as the US

Tanzania has some of the most attractive secrecy policies in the world that make it one of the leading safe havens for dirty money in Africa, the recently released Financial Secrecy Index (FSI) by Tax Justice Network (TJN) has revealed.


Tanzania is ranked 75th in the FSI 2018 report polling a financial secrecy score of 73.4 per cent, the fifth highest in Africa, which is above the marks of most countries in the world that are in the top 10 dirty money blacklist.


However, TJN says the country’s 0.1 per cent share of the global market for offshore financial services makes it a tiny player in the illicit industry compared to other secrecy jurisdictions.  The organisation, which promotes socially- just, accountable and progressive taxation systems by advocating for tax policies with pro-poor outcomes says ranking of a country in the FSI is based on a combination of its secrecy score and scale of dirty money activities.


“The United Republic of Tanzania scored a high secrecy score of 73. Surprisingly, even with its attractive secrecy policies, it is only recently that the jurisdiction has been brought under the spotlight,” TJN notes in the new report.


According to it, the country will soon become a difficult jurisdiction for tax evaders and money launderers. This will be largely due to crackdown on their illegal activities by the fifth phase government, which has prioritized efforts to control waste, fight corruption and strengthen tax administration.


“Even so, with the change in leadership in 2015, Tanzania’s development plan now strongly advocates for eradication of tax evasion and emphasises transparency. The new government and the change in the development agenda may lead to the transformation of the country’s laws and it may also lower its secrecy score in future,” TJN notes in the report.


The British advocacy group uses the index as a tool for understanding global financial secrecy, tax havens or secrecy jurisdictions, and illicit financial flows or capital flight. Like in previous versions, FSI 2018 highlights places around the world that provide safe havens for tax evaders and ranks countries according to their secrecy and the scale of their offshore financial activities.


A total of 112 “Secrecy Jurisdictions” were sampled in the new index in terms of ownership registration, integrity of tax and financial regulation, international standards and cooperation as well as legal entity transparency. The latter aspect entails public company ownership, public company accounts, country-by-country reporting, corporate tax disclosure and legal entity identifier.


Only three countries in the top 10 dirty money blacklist have financial secrecy marks above Tanzania’s score. These are Switzerland (76.45), which took the top spot on the latest FSI, the United Arab Emirates (83.85) that is ranked ninth and eighth placed Taiwan (75.75).


Other countries in the FSI top rankings are the US, whose financial secrecy score is 59.83 per cent, Cayman Island (72.28) and Hong Kong (71.05). Also blacklisted highly are Singapore (67.13), Luxembourg (58.2), Germany (59.1) and Guemsey (72.45).


In Africa, Kenya tops the list of countries whose economic systems most contribute to global financial secrecy, a measure that TJN says encourages crimes such as money laundering and tax evasion. Its score of 80 per cent is the sixth highest in the world after Vanuatu, Bahamas, Paraguay, Maldives and Bolivia which scored 88.6, 84.5, 84.3, 81.1 and 80.3 respectively.


"Secrecy jurisdictions are a safe haven for the world's dirty money. Kleptocrats, tax evaders and multinationals engaging in tax trickery all abuse secrecy jurisdictions," Liz Nelson, a director at the Tax Justice Network, said in a statement on the new index.


"Financial secrecy is a key facilitator of financial crime, and illicit financial flows including money laundering, corruption and tax evasion. Jurisdictions which fail to contain it deny citizens elsewhere their human rights and exacerbate global inequality," it reads.


Kenya was the only African country that appeared on top 30 list of 112 jurisdictions reviewed in the index. It is ranked position 27 with an FSI value of 337, followed by Liberia which scored 277 and ranked 38th globally. Switzerland and the US led the world in overall Financial Secrecy Index Value (FSIV), scoring 1590 and 1398 respectively.


Other African countries ranked in the report include Mauritius at position 49 and South Africa 50, while Ghana, Botswana and Gambia came in positions 95, 103 and 106 respectively. TJN, which is an advocacy group consisting of a coalition of researchers and activists with a shared concern about tax avoidance, tax competition, and tax havens, puts Tanzania’s FSIV at 128.92.


Tax advisor and TJN consultant Ruth Wamuyu says Tanzania attracts individuals and corporations looking for secrecy jurisdictions because of its banking laws and regulations that guarantee privacy. In a report titled: Tanzania - A Paradise for Offshore Banking, ER Team Global Consultants Ltd of Cyprus points out assured confidentiality of information, friendly tax rates and double taxation treaties among factors making the country the best destination for wealth safety.


Other factors that make the country a favourite destination for illicit wealth include failure to sign the Multilateral Convention on Mutual Administrative Assistance in Tax Matters. According to the report, the lack of agreements with regard to information exchange has made Tanzania a lucrative country for companies and individuals seeking offshore accounts.


There is also the anti-money laundering law and institutions that lacks biting teeth. TJN says that operations of the Financial Intelligence Unit (FIU) established under the Anti-Money Laundering Act are contradicted and constrained by other laws such as the Companies Act, which does not provide for full disclosure of ownership.


“As of November 2017, Tanzania was part of the list of developing countries that are yet to set a date for the first automatic exchange of information. Additionally, although the public may attain information, there are approval requirements necessary that may hinder access to the relevant information,” TJN explains in the report.


“Even with the Anti-Money Laundering Act in place, the country lacks a comprehensive legal framework that would ensure disclosure of beneficial ownership of companies registered in the jurisdiction,” it adds.


Tanzania’s blacklisting among top safe havens for facilitating money laundering and other illicit financial flows is also better illustrated by beneficial ownership in the extractives industry, which has been marred by secrecy and corruption leading to  big scandals.


The report also has it that Tanzania’s withdrawal from the Open Government Partnership in 2017 has been a setback to efforts to dent illegal financial activities. TJN says the move is contrary to the good governance spirit of the country’s Five-Year Development Plan (2016/17-2020/21) whose key targets in terms of good governance is to prioritise tackling of mismanagement of public resources, corruption, poor service provision, tax evasion and bureaucratic snags.


The FSI report estimates that US$21 trillion to $32 trillion of private financial wealth is located, untaxed or lightly taxed, in secrecy jurisdictions around the world. It said illicit cross-border financial flows have been estimated at U$1-$1.6 trillion per year, dwarfing the US$135 billion or so in global foreign aid.


African countries alone since the 1970s have jointly lost over US$1 trillion in capital flight, while combined external debts are less than US$200 billion.


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