Editor’s note: The Executive Secretary of the Presidential Advisory Committee Against Corruption (PACAC), Prof. Bolaji Owasanoye, spoke extensively on how International Multinational Corporations (IMNCs) and their collaborators are ruining Nigeria’s economy and development through Illicit Financial Flows (IFF), citing the ongoing MTN saga as a perfect example. Owasanoye argued that contrary to long held belief, the biggest wreckage to Africa’s economy are not being perpetrated by the looting politicians but these IMNCs and their enablers, hence the new focus of Nigeria’s anti-corruption drive. He told Senator Iroegbu in this chat that this will be extensively discussed at the 2nd Abuja IFF/AR International Conference on Combating Illicit Financial Flows and Enhancing Asset Recovery for Sustainable Development holding in Abuja on Tuesday and Wednesday, September 11-12, 2018. Excerpts…
What is the conference is all about and what it aims to achieve?
The second Illicit Financial Flows (IFF) and Asset Recovery Conference is aimed at building on the success of the first one, which we had last year. Basically, the fight against corruption is generally looked at from the perspective of the role that politically exposed persons play in, mostly direct looting of funds especially from developing countries. But the available evidence shows that in actual fact, Africa loses a lot more in terms of corruption to IFF than it loses directly to looting and other forms of criminality, money laundering and what have you. So, in 2017 PACAC as a committee, given our role as a think-tank for government, decided to create a platform to call attention to this anomaly. You might have heard of a high level report that was produced by the popular Thabo Mbeki Panel. It is called the IFF, Illicit Financial Flows Report, which looked at Africa and of course, Nigeria featured prominently in terms of losses to IFFs especially from West African sub-region. Almost 70 percent of what is lost in West Africa is actually coming from Nigeria due to the size of the economy, other complexities and challenges. And of course, no government or country would fold its hands and continue to watch foreign entities devour its economy. The second issue is that the public and law enforcement generally focuses more on what we have seen as the direct actions of corruption like I said of direct looting by politically exposed persons, contract inflations, primitive stealing of money, rather than the transaction, which appear safe, legitimate, legal on the surface but through which a lot more money is being lost. So, last year that conference was very successful and actually contributed to the emergence of president Buhari as the African Union (AU) champion because we had invited all African countries, diplomatic missions and we came up with an “Abuja Declaration” which, virtually says that “this is a matter affecting us, we need to bring it out to the front burner and not only that, we must make effort as a continent to pursue and recover our assets that are outside our shores, to block assets from going out, and then of course appear effectively”. So given that this year president Buhari, as they say “a prophet does not gave honour at home”, but the people who are looking at what Nigeria is doing, actually appreciate a lot more than those of us who are inside, given what they know of what things used to be like and where we are coming from is focusing in this area. Therefore, we are building on the success of last year’s conference by having another conversation around the old issues of illicit financial flows and asset recovery. And we are looking at first of all an understanding of the issue, because again up till now, the issue is not very well reported, because the public don’t appreciate how money is being stolen from commercial transactions that look very legitimate, either by over invoicing contract or under invoicing, inflating figures in transactions or falsifying records. I give you a current example, which is in the media recently-the MTN saga. Basically, what MTN is alleged to have done by CBN was that it said “I am bringing in money into the country. Okay? The money that I am bringing is in two categories, loan and equity. If it is loan, you must pay back to those you borrowed from, if it is equity that is shareholding, when we make profit , we will distribute, if we don’t make profit, nothing. So, they increased the amount reflected as equity and said the loan was about $59 million or there about. A few years later, the figures were reversed, the loan became about $300 and something million and the equity became $29 or something very low. This means that when you borrow from outside and this is allowed, an investor may want to come to Nigeria and borrow money , which is a priority on your income all over the world. So if MTN makes $1 billion today, you first pay your creditors after you pay your creditors and your liabilities, what is then left is for those who are shareholders to share as dividends. So by reversing it, they were taking money out to pay this “loan” which have not been reclassified and approved by CBN. I am just trying to give you summary because this is what I know very well and all that. So that is a form of illicit outflow of capital. This is a classical example of illicit outflow of capital.
Can you again explain to a layman, the difference between money laundering and illicit financial flow. The public use to mix up the two?
The public largely don’t even understand, so, this (the MTN) is a classical example. The money went out seemingly until somebody started looking at it very closely and said “how did you bring the money in? How much did you bring? How did you classify the money that you brought in. If they stayed with the classification, that amount of money would not have left our shores. Now by the money leaving, it meant that, that money was not available for other uses, manufacturers other people who require forex because somebody has taken it out on the pretext they say “look I borrowed the money to come and invest in your economy, I have to pay back with interest”. Sometimes, the transactions are such that even the so called loan agreement is not verified, so that if you say you borrowed $1 million and the interest rate is this amount of money, it’s a priority charge on the income. So when you have done business and the economy is fertile, you would have raised a lot of profit by taking out all that money. The other way Nigeria lost is that MTN was not properly taxed. It meant for those periods that they took money out, on their books they would have under declared their profits because they have said that “oh! this was debt, not equity. And corporate tax is 30 percent, so consistently you would have paid far less to us. So you have short changed us. Wherever that money went to you have taken advantage of us. So that is a good example of IFF. There are other ways by which IFF manifests and it is very subtle. But this is where the real money is. This is where we lose money, tax evasion, profit shifting, exploiting weak regulatory mechanisms and over pricing intellectual property among others. For example, a company may be doing business with Nigeria and say “this is software to help your company to run very well, the software has been produced in some foreign country and the experts have fixed it at $200 million”, whereas the software was written by Nigerians who know the Nigerian environment but you don’t know, so, they come up with some agreement. This is one of the things NOTAP-National Office for Technology Acquisition Programme, is supposed to take a look at. If they come up with some funny agreement, they will have to take out the money from the income of the company to pay the so called technical experts, so the money goes out. They give you an agreement that looks legal on the face of it but many of those sources is what is regarded as IFF. Other ways are through what you call over invoicing. For example, a Multinational Company says we brought in equipment and says: “we brought in equipment from outside the country. The equipment is 1,000 dollars”. That means we have to take out 1000 dollars to pay, is that not so? But the equipment actually may be far less than 1000 dollars, which is called over invoicing. It is another way of capital flight. Then you wonder why some big companies keep saying that ” the Nigerian business environment is very harsh, it is unfriendly”, yet they are not leaving, they are here. They keep saying the business is not good and thag they are declaring losses yet they are reluctant to leave because they have taken out their money in advance through spurious means. And any government that is not sensitive to look at these very well will continue to struggle. Consequently, they under pay tax by selling us that story that business is bad, the climate is harsh, there is no infrastructure, but yet they are not going. On the other hand, they claim to believe in Nigeria, we are partners with Nigeria.
So in this IFF there is a strong collaboration between foreign countries, partners, local agents and the International Multinational Corporations (IMNCs) ?
Of course, that is why the matter is not being discussed at all. You see whereas foreign countries want to discuss our politically exposed persons who have looted money. When you start talking about IFF they get shy because it is their companies. Multinational corporations are the ones involved and there are other ways by which they carry money out. You do business in Nigeria, create all the problems within the Nigerian environment but in your books you say this company is a Mauritius Company. That it’s parent company is in Mauritius. Why, because Mauritius with low tax rate, maybe it is one percent or two percent or zero but here, corporate tax is 30 percent and you instead shift the profit there. You shift our money to Mauritius but you have done business here. You created all the problems here and we needed to tax you in order to fix those problems you left here. However, you have shift the profit elsewhere. You could do other things , secret companies, secret trust, all those shell companies, you create transaction with shell companies, then the absence of beneficiary ownership information. Transactions that you are doing with your self. So within a big company, let’s say the three of us are directors , there’s big contract to be awarded. We awarded to ourselves. . But because there is no legal requirement of full beneficiary ownership disclosure, we are actually paying ourselves. There may be other shareholders but they get short changed, the government gets short changed because we make and keep the money through secret shell companies or trust and all that. And we can go and register those companies in tax havens where they don’t ask any questions because they only live on that kind of thing. So you buy the company immediately, you don’t put your name as shareholders. There are lawyers who help you falsify the records and so on and so forth that’s how it is done.
Now do you have the actual or probable figure of how much IFFs costs Nigeria?
No I don’t have figures . I can not put a figure to the actual amount Nigeria losses to IFF but there is recent report, I think last week that said that Nigeria losses over $50bn annually.
And how did you arrive at 70 percent ?
That’s the average that Thabo Mbeki Panel record has published that what Africa loses in terms of illicit export of capital, about 70 percent is to IFF the remaining 30 percent is to corrupt politicians who directly take money, inflation of contracts and stuffs like that. IFFs takes about 70 percent and looting by corrupt politicians and others take 30 percent, which is what we have focused on like the Diezani investigation, Dasuki Gate and stuffs like that. But that’s just about 30 percent of our treasury that are looted, the large chunk of 70 percent are through IFFs. Of course we are think-tank, we know that this is also a major source of loss of capital and that we will come to it, but let’s deal with the one that the public will resonate with first. So in the fullness of time, we will then shift our attention (to IMCs and IFFs). We know what is going on, this is how it is happening. So whereas 30 percent of loss of Africa’s wealth is through direct looting by politicians, 70 percent are from Illicit IFF, particularly by IMNCs in the country and we have been dwelling on the 30 percent but now we are shifting attention to this area to say we know what is going on.
How cooperative are the foreign partners, countries and governments?
Not very cooperative, that is why we need to have this conversation. A lot if this requires international corporation to deal with. First of all, if you are a multinational, he is a multinational, I am a Multinational, we can submit one record and one report to the Nigerian authorities, another report to the British authorities, another report to American authorities. If there is no agreement for information exchange, we will not know that the company is lying. In some places, they cannot lie because they can interrogate their records. Let me give you an example, oil lifting, until recently when Mr. Ibe Kachikwu (Nigeria’s Minister of State for Petroleum), said we are going to digitize the metering of oil that is leaving, nobody knows what is lifted from Nigeria. Maybe you journalists probably know that, but when you take your ship, if you say this ship is carrying 1000 barrels, Nigerian books will say 1000 barrels but when you get to wherever you are going to in an European port, you cannot lie, so you then disclose this is a 100,000 barrels. And there are live cases involving Nigeria that are 100,000 barrels. Now Nigeria will never know that the ship and it is based on real loading that we can get our own income. Meaning that somebody have lied and the bribe have taken place to underwrite the figures. So as you can see in the case with the oil companies, that’s one of the reasons why they don’t mind staying here. Can you imagine that they still do business despite the fact that the petroleum profit tax is 85 percent . So you ask yourself how are they making profit? Of course they are making profit in spite of that. So, when you get to the US you can’t lie, they are going to check what you are carrying, if it’s a 100,000 barrel then they write it’s a 100,000. And when Nigeria begins to reconcile figures, they say you told us 10 here , you declared a 100,000 there and of course you know the record there is true and there are live cases of which some are in court on this sort of example. That’s how capital leaves your country, that’s how you lose money. So, developed countries are not interested in this conversation, because that’s how they make money . That’s why we created a platform to say what we want to say and how it is affecting us. We decide who is coming to speak, we decide what we are going to hear.
Is this an all-Nigerians/Nigerians-only conference or are foreigners involved?
No, there are other African countries, and we are bringing people from the United Nations (UN). In fact, we are doing it in collaboration with the AU because since our president is the champion of the AU on this issue, we are bringing people from the United Nations Economic Commission for Africa. We are bringing in people from the UN, representing the various interest blocs within the UN , group of 77, developed countries, developing countries and stuff like that. We have people from Europe and the Pan-Niger Delta Elders Forum (PANDEF). We have people from other parts of Africa, and we want to be able to see how this is affecting us and create our own agenda about how we are going to tackle the problem. Because , after the Thabo Mbeki Report was published, European countries who were indicted have taken measures. But Africa as usual, have not done anything. Now that we have triggered it, everybody is talking about it. The second thing is that you cannot succeed just like other acts of corruption and money laundering without help. In IFF its even more subtle and complex because you need professionals. Central Bank of Nigeria (CBN) said their investigation of the MTN issue has taken how long? Three years, from 2016, 2017, this is the third year they have been investigating. It is not easy, you need professionals to do it. You need professionals to back it. There are people who make these things happen even contrary to law. Either they have been ignored under the pretext that maybe they are doing their work but don’t know that what they are doing is wrong, or why those banks were fined. And they were not just fined without giving them a hearing to say; “come and explain yourselves”. But did you hear them protesting loudly? No. It is only MTN that is talking. The banks know what they did and that’s why all over the world that’s how you punish companies, you fine them heavily. You take the profit that motivated them to do that criminality back and put it in the hands of government. I assure you they may or may not complain but they will pay that fine very quietly. In fact, one bank has said “this will not affect our shareholders’ fund, it’s just a small amount of money blah blah”. That is telling you that “yes, we did it” and they know they should not have done it because CBN did not approve it. Also, there are facilitators of IFF; lawyers accountants, bankers, auditors , real estate agents, and brokers. You cannot do it except they help you. So we are calling attention on them. We are saying, as we are arresting the principal persons, we are coming after you as well , because what you have done, one way or the other is contrary to law, if it is not contrary to hard law, it is contrary to soft law or regulation. It is contrary to your own professional guidelines and all that. The last component of it of course is asset recovery. What we have seen with developed countries generally not just with IFF, is that they are very happy to assist you recover but to return the money is a problem. They will look for all manner of excuses, every return process is cumbersome, it takes years, it takes conditions and Nigeria of course we are even lucky that in the life of this administration we made major recoveries. The money from Switzerland and other small ones that are not even talked about. Now, we have realized as a group monitoring the process that we need a framework, let’s even know, when my money is with you and I want it back what are the parameters. Let’s make those parameters as much as possible uniform. So that if I am recovering from you, you don’t have to give me conditions . For countries that have suffered systemic corruption, it’s a nightmare because every country will impose conditions on them. So, by having an idea of what are the parameters for a set of recovery we can also plan. The third leg of that is that, we know as a fact that many countries as an excuse not to return your money, inquire from you as a prerequisite what you are even going to use the money for. I mean it’s an insult. First of all you facilitate the theft of my asset, I say bring it back you say before I return it what will you use it for. But in international relations, possession is 90 percent of ownership. You are holding the money , so if I do not talk to you, I won’t get anything . It is nevertheless, good as a country to begin to have clear credible framework about the use of returned assets. Again we anticipate some of this because of our own experiences and practices. We advice that government should have a clear credible asset recovery framework, have an asset recovery account which they have and use returned assets for the public.
Do we really have an asset recovery account?
Of course we do, not only is there an asset recovery account in CBN, you can write to CBN and ask them, there is also an asset recovery line item in the budget. We say don’t spend returned funds unless they are appropriated.