Features: Fighting illicit capital flight, Part 4

Published on Pambazuka News, by Charles Abugre, August 18, 2011.

The illicit extraction, concealment and channelling of capital from poor countries abroad destroys societies and must be curtailed. So how do we do this, asks Charles Abugre in the final article in a four-part series on the flow of ‘dirty money’.

This the fourth and final part in this series, not because I have exhausted the issues but because I must stop somewhere! I hope that your interest on the subject of dirty money flows is kindled sufficiently for you to do further reading and ask questions yourself. You’ll find sources for further reading at the end of this piece … // 


We explained how the 60+ most egregious offshore financial centres (secrecy jurisdictions and tax havens) deliberately facilitate a secrecy industry and low-tax havens meant largely to encourage capital to flee from high tax paying jurisdictions. Thirty of these financial centres are in British territories (including the City of London); other locations include Switzerland, Luxemburg and Mauritius.

The secrecy laws are exploited by rich individuals and companies, including banks, to conceal and channel profits and wealth out of poor and rich countries alike into these havens. This secrecy industry is the product of the tax planning ‘innovations’ of accounting firms, especially the ‘Big Four’ designed to help their clients aggressively avoid taxes. Along with their clients, they organise networks of offshore subsidiaries to shift profits into.

The collapse of Enron provided a rare insight into precisely how this works. The US senate report into the Enron case shows how accountants Anderson facilitated Enron’s massive tax avoidance. The company paid no tax at all between 1996 and 1999. Tax planning by the accountants made this possible and involved setting up a global network of 3,500 companies, more than 440 of which were registered in the Cayman Islands. The law firms kick in by specialising in the creation of empty companies which are in turn owned by empty companies scattered across several secrecy jurisdictions, all designed to conceal the real beneficiaries of wealth.


Corporate vehicles and secrecy services are used by wealthy individuals and companies big and small, as well as by legitimate businesses and criminals alike. But their biggest users by far are banks and companies. Banks use them to register and conceal the assets and activities of their clients, and to conceal their own assets and liabilities including sub-prime loan assets, a phenomenon which contributed to the global financial crisis in 2008. The greatest users of secrecy services and complex corporate vehicles, however, are transnational companies. We explained how TNCs register multiple subsidiaries in several offshore financial centres (secrecy service providers and low tax centres) to conduct transfer mis-pricing and thereby conceal and shift profits into tax havens and reduce their tax liabilities.



There should be strong global rules to enable developing countries to determine whether they have been paid the right amount of tax, in the right place, at the right time. The rules would require all states to exchange automatically the information they hold from companies and individuals. Compliance would be evaluated objectively, with sanctions against states that refuse to part with the information. The current OECD arrangements encouraging countries to enter into bilateral tax information exchange agreements (TIEA) does not suit all countries equally. Big countries like the United States can seek to haul Okemo and Gichuru to Jersey for trial because they have successfully prevailed upon Jersey to supply the relevant information. Kenya is unlikely, on its own with the weight of others, to receive the same treatment from Jersey.

Such an agreement should include a requirement that all banks and other financial institutions collect information, which should be available to the appropriate supervisors or regulators (including tax authorities), on the beneficial owners of all payments made, whether to residents or non-residents, individual and companies.


A momentum is growing in this area. The African Union has, in collaboration with the Economic Commission for Africa, taken up this issue high up the political ladder. A high level commission on illicit capital flight will be announced shortly, I understand. The UNDP is also slowly building interest and capacity in this area; it aims to support governments in addressing this problem. There is a growing civil society movement for tax justice and to fight illicit capital flight. Kenya is the seat of the African arm of the Tax Justice Network, one the leading global coalitions against illicit capital flight. An East African coalition on taxation is also on the way and the National Tax Payers Association of Kenya is an active member. There is enough basis of a collation of government, civil society and ethical businesses to pull together to address this dangerous cancer. (full long text).

  • Read Part 1.
  • Read Part 2.
  • Read Part 3.
  • Charles Abugre is the regional director for Africa, United Nations Millennium Campaign.
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