author-avatar author-avatar

Rachel Etter-Phoya, Evan Schwartz ■ Beneficial ownership transparency in Africa The state of play in 2020

DOWNLOAD REPORT
Tax justice reports
Tax justice reports

Beneficial ownership transparency in Africa The state of play in 2020

As leak after leak shows us, the opaque structures that facilitate large-scale corruption are scattered across the world. While cases such as Isabel dos Santos and the Luanda Leaks turn the spotlight on blatant corruption by African leaders and their families, the central role of Western banks, shell formation companies and consulting and/or law firms should not escape judgement. A key tool in fighting these illicit financial flows, and one increasingly recognized and employed by African governments, is public disclosure of true beneficial ownership of companies. However, there are technical hurdles on top of the daunting implementation issues that could stymie even the most ambitious beneficial ownership transparency law and this Tax Justice Network / Tax Justice Network Africa Report identifies some of these key technical impediments.

As leak after leak shows us, the opaque structures that facilitate large-scale corruption are scattered across the world. While cases such as Isabel dos Santos and the Luanda Leaks turn the spotlight on blatant corruption by African leaders and their families, the central role of Western banks, shell formation companies and consulting and/or law firms should not escape judgement. The money stolen by dos Santos and others also lined the pockets of professionals from the ‘developed’ world, where facilitating corruption is an institutionalized, white-collar profession that is reinforced by university business schools and hiring fairs put on by the likes of Deloitte, KPMG, Ernst & Young and PricewaterhouseCoopers.

In fact, illicit financial flows exiting the continent dwarf overseas development assistance entering the continent. Between 1970 and 2015, the continent lost approximately US$1.4 trillion in capital flight, vastly more than the total of the stock of debt owed as of 2015 (US$496.9bn) and the cumulative amount of foreign aid received in the same period (US$991.8bn). A key tool in fighting these illicit financial flows, and one increasingly recognized and employed by African governments, is public disclosure of true beneficial ownership of companies.

This Tax Justice Network and Tax Justice Network Africa report focuses on the progress of seventeen African countries toward beneficial ownership. Of these seventeen, seven of them have introduced legislation requiring the registration of beneficial ownership information. These are Botswana, Egypt, Ghana, Kenya, Mauritius, the Seychelles and Tunisia, with Botswana having the most comprehensive beneficial ownership measures. However, there are technical hurdles on top of the daunting implementation issues that could stymie even the most ambitious beneficial ownership transparency law and this Tax Justice Network and Tax Justice Network Africa Report identifies some of these key technical impediments.

Among these are a widening of scope of which legal vehicles should be considered under beneficial ownership provisions as well as a lessening of what is considered beneficial ownership from the standard 25% ownership to the ownership of one share. Likewise, bearer shares, or those that literally belong to the person in whose hand they reside, should not be sufficient to prove ownership. A legitimate person’s name must be the sole proof of ownership and there should be a publicly accessible registry that houses this information.

Illicit financial flows hurt everyone in that the impact of lost public revenue is profound. It leaves governments to fail in their human rights obligations and unable to address fundamental social, economic and intersectional inequalities. Such disparity in human development is unsustainable.

Key findings

  • Illicit financial flows exiting the continent dwarf overseas development assistance entering the continent, and erode the sovereignty of nations in raising revenues domestically for public expenditure and investment.
  • In 2015, in 30 African countries, capital flight averaged about two-thirds of gross domestic product and vastly exceeded external debt.
  • Seven jurisdictions have introduced legislation requiring the registration of beneficial ownership information. 
  • Botswana joins just three other countries worldwide (Argentina, Ecuador and Saudi Arabia) that have transparent measures for companies that can be interpreted as requiring all beneficial owners with just one share to register.
  • No African country has both comprehensive legal and beneficial ownership registration for partnerships with limited liability, which includes at least annually updated information.

Key recommendations

  • holding multinational companies to account for tax abuse.
  • public country-by-country financial Reporting must enter the agenda of international policy makers.
  • public country-by-country policies must be framed as an accounting matter, and not just as a tax matter, since otherwise It would never get adopted, held up by the requirement for unanimous decision making in tax matters in the European Union.

Additional resources