Cheikh Diba: African Nations Must Protect Against Illicit Financial Flows

• Senegal's Minister Cheikh Diba urged African nations to protect their resources to fund sustainable transformation at the 14th Panafrican Conference on Illicit Financial Flows.
• Illicit capital outflows from Africa, driven by tax fraud, transfer pricing manipulation, and other schemes, amounted to an estimated $88.6 billion annually in 2020.
• Diba called for enhanced cooperation among tax administrations and a unified African voice in international tax norm-setting, particularly regarding UN negotiations for a global tax convention.
• Senegal is actively combating illicit flows through strengthened transfer pricing controls, country-by-country reporting, and expanded information exchange mechanisms.
• The Minister highlighted that the goal of taxation extends beyond revenue mobilization to achieving social justice, economic sovereignty, and structural transformation.

No single state can effectively address illicit financial flows in isolation, given their inherent cross-border nature.

Senegal's Minister of Economy, Finance, and Planning, Cheikh Diba, recently issued a powerful call for African nations to bolster the protection of their domestically generated resources. Speaking at the opening of the 14th Panafrican Conference on Illicit Financial Flows and Taxation in Dakar, Minister Diba underscored that without such measures, the continent's ambitious transformation goals cannot be sustainably funded. The conference, hosted by Senegal and themed "Advancing a transformative tax justice agenda for Africa," is convening a diverse group of stakeholders, including representatives from African and international institutions, tax administrations, civil society organizations, academic bodies, and the private sector, with discussions scheduled to continue until October 2nd.

Minister Diba articulated that the objective extends beyond mere revenue mobilization. He posited that taxation should serve as a critical instrument for achieving social justice, economic sovereignty, and structural transformation across Africa. This emphasis highlights a broader vision for the role of fiscal policy in national development.

African public finances are currently facing immense pressure, a situation exacerbated by successive crises, mounting debt, and the high cost of financing. Despite these constraints, the continent grapples with significant funding requirements across vital sectors such as education, healthcare, social protection, infrastructure development, youth employment, food security, and climate change adaptation. Minister Diba stressed that a crucial part of the solution lies in the ability of states to more effectively mobilize, safeguard, and direct the wealth produced within their own economies.

He specifically identified several mechanisms contributing to illicit capital outflows from Africa. These include widespread tax fraud and evasion, sophisticated manipulation of transfer pricing, commercial misinvoicing, artificial profit shifting, and the strategic use of opaque jurisdictions. Citing a 2020 report from the United Nations Conference on Trade and Development (UNCTAD), Minister Diba revealed that illicit capital outflows from the continent were estimated at a staggering $88.6 billion annually. This figure, he noted, was nearly equivalent to the combined annual total of official development assistance and foreign direct investment received by Africa, underscoring the severe drain on the continent's financial resources.

In response to the pervasive challenge of Cheikh Diba illicit financial flows Africa, Minister Diba advocated for enhanced cooperation among national tax, customs, and financial administrations. He asserted that the cross-border nature of these illicit flows means no single state can effectively address them in isolation. To combat increasingly complex financial schemes, he called for administrations to be equipped with adequate skills, advanced technology, and comprehensive data.

Furthermore, the Minister emphasized the imperative for African countries to present a united front and speak with a stronger, more cohesive voice in international forums where global tax norms are established. He specifically referenced ongoing negotiations at the United Nations for a framework convention on international tax cooperation, urging Africa to remain actively engaged to ensure that future regulations genuinely reflect the realities and priorities of developing nations, thereby advancing the African tax justice agenda. Senegal, in this context, proposes several key measures: greater access for African tax administrations to international tax information, the widespread implementation and interconnection of beneficial ownership registers, and strengthened collaboration among African bodies dedicated to taxation and transparency, a key theme at the Panafrican Conference IFF taxation.

Senegal itself is actively implementing measures to counter tax evasion and illicit financial flows. Minister Diba highlighted the nation's efforts, which include strengthening controls over transfer pricing, a critical area for multinational corporations operating in the region. These Senegal transfer pricing regulations are complemented by the implementation of country-by-country reporting and associated documentation obligations, enhancing transparency in corporate tax affairs.

Additionally, Senegal is developing and expanding its mechanisms for the exchange of information for tax purposes, fostering greater international collaboration. The Minister also mentioned Senegal's scheduled withdrawal, set for October 25, 2024, from a specific list, indicating progress in its commitment to international financial standards and transparency.

Lawyers and compliance officers advising multinational corporations operating in Africa, particularly in Senegal, should anticipate heightened scrutiny on transfer pricing, tax evasion, and beneficial ownership. They must ensure clients' financial structures are robust and compliant with evolving anti-illicit financial flow regulations and increased international tax cooperation efforts.

Source: Reporting based on SenePlus coverage.