In the Guardian yesterday Eliza Anyangwe said that Africa loses more than three times the amount it gets in aid “mainly by multinational companies deliberately misreporting the value of their imports or exports to reduce tax”.

This statement is not true, but it is a reasonable summary of what a report called ‘Honest Accounts‘, which was published last month, says.

Under the heading ‘Corporations stealing wealth’ it states that $68 billion was stolen from Africa in illicit financial flows, and that multinational companies are stealing $48.2 billion alone through ‘trade misinvoicing’ (the figure they give for aid is $19.1; which excludes concessional loans). They then bundle these figures together with other flows in and out (loans, FDI, profits etc…)  to come up with this total.

I don’t always write about every exaggerated or misunderstood figure on multinational tax avoidance that I see. It gets a bit repetitive. I didn’t write about the Honest Accounts report , but I did send a note (see below) to its authors Mark Curtis  and Tim Jones at Jubilee Debt Campaign and to Nick Dearden at Global Justice Now  to let them know that they had misunderstood and therefore misrepresented the estimates of illicit financial flows it used.

But none of them responded.

The problem is that it is not just Mark, Tim and Nick who should understand why their interpretation was misleading . As with the yesterday’s Guardian article, the misunderstandings get picked up and repeated.  And now I feel bad because I should have explained the issues more publicly and clearly at the time,  and not allowed the great big arrows to be left lying around, for others to trip over. So at the risk of being repetitive, here is  the problem with ‘Honest Accounts’ interpretation of illicit financial flows:

• There are big problems with the methodology behind the illicit financial flows estimates. They are mainly based on gaps and mismatches in trade data, which can often be generated by ordinary trade patterns through hubs such as Singapore and Amsterdam.
• The same methodology also generates even larger apparent illicit inflows (which Honest Accounts ignores). This encourages the idea that there must be unfeasibly large hidden margins in natural resources and that multinationals are systematically stealing from developing countries.
• Global Financial Integrity (GFI) the organisation that developed the illicit flows estimes themselves do not say that they represent stolen money.
• Nor do they say that that they can identify trade between related entities (i.e. within multinational corporations).
• It is not accurate to say that ‘misinvoicing’ is the same as ‘mispricing’, as often what the data is picking up are large apparent differences in the quantity of goods reported between pairs of countries. This (if it reflects actual smuggling rather than ordinary trade would not be manipulation of transfer prices, but outright customs fraud.

Negotiating natural resource contracts, developing  fiscal regimes and ensuring that taxes are collected fairly are real challenges for resource-rich developing countries. This is made more difficult by the repetition of misunderstandings .  Such rhetoric makes it harder for the public to judge whether deals balance risk and revenue for all parties,  and can undermine trust in the important work of revenue authorities and minerals monitoring agencies.  The current dispute in Tanzania illustrates why this matters.

___________________________________________________________________________

Email notes

May 23

Dear Nick, Mark, Tim,