Nigeria, hemorrhaging from organised illicit financial flows

Nigeria and indeed Africa is hemorrhaging in an organised crime, which is aided by the elites, multinational companies, and modern technologies. Though blessed with huge resources, the management of these natural endowments has become the leading cause of the challenge confronting the nation and the continent.

While the continent has found it difficult to add value to most of its resources by processing them before export, a large chunk of the earnings from crude resources sadly still find their way into private pockets through these illicit financial flows.

For instance, the United Nations in a report titled Illicit Financial Flows and the Problem of Net Resource Transfers from Africa: 1980–2009, says between 1980 and 2009, nothing less than $1.2t to $1.4t left Africa in illicit financial flows. This figure is half of the current Gross Domestic Products (GDP) of the continent.

IFFs are regarded as illegal movements of money or capital from one country to another. This move classifies this movement as an illicit flow when funds are illegally earned, transferred, and/or utilised across an international border. Africa’s current loses to IFFs reportedly outweigh the continent’s aid and foreign direct investment as the prevailing development is further worsened by trade underpricing, mis-invoicing, oil theft, and smuggling, weak regulations, and enforcement.

In Nigeria, a report released earlier this year by the Nigeria Extractive Industries Transparency Initiative (NEITI) and Trust Africa indicated that Nigeria loses between $15b billion and $18b yearly to illicit financial flow, and over 92 percent of the crime is reportedly committed in the oil and gas sector.

While over three-fifths of global trade happening in multinationals companies involves, over-invoicing or underpricing trade deals, transfer pricing and use of offshore financial and banking centres and tax havens have been noted as windows for IFFs.
With oil and gas related products accounting for about 92 percent of Nigeria’s total merchandise exports, the Partnership for African Social and Governance Research (PASGR) in a report noted that oil-exporting countries like Nigeria are vulnerable to illicit financial transfers.

In 2015, the Economic Commission for Africa reported that the United States accounted for 29.0 percent of IFF from Nigeria, Spain accounted for 22.5 percent, France, 8.7 percent, Japan 8.5 percent, and Germany 7.7 percent. The five countries, which contributed 76.4 percent of total illicit financial flows from Nigeria from 1970 to 2008, were the key destinations of Nigeria’s oil products at that time.

Considering the absence of Automatic Exchange of Information (AEI) agreements between destination countries where the proceeds of tax evasion and other IFFs are lodged, most stakeholders believe that tax evasion remains a key avenue for illicit financial flows.

While past and present governments have overlooked reform in the oil and gas sector, as well as the body of the natural resources like the Nigerian National Petroleum Corporation (NNPC), most experts insisted that poor governance of such institutions usually makes governance bodies a key source of illicit financial flows, particularly with poor governance structures that would enable citizens to monitor government earnings and processes.

How Public Officials, Informal Sector, Multinational Companies Aid IFFs
TO most stakeholders, players in the oil and gas sector, including oil marketers, public office holders, multinational companies, concentration of exports in a few products and destinations, increase in prices of commodities, illegal or small-scale mining of resources, product smuggling, bunkering other factors aid illegal flow of fund through mis-invoicing and trade mispricing thereby shortchanging the masses.

Just recently, the Presidency through a senior presidential assistant and Chairman of the Special Panel on Recovery of Public Properties, Okoi Obono-Obla said the Federal Government was investigating multinational giants, including Mobil Oil Producing Nigeria for allegedly shortchanging the federation in the payment for oil blocks it acquired and remittance of taxes.

An Italian expert, Don Hubert had analysed one of Nigeria’s most controversial and lucrative oil blocks OPL 245, stating that the Malabu deal from the onset was designed to shortchange Nigeria, as the agreement took out areas that were meant to generate revenue for the country.

The Federal Government had said that Mobil allegedly shortchanged the country by acquiring an oil block for $2.5b, but remitted only $600m into the Federation Account and is yet to pay the balance of $1.9b.As critical as financial crimes are, the Federal Government has failed to put necessary regulation and technologies in place to prevent loses, a situation, which most experts believe is deliberately created to benefit of a few private and public sector powerhouses.

For instance, the Federal Government’s reliance on International Oil Companies (IOCs) to determine the quantity of oil production has over the years created window for crime, which is negatively affecting the country’s crude earnings. While the petroleum industry earned $276.642b (N84.6t) in the last five years, only N8.41t of the sum was spent on budget from 2013 to 2017. The nation’s total budget within the period under review was N28.147t.

The Federal Government’s actual share of oil-related revenue was N1.99t in 2013; N1.98t in 2014; N1.64t in 2015; N820b in 2016 and N1.98t in 2017. The administration of President Goodluck Jonathan approved the Weight and Measures Act 2014, a legislation that was aimed at reducing corruption in the sector through the introduction of computerised metering system of oil wells under the Ministry of Industry, Trade and Investment in 2015, but experts are of the view that the act is not properly enforced as the country reportedly lost about $64m (about N2t) between the second quarter of 2015, and the first quarter of 2017 because of poor metering of oil wells.

Chair, Transparency International Nigeria and Executive Director, Civil Society Legislative Advocacy Centre (CISLAC), Auwal Musa believes that the government is only paying lips service, thereby allowing IFFs to flourish, particularly as transparent and accountability mechanisms are receiving little or no attention.

With billions of dollar currently being staked on payment of subsidy under a monopolised import by the state-run Nigeria National Petroleum Corporation (NNPC), Musa said: “We fought subsidy regime, but the amount the country has lost to NNPC’s under-recovery is alarmingly unbelievable, while the government plays a nonchalant role in this situation as if it does not know what is happening.”

Considering growing trends like oil bunkering and smuggling of petroleum products, the former President/Chairman of Council, Chartered Institute of Bankers of Nigeria, who is also the Dean, College of Postgraduate Studies, Caleb University, Prof. Segun Ajibola believes that upsurge in the activities of militants in the Niger Delta, as well as rent seekers, made up of the powerful forces in the country were aiding IFFs.

Like Ajibola, Nigeria Natural Resource Charter’s Expert Advisory Panel member and founding Executive Director of the African Centre for Leadership, Strategy & Development (Centre LSD), Dr. Otive Igbuzor specifically believes that influential Nigerians were in support of illegal financial flows.

Talking about oil bunkering, Igbuzor said: “It cannot happen without aiding and abetting from inside. This is why every effort must be made by security agencies and communities to deal with this menace.”The Director of the Centre for Democracy and Development (CDD), Idayat Hassan, who shares a similar view, insists that multinational organisations, as well as developed countries that are the beneficiaries of the illicit financial flows,  were encouraging the development.

While oil bunkering, oil smuggling and illegal refining of crude oil happen in broad daylight across the country, the Technical Adviser to NEITI, Dauda Garuba corroborated other stakeholders’ views, insisting that powerful forces were behind the development.“If you want to deal with the challenge of illegal oil bunkering, look beyond the small boys and girls refining fuel in the creeks, majority of whom are working for highly placed Nigerians,” he said.

Multiple International Laws, Treaties, But Little, No Effect
WHILE countries have enacted accountability and anti-corruption laws to checkmate companies affiliated with them in their dealings, most of the companies still flout these laws, a report by the Nigeria Natural Resource Charter (NNRC) has revealed. There are so many laws and treaties binding on companies and countries in order for them to be accountable and transparent, especially in avoiding corruption/fraud cases, but the regulations have failed more than they have worked.

For instance, in 1977, the United States enacted the Foreign Corrupt Practices Act (FCPA) with the aim of making it “unlawful for certain classes of persons and entities to make payments to foreign government officials to assist in obtaining or retaining businesses.”

The United States in 1998 amended and enforced the anti-bribery provisions of FCPA on foreign firms and persons who cause, directly or through agents, an act in furtherance of such a corrupt payment to take place within its territory. According to the NNRC, efforts by home governments of extractive companies to combat corruption by companies domiciled in their territories has seen the introduction of some far-reaching initiatives aimed at curtailing bribery, illicit financial flows, tax evasion, and at encouraging financial information disclosure.

Such move included the Kleptocracy Asset Recovery Initiative established in 2010, which aided the arrest of former governor of Bayelsa State, Solomon Diepreye Alamieyeseigha, recovery of assets stolen by former military Head of State, the late Gen Sani Abacha, as well as a lawsuit against former Petroleum Minister, Diezani Alison-Madueke.

The NNRC equally lauded the Anti-Money Laundering Directive (EU) No. 2015/849 of European Union, Ordinance No. 2016-1635 of France, beneficial ownership regulations by the US, the Corporate Transparency Act of 2017, as well as other important conventions and frameworks.

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