Zim illicit financial flows decline

Source: Zim illicit financial flows decline | The Herald May 9, 2016

THE country has seen a marked reduction of illicit financial flows since January this year but a lot still needs to be done to curtail the scourge, Reserve Bank of Zimbabwe governor Dr John Mangudya said. In February, the central bank governor revealed that close to $2 billion was siphoned out of the country last year, an amount which is more than what the economy attracted in foreign direct investments.

But the rate at which Zimbabwe is losing money through illicit flows has decelerated, with $50 million having been siphoned out of the country in the past three months. This was after the central bank put in place a cocktail of measures to plug the loopholes.

“It is going down but there are still pockets of taking money out,” said Dr Mangudya. Illicit financial flows and other capital flight remittances constitute a major constraint to development of financing in Africa.

IFFs which include trade mispricing and bulk cash movement cause heavy loses in government revenues, foregone investment, financial fragility and lost output. In the case of Zimbabwe, the financial haemorrhage from capital flight is exacerbated by the openness of the economy which is susceptible to regional disruptive arbitrage activities (as businesses in the region scramble to get access to US dollar from a dollarised Zimbabwe).

Dr Mangudya said the measures, which were put in place to plug the loopholes have slowed the rate at which the country was losing money through illicit financial flows.

These included reporting of suspicious transactions to the RBZ before processing of the outgoing transactions and monitoring the operations of offshore related companies.” Economic analysts say while the rate at which the money going out of the country has declined, authorities should craft effective legislation to curtail illicit capital flows.

Analysts say companies and individuals were taking advantage of legislation loopholes to siphon money out of the country through dodging or avoiding taxes and mispricing. They argued it was unfortunate that some of the illicit financial flows were considered legal because of the bad tax treaties some countries particularly in Africa sign with multinationals.

“It is an open secret that large corporate often deceive tax authorities through mispricing and as a result, many governments, particularly in Africa are losing billions of dollars,” said one analyst with a Harare-based advocacy group.

“Punitive laws should be put in place to deal with the leakages. The money that African governments are losing is quite significant than money they are receiving in foreign aid.”