Africa is a creditor to the world. Relatively conservative figures from the Organization for Economic Cooperation and Development (OECD) show that the illegal flow of capital from the continent is almost twice what is given in official assistance. This is a serious obstacle to development, and must be combated if one is to have the opportunity to reach the UN's sustainability goals within the "deadline" of 2030.
Illegal capital flows account for almost twice what is provided in aid.
It has been years since the Panama Papers disclosures ravaged the media, and the subsequent Paradise Papers disclosures appeared to many as a slack sequel that just reminded us of something we already knew. Still, too little is being done to end financial secrecy. There is no reason why information on how much companies earn and taxes in the countries they operate in should be kept hidden. Nor is there any reason why international cooperation to counteract capital flight should be governed by industrialized countries. International mechanisms are needed that include all countries. Therefore, international cooperation should be strengthened through a UN Financial Transparency Convention.
Illegal capital flight includes proceeds from criminal activities such as money laundering through corruption, but the majority is due to multinational companies that evade tax through the manipulation of trade transactions, mispricing of trade, payments between parent and subsidiaries, and other mechanisms designed to hide revenue. Individuals and corrupt executives primarily use tax havens to hide income. This is done at the expense of the country's public budgets – money that could have been used to fund the necessary infrastructure, health and education.
Norway has taken some steps in the right direction in this area through the development work, and Development Minister Nikolai Astrup has signaled that he will take leadership on the road ahead. In June, the government proposed legislative changes that would allow a publicly available register of real rights holders. This is an important step in the right direction. In the future, this will give the public access to essential information about all companies and other entities in Norway, so that individuals and companies can no longer hide in hidden companies or tax havens.
New tax system
But there is much more that can be done to fill the gaps in the regulations, initiatives that have broad support in civil society. Norway has continued to commit companies to report income and tax in a meaningful way in each country they operate. If these figures can be put together, it will be easier to reveal companies that engage in illegal tax adjustments.
Little is being done to end financial secrecy.
In addition, it is a weakness that Norway's efforts internationally go through the OECD – an organization for industrialized countries. International tax rules and principles should not be formulated by an organization that lacks representation from an entire continent. For example, the OECD model favors tax to be paid where the companies are headquartered (often industrialized) rather than the country where the revenue is generated. The Joint Council of Africa and others have repeatedly suggested that Norway should promote a UN convention on financial transparency. This would have raised the question internationally and contributed to a tax system that is both more representative and more just.
It is not only the African countries that are struggling to tax international companies to fund essential tasks: Google will continue to pay one-tenth of its revenue in Norway as long as international secrecy is allowed. It is high time for the Minister of Development and the Minister of Finance to have a long talk.