How Foreign companies and financial centres are aiding corruption in Africa
Africa is the world’s second fastest-growing region, and yet 100 million more Africans live in extreme poverty today compared to the 1990s. Sub-Saharan Africa, in particular, is home to the largest share of people living in extreme poverty.
Corruption continues to harm the efforts to bring people out of poverty. In recent years, many national governments, as well as the African Union, have declared the fight against corruption as their priority.
In contrast to political commitments, more than half of all citizens think corruption is getting worse in their country and that their government is doing a poor job in tackling corruption, according to the Global Corruption Barometer (GCB) – Africa released today.
The report reveals that institutions that are meant to control corruption remain weak and citizens across the continent have to pay bribes to access the most basic services, like health care and education.
Unsurprisingly, surveys reveal that the poorest people are twice as likely to pay a bribe – and more likely to be victims of corrupt behaviour by bureaucrats – than the richest.
However, these surveys only paint a partial picture of corruption in Africa.
National governments aren’t the only ones failing African citizens in the fight against corruption. Foreign actors play a significant role in fuelling and perpetuating corruption in Africa, chipping away at the region’s sustainable development.
BILLIONS FLOWING IN AS BRIBES
Bribery occurs not only inside African countries. Far too often, globally trading companies also resort to bribery to receive deals with public officials and governments, but unlike impoverished citizens who have to pay bribes to access basic public services, companies are after mining rights, contracts for major construction projects and other deals. Politicians in resource and mineral-rich African countries often become a target of such corrupt business practices.
Transparency International’s recent report, Exporting Corruption, found that only 11 major exporting countries – accounting for about a third of world exports – have active or moderate law enforcement against companies bribing abroad, including in Africa. The rest fail to investigate and adequately sanction companies that pay bribes overseas.
In recent years, China has become Africa’s biggest economic partner. Several Chinese companies, including the China Energy Fund Committee, the telecommunications firm ZTE and the China Roads and Bridge Construction Company, have been accused of bribing senior government officials in Chad and Uganda, Zambia and Kenya, respectively.
Notably, investigations against some of these companies were triggered in other jurisdictions. China, too, has anti-foreign bribery laws; yet there are no reports about the Chinese government investigating these or other companies accused of foreign bribery during that period.
A British-Swiss commodity trading and mining company, Glencore, is reportedly embroiled in a US Department of Justice corruption probe over its operations in the Democratic Republic of Congo (DRC). Israeli billionaire Dan Gertler, who partnered with Glencore in the DRC and invested in two of their mining projects in the country, was sanctioned by the US Department of the Treasury under the Global Magnitsky Act in 2017.
According to the Treasury, Gertler used his close friendship with President Joseph Kabila to act as a middleman in mining asset sales. In 2018, the Treasury also designated 14 companied affiliated with Gertler. Between 2010 and 2012, the DRC reportedly lost over US$1.36 billion from the underpricing of mining assets that were sold to offshore companies linked to Gertler.
Earlier this year, the US government indicted three former government officials from Mozambique and five business executives over an alleged US$2 billion fraud and money laundering scheme. As part of this, more than US$200 million in alleged bribes and kickbacks was paid to Mozambican government officials and investment bankers.
In Spain, an investigation into DEFEX, a state-owned company that promotes and exports goods and services, including weapons, was launched in 2014. DEFEX was accused of bribery and money laundering in connection to several countries, including Angola and Cameroon. Twenty-seven people are currently on trial in the Angola case alone.
In Italy, an ongoing high-profile case surrounding a suspicious 2011 deal for an oil block in Nigeria might result in severe sanctions for Shell and Eni, two oil giants, that are currently on trial for foreign bribery.
Investigations should move even faster in some countries.
In Australia, for example, several mining companies are still being investigated for bribing high-ranking officials to win mining licenses in Sierra Leone (2016) and the Republic of Congo (2006-2007).
BILLIONS FLOWING OUT
According to some estimates, African countries are losing at least US$50 billion annually to illicit financial flows.
This money could have been used to fund initiatives and public services that improve the lives of African citizens. Instead, money acquired illegally is funnelled abroad using offshore financial structures and often with the help of complicit or negligent banks, lawyers, accountants and real estate agents.
One of the most outrageous examples comes from Equatorial Guinea. Since 1979, the ruling Obiang family and their cronies have allegedly stolen billions of dollars from the people, stashing much of this wealth abroad.
In 2014, the US Department of Justice reached a settlement with Teodorín Obiang – who serves as the country’s Vice President to his own father – under which Obiang relinquished over US$30 million worth of assets purchased with corruption proceeds. In 2017, following a criminal complaint by Transparency International France and Sherpa, French authorities found him guilty of embezzlement and confiscated his assets worth US$35 million, while Switzerland seized 25 of his supercars.
Past corruption scandals have also shed light on the critical role of secret jurisdictions in enabling corruption and criminal activity, which drains African nations of their assets.
In 2018, the West Africa Leaks investigations showed how easy it is for corrupt public officials, money launderers and other criminals in West Africa to hide behind anonymous companies and access the global financial system. Powerful and well-connected individuals reportedly used secrecy jurisdictions to hide their conflicts of interest and breach public trust.
A key measure to tackle the flow of illicit money across borders and continents is the principle of beneficial ownership transparency – a cause we have been campaigning for. Anonymous companies allow the identity of their real owners to remain secret and enable those who wish to hide illicit wealth or launder money, to do so with ease.
GLOBAL ACTION NEEDED
Tackling corruption is key to poverty alleviation. The continent ranks lowest amongst regions in the Corruption Perceptions Index (CPI) 2018, where seven out of the bottom ten countries are from Africa.
Domestically, weak institutions have failed to check corruption and the movement of ill-gotten gains out of the region.
African governments must take heed of citizens’ views and get serious about anti-corruption. This requires both adopting and enforcing comprehensive legal frameworks, strengthening their institutions and ensuring accountable public procurement, licensing and public financial management processes.
Establishing public registers that name the owners of companies and taking action against stolen assets are also vital steps.
Countries also need to protect whistleblowers and support civil and political rights, while cooperating with other nations investigating corruption.
But the world’s leading and emerging economies have an obligation, too: they have been doing too little to prevent their companies from bribing officials in African countries. Developed countries, in particular, have both a self-interest and an obligation to tackle the problem.
Top priority should be directed to cases of grand corruption involving politicians and senior public officials, which have serious corrosive political and societal consequences and block achievement of the UN Sustainable Development Goals.
To ensure that their own companies aren’t contributing to corruption in Africa, developed countries should also effectively enforce against foreign bribery in line with the OECD Anti-Bribery Convention and the UN Convention against Corruption, implement strong measures to return stolen assets to their countries of origin, and establish legal frameworks to enable civil society and victims of corruption to take asset recovery cases to court.
Finally, the billions flowing out of Africa go through foreign financial systems end up somewhere in the rest of the world. Countries that are destinations for these outflows have an important role to play in preventing them. Governments of major economies, including members of the G20 and OECD, as well as those of other offshore financial centres can also help reduce corruption in Africa and its nations recover stolen money.
To stop the flow of dirty money out of Africa, these governments must tackle money laundering, and establish public registers of beneficial ownership. They should also make arrangements for the prompt, transparent and accountable return of assets.
SOURCE: Transparency International