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Trade fraud costs Africa US$60 billion

WASHINGTON, DC: A report by advocacy organization Global Financial Integrity (GFI) says five African countries have lost at least US$60.8 billion in tax revenue from fraudulent trade invoicing.

The news coincides with a claim by campaigner Global Witness that after oil majors Shell and Eni paid US$1.1 billion in 2011 to the Nigerian government for one of West Africa's biggest offshore oil blocks, the money was diverted to Malabu Oil & Gas, a company controlled by the former Nigerian oil minister Dan Etete (below) while he was still in office.

Shell EniGlobal Witness says it wants oil executives to reveal what they know about Etete's ownership of Malabu and to stop lobbying to weaken laws in the US and EU that require these sorts of payments to be made public.

Meanwhile the GFI study - funded by the Danish ministry of Foreign Affairs – has revealed that between 2002 and 2011, tax loss from mis-stated trade invoices equalled 12.7 percent of Uganda's total government revenue, 11.0 percent for Ghana, 10.4 percent for Mozambique, 8.3 percent for Kenya and 7.4 percent for Tanzania.

Mogens Jensen, Danish minister for Trade and Development Cooperation, said his country's support for the five African states was "clearly at risk of being undermined by fraudulent trade transactions that rob the people of these countries of funds that could otherwise have been used for investments in infrastructure, schools, hospitals, and other much needed public services."

GFI president Raymond Baker added: "The consequences are simply devastating. The capital drained from trade mis-invoicing means that local businesses in Uganda and Tanzania have less money to grow their companies and hire more workers. The potential revenue loss from trade mis-invoicing means that Ghana has less money to spend on healthcare, Kenya has less money to devote to education, and Mozambique has less money to invest in infrastructure. Trade mis-invoicing is perhaps the most serious economic issue plaguing these countries."

The GFI report recommends the governments of the five countries boost Customs enforcement; treat trade involving tax havens with the "highest level of scrutiny"; combat the use of shell companies; identify the true owner of any bank account; and join the Extractives Industry Transparency Initiative.

Global Witness notes that every year oil, gas and mining companies make payments to governments worth hundreds of billions of dollars for access to the world's natural resources. It says these payments will be Africa's largest inflow of wealth for the foreseeable future. In 2010, the value of exports of oil and minerals from the continent was worth US$333 billion, about six times the value of exported agricultural products (US$55 billion) and nearly seven times the value of international aid (US$48 billion).

"It is our view that this is just the beginning of the conversation surrounding trade mis-invoicing and illicit flows in these [five] countries," said Baker. "The estimates provided by our methodology are likely to be extremely conservative as they do not include trade mis-invoicing in services or intangibles, same-invoice trade mis-invoicing, hawala transactions, and dealings conducted in bulk cash," he added.

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