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SA loses billions to illicit financial flows: Namhla Mniki-Mangaliso – director, African Monitor

South Africa primarily loses its money through…trade mis-invoicing.

[Apologies for poor line]

SIKI MGABADELI: South Africa lost R237bn in illicit financial flows in 2011 and over R1trn between 2002 and 2010. That’s despite government preventive measures, including FICA, FAIS and the Financial Regulation bill. That’s according to a recent report by NGO African Monitor.
   We are speaking to their director this evening, Namhla Mniki-Mangaliso. Thank you so much, Nanhla, for your time this evening.

NAMHLA MNIKI-MANGALISO: Thanks so much, Siki. It’s a pleasure to be here.

SIKI MGABADELI: What are illicit financial flows?

NAMHLA MNIKI-MANGALISO: Well, illicit financial flows in the simplest terms are essentially any assets that move out of our country without being recorded, which means that they escape any form of taxation and they are generally moved illegally by either private industrials of companies.

SIKI MGABADELI: By their illicit nature I suppose they are very difficult to track. So some of the figures that I’ve quoted from your report – how do you arrive at them?

NAMHLA MNIKI-MANGALISO: They are notoriously difficult to check. There is a … company that actually does the research and it’s a global company called Global Financial Integrity. They do an annual report and from those figures we are able to check what are the figures for South Africa.
   Unfortunately South Africa does not have any internal system of monitoring what these quantities are and we all generally – both government and NGOs – depend on Global Financial Integrity to gather that data. And in fact that’s part of what our policy recommendations are talking about – to increase our own internal capacity to be able to track those resources.

SIKI MGABADELI: Do we know how this money is moved? We kind of watch movies and read a lot about money laundering – know all about money laundering and that sort of thing.. But how do the funds move in and out of the country?

NAMHLA MNIKI-MANGALISO: Well, it’s quite interesting in South Africa’s case because what you are seeing most of the focus on the … of this illegal behaviour is like money laundering, racketeering, counterfeiting, drug money, terrorist financing. However, South Africa primarily loses its money through what we call trade mis-invoicing, which essentially means if I as a company under-invoice exports or over-invoice imports.

SIKI MGABADELI: And these would also be reputable companies, I assume, then?

NAMHLA MNIKI-MANGALISO: Even the reputable companies. And what we are trying to dig into at the moment is which are the culprits in South Africa that are involved in these kinds of behaviours. We know that SARS has this infrastructure; however it’s not publicly available. And parts of what we want to recommend is in fact processes which are transparent about which South African companies are undertaking those kinds of activities.

SIKI MGABADELI: There’s been quite a lot of talk in the tax circles and the consultancy circles around taxation and how some companies will shift funds to tax havens in order for them to not be able to pay their full taxation in South Africa. Would that fall under this?

NAMHLA MNIKI-MANGALISO: That would fall under this. And if we start considering what R237bn is… we did a bit of an assessment in our own study and we realised that, with those kind of funds for instance, you could create six million new jobs per annum, or you could use the same amount of money to create … for one million students per annum. In other words, what we are trying to say as African Monitor is we are not just concerned that this is illegal activity, but we are also concerned that these are resources that could in fact be directed to investment in development and in inclusive growth in our own country. It’s a significant loss.

SIKI MGABADELI: You’ve also pointed to legislation as an area where there are gaps, and listed a number of Acts that one would have assumed would deal with this. So where are the gaps, then?

NAMHLA MNIKI-MANGALISO: Let me just summarise some of those. South Africa has no shortage of laws. In fact, some of the primary acts that we identified are at least six main acts that are dealing with this issue of money laundering, illicit financial flows and so on. But the … says that there is no policy … across the various acts as well as across the various institutions that are supposed to be monitoring and implementing those acts. Now there is another thing which is a … basic gap is that none of the acts themselves appropriately define illicit financial flows, and so a lot of the acts like for instance the Financial Intelligence Centre Act… money laundering as the main form of illicit financial flows.
   Now, the debate that we have tells us that … of the illicit financial flows in South Africa are … mis-pricing as opposed to money laundering, which means that there is money everywhere that we are not defining, that we are not creating systems… which is the primary form of illicit financial flows in our country.

SIKI MGABADELI: The people doing this and getting away with it are very smart, and they have all the time in the world to find ways to hide those funds and get them out the country. What sort of skills would our authorities need?

NAMHLA MNIKI-MANGALISO: SARS has a department that primarily focuses on that. … Despite the incredible efforts they are making, they have only in the last two years been able to investigate only 30 important cases of illicit financial flows and particularly mis-pricing. And so there is a dire need to multi… and create our own technical capacity to be able to check these things. … In fact the issue of technical skills is the one area South Africa needs to focus on, which means not just focusing on government skills but also to focus on the roles that academic institutions can play in all the … tracking some of these companies, the roles that civil society can play in also independently monitoring some of those companies. But we can’t start doing that without government creating a … such as merchants known to us who are big companies that evade checks on an annual basis – and most of those known to South African citizens, which those companies are.

SIKI MGABADELI: Thanks to Namhla Mniki-Mangaliso for your time today.

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