Multinational corporations operating in Africa could come under stricter state supervision if the recommendations of a continental panel on illicit financial flows are adopted and implemented.

After working for three years, carrying out consultations in Algeria, Democratic Republic of Congo, Mozambique, Kenya and Nigeria, the panel chaired by former South African president Thabo Mbeki recommends mandatory tax registration and links between company registries and tax authorities to prevent trade mispricing.

Additionally, multinational companies operating in African countries will be required to provide disaggregated financial reports on a country-by-country or subsidiary-by-subsidiary basis, which disclose the pricing of goods and services in international transactions to curb abuse of transfer pricing.

The panel’s report, which was presented to the African Union’s Heads of State Summit, further recommends automatic exchange of tax information between countries to prevent the practice of shifting profits to subsidiaries in low-tax or secrecy jurisdictions while the bulk of their activities happen in another country.

It remains to be seen how countries will receive recommendations that overturn established practices such as giving tax incentives as sweeteners to attract investors. For example, the report recommends that regional integration arrangements be used to introduce accepted standards for tax incentives to prevent harmful competition in the effort to attract foreign direct investment.

Further, the panel recommends that current and prospective double taxation conventions be reviewed, particularly those in place with jurisdictions that are significant destinations of illicit financial flows, to ensure that they do not provide opportunities for abuse.

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In an attempt to lift the veil on corporations, the report recommends that beneficial ownership information be provided when companies are incorporated or trusts registered, and that such information be regularly updated and be available as public record.

Other recommendations include the establishment of independent institutions and agencies charged with preventing illicit financial flows — such as financial intelligence units, anti-fraud agencies, Customs and border agencies, revenue agencies, anti-corruption agencies and financial crime agencies — with a requirement to regularly report on their activities and findings to national legislatures.

Significantly, the panel proposes that financial intelligence units be required to share information with their counterparts on cases of people or companies being prosecuted for facilitating the movement and laundering of the proceeds of these crimes to identify cross-border illicit activities and patterns.

In recognition of the role of corruption in illicit financial flows, the panel recommends that governments publish lists of politically exposed persons, as well as any asset declarations filed by them and information about whether the country’s laws prohibit or restrict their ability to hold financial accounts abroad.

Civil society organisations, that pursued accountability and transparency around mining agreements and taxation regimes, have been singled out by the panel as requiring operating space and legal freedoms to carry out advocacy, activism and research.

African states are being encouraged to ensure that the public can access national and sub-national budget information, and that processes and procedures for budget development and auditing are open and transparent.

Henry Malumo, the Action Aid advocacy director for Africa, hopes the recommendations will not only be adopted but also elevated to a declaration that would make it binding on member states to domesticate measures to curb illicit foreign flows and revise oppressive tax agreements.

“The mechanism for domestication must be inclusive, bringing in civil society in order to address corruption concerns among public servants,” he added.

Governments are encouraged to adopt best practices in open contracting to reduce illicit foreign flows through government procurement processes. These measures include establishing robust regimes for the supervision of banks and non-bank financial institutions by central banks.

The panel urges the United Nations Office on Drugs and Crime (UNODC) to extend its work in East and West Africa to cover the whole of the African continent, and to include estimates of the financial magnitude of various types of criminal activity affecting the continent.

It is also recommended that illicit financial flows be integrated as a specific component in the AU Convention on Preventing and Combating Corruption.

“The global community in all of its institutions, including parliaments, should take all necessary steps to eliminate secrecy jurisdictions, introduce transparency in financial transfers and crack down on money laundering,” says the report.

The panel urges greater collaboration and consistent engagement between Africa and global players such as the G8, the European Union and G20 to help ensure greater transparency in the international banking system. It urges that banks be required to ascertain the identity, source of wealth and country of origin of their depositors and their deposits.

The Mbeki report also recommends that the Bank for International Settlements publish the data it holds on international banking assets by country of origin and destination in a matrix format, along the lines of data published by the IMF for bilateral trade data, foreign direct investment and portfolio investment, so that it can inform the analysis of illicit financial flows from Africa.

“At the very least, as a result of our collective action, approximately $50 billion will become available annually to finance Africa’s identified developmental needs,” the report says.