Economy Opaque contracts expose East Africa to money laundering

Opaque contracts and export price distortions have exposed East Africa to money laundering by multi-nationals keen to evade paying taxes.

Global Financial Integrity, a Washington think tank, said multinationals routinely under-invoiced imports to evade paying taxes and inflated international purchase orders, skimming the tax balances from the exchequer.

“I’ve never known import under-invoicing that wasn’t matched with some other way of getting money out of a country,” Global Financial Integrity president Raymond Baker said during an online discussion organised by Reuters Thomson Foundation.

Mr Baker noted that the mechanism for taking the money out from Kenya was unclear but was an enormous percentage of the GDP. The illicit flows could hamper Kenya’s efforts to build a financial hub in Nairobi.

“Kenya’s neighbours will know that the evidence shows immediate neighbours of tax havens tend to see falling investment flows and also greater exposure to illicit flows,” Centre for Global Development senior analyst Alex Cobham said, adding that the prospects for success in a context of weakening governance would be reduced.

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Governance activist John Githongo said lack of political will was to blame for failure by Kenya to enforce anti-money laundering laws that would stem the flow of dirty money.

He noted that political parties spent millions of dollars in the last General Election, which did not come from membership fees.

“Kenya has what it takes to become a key financial hub and profit handsomely from it for all,” said Mr Githongo, noting that money laundering was entrenched in the country.

Mr Githongo said a sophisticated services sector was supporting the growth in transnational crime such as drugs and people trafficking.

“Lets not assume that the illicit funds would all be whistled away. Kenya is a beautiful place to be corrupt so long as one is certain that accountability is a low probability,” said teh activist.