Accomplices to financial murder

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The illicit financial flows from South Africa continue to hamper development in our country – and neither the Financial Intelligence Centre (FIC) nor the Treasury have a clue or the regulatory muscle to rein in the billions leaving our shores. In the 2015/16 financial year nearly R60 billion left South Africa and the country’s regulatory arms have no strategy or game play to stop the problem. This form of illegal capital flight involves the movement of money out of the country in which it is generated, thereby robbing the country of the economic benefits of the money. The capital is unrecorded and cannot be used or accessed as public funds or private investment capital, meaning that the population does not benefit from its potential impact of infrastructure investment and inevitably pay more, whether through taxes or at the till. Parliament was informed recently by Murray Michell, the FIC director, that about 9 million suspected transactions were reported to the centre in this financial year.

Not subtle given the volume.

Michell said nearly 2500 (2490) “products” to the value of nearly R58.49bn could represent the illicit flow of money from the country.

More troubling was that the FIC and the police could not say whether they were investigating.

Why not?

Why are the heads of Treasury and the FIC not actively pursuing these illegal activities? As Michell is appointed as the country’s tsar in stopping these illegal capital flows from our shores, can he do his job?

What is of even more concern is a review of Michell's performance, when reading the FIC's Annual Report to Parliament in the financial year 2015/16, and the lack of oversight by the then minister of Finance, Pravin Gordhan.

The following is stated in the Auditor-General's report:

1. The AG discovered that the FIC director has no performance agreement signed with the Minister of Finance.

2. It is the law that the heads of departments, directosr-general, chief executives of government departments and state entities must have performance agreements to evaluate their performance in terms of the Public Finance Management Act and Department functions.

3. Why was no performance agreement signed between the minister and the FIC director?

4. Since 2002 when Michell was appointed by then minister of finance, Trevor Manual, to date no effective performance evaluation was conducted. Why not?

5. More shocking is that despite there being no performance agreement and/or a review of his performance, Gordhan awarded Michell a payout of R4million (inclusive of a performance bonus, backpay and so on) in the past financial year. On what basis was this done? As the AG clearly indicated that the FIC's overall performance indicators are not useful, or unreliable.

These are serious indictments on the FIC and director's ability to perform in accordance with the FIC Act and to stop this deluge of illegal capital flows from South Africa, which took place under their noses.

We should be mindful of the fact that South Africa is a developing nation and that in the National Development Plan we have a blueprint set to irrevocably change the socio-economic landscape and improve services to the most vulnerable in our society.

Who are we serving? Who are we protecting?

In 2015, the then national police commissioner Riah Phiyega, with Police Minister Nathi Nhleko, in releasing the national crime statistics confirmed that at least R10.8bn had been illegally transferred out of the country.

And last year, the Mail & Guardian reported that South Africa was losing nearly R147bn a year to the illegal movement of money out of the country.

At the time, Higher Education Minister Blade Nzimande told Parliament R147bn could accommodate all university students.

If one considers all the heat around the Guptas (and rightfully so) – they have been investigated for nearly R7bn in “suspect transactions”, which they have denied and which is the subject of a court case, what about the other more than R50bn leaving our shores in the past financial year?

Surely a spotlight has to be shone on others who are doing the same? Or are we blinded by our own narrow biases and judgements that we think only certain individuals worthy of our scorn and of the country’s rules, regulations and laws?

Contextually speaking, South Africa loses, on average, the 12th highest amount of money through illicit financial outflows out of 151 countries. Research conducted by Global Financial Integrity, a Washington research and advocacy group, showed that South Africa suffered illicit financial flows totalling more than $122bn between 2003 and the end of 2012.

The research found that the biggest problem was trade mis-invoicing, by big corporate South African companies, which will describe this as tax innovation.

“Usually, through export under-invoicing and import mis-invoicing, corrupt government officials, other criminals and commercial tax evaders are able to move assets easily out of countries and into tax havens, anonymous companies and secret bank accounts,” the research says.

Previous reports have shown that illegal outflows stem mainly from the commercial sector.

“The commercial sector is the major source of illicit financial outflows in Africa, but it is the least understood.

"This is due to the range of methods by which it takes place in the commercial sector, as well as the technicality of issues such as transfer pricing, tax evasion, aggressive tax avoidance, trades mis-invoicing, tax incentives, double-taxation agreements and the like,” a panel report tabled before Parliament in 2015, says.

Therefore, given the cold, hard facts, it is clear that many individuals and companies continue to fly under the radar and benefit handsomely from a system that seems to thrive on the selective naming, shaming and prosecuting of only a few in the court of public opinion.

Corruption and theft is corruption and theft.

But for those who escape due to their business expediency and those who escape public attention and scorn, South Africa continues to be a blank cheque.

We cannot allow all our attention to be focused on one family when clearly, as the numbers show (from independent research) there are many others who continue to flout the law and make more than a pretty penny off it.

The system will continue to fail us, as a developing nation with great ambition, if we allow the nameless and faceless individuals to continue moving money from our shores unhindered and unchecked.

Whose duty is it to make public their names? Why are we not naming and shaming these people who should be regarded as enemies of the people of South Africa?

What do we have to gain or lose by letting the majority get away with financial murder, while burning a few at the altar of public rage so that it appears we are doing our jobs?

Seale is a lecturer at Rhodes University’s Department of Politics & International Studies