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Curbing Illicit Financial Flows In Nigeria’s Extractive Sector

Research has shown that Nigeria’s extractive industries is highly vulnerability to Illicit Financial Flows (IFFs). The oil and gas sector alone is found to be contributing 92percent of the country’s total IFFs, according to a recent report. To mitigate the risk, the report recommends various transparency antidotes and collaborative approach. e360 writes

The monolithic nature of the Nigerian economy which depends predominantly on its extractive industry for more 70percent of government revenues, is top among reasons why the sector is the major contributor to (Illicit Financial Flows) IFFs.

Additionally, the cash-based nature of the economy has made it even more vulnerable to IFFs, according to a recent report presented in Abuja and titled, ‘Averting Illicit Financial Flows in Nigeria’s Extractive Industry.’ It was commissioned by the Nigerian Extractive Industries Transparency Initiative (NEITI).

A cash based economy is typically known to be prone to high incidents of economic and financial crimes especially, corruption, bribery and money laundering. Cash transactions obliterate audit trail and aid illicit financial flows.

Another risk factor is the technicality and structural complexity of the sector, including the even more complex legal and fiscal arrangements governing the sectors revenue flows. This according to the report, makes it easy for the operators and administrators to manipulate the process, thereby exposing it to irregularities and IFFs.

Oil Spill

Of the whopping 92.9percent contributed by the oil sector to IFFs in Nigeria, oil bunkering is said to account for about 35percent while commercial transactions by multinationals operating in the country’s oil and gas sector – using tax evasion, money laundering and transfer pricing – account for more than 60percent of Nigeria’s IFFs, the report which referenced a 2017 research by Trust Africa, stated.

“Many Studies have identified three enablers of IFFs within the extractive sector, these are; bribery and corruption, illegal resource exploitation and tax evasion. These three factors, though not exclusive, often occur concurrently,” the report said in part.

High political influence and dominance of government bureaucracy were also no excluded as part of factors exposing the sector to IFFs. “Since government at both federal and state levels depend on the oil and gas industry in Nigeria, it is expected that the political class will hold tightly to it and will want it determine who gets what,” said the report, compiled by DataPro, with support from Trust Africa.

Presenting the report to stakeholders in Abuja, Mr. Abimbola Adeseyoju, also noted that Nigeria accounted for 30.5percent of all IFFs from Africa between 1970 and 2008, citing findings by the High Level Panel (HLP) of the African Union Commission/United Nations Economic Commission for Africa (AUC/ECA). The AUC/ECA report estimates that Nigeria lost about $217 billion to IFFs within the period. Citing various case studies of IFFs in Nigeria, Mr Adeseyoju said it has contributed to draining the country’s external reserves, reduced tax collection, worsened inflation and widened income gaps.

Waziri Adio

Adding to the worrisome narrative, Executive Secretary of NEIT, Mr. Waziri Adio, said latest figures estimate that African countries lose between $50 to $60 billion to IFFs annually, with Nigeria accounting for 30percent of the loss.

“Focusing narrowly on what’s paid and received is a slice of the pie, we must go beyond looking at how much companies paid, to look at how much they should have paid, that’s where IFFs come in,” Adio said.

He stressed that Nigeria must focus on how to reduce IFFs to the barest minimum, if not eliminate it totally, in order to ensure that resources from the oil and gas sector benefit Nigerians optimally.

To tackle the menace and stop the bleeding, the report, “prescribed” increased scrutiny and expansion of the constituency of accountability holders. Specifically, it noted that current implementation of revenue transparency should be extended to cover comprehensive reporting of activities across the value chain including contract transparency, beneficial ownership, minerals trading and volume tracking.

It also recommended a deliberate policy to promote effective demand-side accountability platforms involving the media, civil society and professional associations. “This policy should include programmes to build analysis capacity of CSOs, media and parliamentarians to understand tax issues and enhance the effectiveness of monitoring beyond the scope of traditional established governance structures,” it said.

IFFs, according to the report, require collaborative strategy to increase the chances of detection, prevention and enforcement. It emphasised that collaboration must happen at the national level across sectors involving minerals agencies, tax authorities, law enforcement, exchange commissions among others. While international cooperation between national institutions through information sharing would, in the least, provide clues of illicit or questionable activities by corporations.

Adoption of technology and automation, as well as effective proportionate and dissuasive sanction regime are also recommended in the fight against IFFs. The automation of the process and procedures associated with issuance of permit, licensing, bidding, contracting, monitoring and enforcement with the regulatory framework of the extractive industry in Nigeria will reduce the incidences of IFFS, the report maintained.

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