Nigeria losing huge funds to tax evasion, illicit trades

Bolaji Owasanoye

…AGF Fagbemi urges state governments to join anti-corruption fight

The Chairman, Independent Corrupt Practices and Other Related Offences Commission, Professor Bolaji Owasanoye has revealed that, like many African countries, Nigeria loses huge amounts of resources to Illicit Financial Flows that originate from three sources of commercial IFFs (which are tax evasion, trade mis-invoicing, and abusive transfer pricing), criminal activities, and corruption which includes bribery and theft by corrupt public officials

The ICPC Chairman made the development known during a sensitisation workshop on “revised guidelines on negotiation and drafting of contracts and agreements by government parties to prevent corruption and illicit financial flows and ensure sustainable development,” held at the ICPC Headquarters in Abuja on Tuesday.

Others present at the symposium were the Attorney-General of the Federation and Minister of Justice, Lateef Fagbemi, SAN, and the Chairman, Presidential Committee on Fiscal Policy and Tax Reforms, Mr. Taiwo Oyedele.


Speaking during the event, Owasanoye said, “In recent times, some local and international commercial processes and agreements have revealed the role of corruption in the process. Parties desperate to take advantage of the process have been found to be corrupt advisers and negotiators of developing country counterparties. Thereafter, there is an attempt to enforce these corrupt and sometimes illegal contracts thus ending up in endless litigation and arbitrations. One immediate negative outcome of this negative trend is a denial of opportunity for economic progress. For example, OPL 245 license was awarded in 1998.

“OPL 245, estimated to hold 482 million barrels of economically recoverable oil, expired on May 11th, 2021, 23 years after the license was first issued to Malabu and ten years after two oil majors paid $1.3 billion for the license in a deal trailed by criminal investigations, court trials, and international arbitration. In that period, Nigeria was not able to derive any benefit from the development or exploitation of the block due to civil and criminal controversies

“Any agreement or transaction that takes resources from a country but gives little or nothing in return or takes back in subtle ways what is pretended to be given cannot be said to be a pro-development agreement. Nigeria like many African countries loses huge amount of resources to IFFs that originate from three sources, namely: commercial IFFs (tax evasion, trade-mis-invoicing, and abusive transfer pricing), criminal activities, and corruption (bribery and theft by corrupt public officials).

“To make matters worse, poorly negotiated agreements are often litigated either in regular courts but mostly by arbitration with negative outcomes against the country. While the humongous compensations and awards in scarce foreign currency tend to catch the attention of the public, invisible costs like the cost of litigation are hardly mentioned but they also contribute to the economic agony that results from poorly negotiated agreements.

“The Thabo Mbeki Panel on illicit financial flows from Africa found that commercial IFFs arise from business-related activities such as “abusive transfer pricing, trade mispricing, misinvoicing of services and intangibles, and using unequal contracts, for purposes of tax evasion, aggressive tax avoidance and illegal export of foreign exchange. Commercial IFFs almost double the losses from other types of IFFs combined. While corruption accounts for 3.5% net loss to the global economy, criminal activities account for 35.5% while losses to commercial IFFs is 60%.

“The principal vehicle for commercial IFFs in Nigeria include contracts negotiated with government entities or by private entities that include clauses that defeat government expectations for tax revenue and also hinder the achievement of government economic development objectives. This situation warrants the need for guidelines for negotiators to be better prepared and know what to do in preparation for and negotiation of contracts and agreements for ministries, departments, and agencies of government including post-negotiation responsibilities.

“It is notorious fact that expatriate quota, tax holidays, lack of provisions for periodic review of long term contracts, grant of licenses and waivers are among some of the ways contracts are used to fleece the nation through capital flight and other forms of IFFs. Choice of laws and the seat of arbitration have often worked to the disadvantage of the nation hence the need for these guidelines. It is our hope that these guidelines can over time work to minimize commercial IFFs.”

Meanwhile, the AGF and Minister of Justice, Lateef Fagbemi, SAN noted that the fight against corruption should not be limited to the Federal Government and its agencies only, adding that state governments should also be involved in the fight against corruption.

Fagbemi said, “I want to mention that the issue of corruption and the tendency to limit the fight to Federal Government alone is wrong. Contracts are not awarded at the Federal level alone; States are also involved. There should be a way of bringing some of these states on board.

“The document that we are presenting to the public today will not only be useful to the Federal Government, it will also be useful to the State Governments. If you look at it, in international law, the states are not known. It is the Federal Government that will stand for the States. Some of these atrocities are also perpetrated at the state level and the Federal Government is called to come and account for it. My advice is that there should be another way of bringing the states on board to appreciate the need for your efforts.

“The concept of the revised guidelines will hopefully deter corruption in the negotiation and execution of government contracts, which is part of the Federal Government’s ministerial deliverables on improved guidelines for effective service delivery. The Federal Ministry of Justice is therefore committed to supporting initiatives undertaken by MDAs, which is aimed at engendering transparency, and efficiency and preventing corruption. Equally, at the ministerial level, the ministry has developed policy documents and specific mechanisms to ensure transparency and reduce incidents of bad judgment arising from poor drafting of Federal Government contracts with mala fide intention against the country and its citizens, particularly as it relates to contracts within the thresholds of the Federal Executive Council.

On his part, the Chairman, Presidential Committee on Fiscal Policy and Tax Reforms, Taiwo Oyedele in a paper titled, “Avoiding Tax Defaults and Capital Flights in Commercial Agreements,” suggested the way forward to addressing some of the issues encouraging capital flights in commercial agreements.

Oyedele said, “The involvement of specialists and subject matter experts, tax impact assessment and simulation, caps and sunset clauses, check local requirements and compliance with counterparty’s jurisdiction, use of clauses in agreements to safeguard the national interest, the inclusion of local content in projects execution to limit capital flights amongst others.”

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