Dar es Salaam. Despite adopting measures to combat illicit financial flows (IFFs), Tanzania loses an estimated $1.5 billion annually in revenue to trade-based money laundering (TBML), a deprivation of the country’s much-needed tax revenues.
This is according to a policy memo published by Global Financial Integrity (GFI) and its allies, indicating that if not addressed, TBML has adverse effects on economies and societies as it perpetuates criminal activities such as illicit wildlife trade, bribery, corruption, and tax evasion.
Reacting on the report the director for Taxpayer Services and Education of Tanzania Revenue Authority (TRA) Mr Richard Kayombo said: “I haven’t read the report, but such studies provides us with insightful analysis of the situation.”
“We’ve designed various measures to reduce or deter the said illicit trade. This includes and not limited to cooperating with law enforcers in curbing the matter,” he added.
On the other hand, the taxman does work closely with other customs and law enforcement administrations in the neighbouring countries in response to counter trade based money laundering, Mr Kayombo added.
Mr Kayombo conceded that the task isn’t easy.
“The challenge is that it is a transboundary issue, and yet we have a vast coastline, about 1400km, plus three lakes (Victoria, Tanganyika and Nyasa) that border Tanzania with its neighbours,” he added.
This makes it hard to detect smuggling routes whereby goods and services associated with this kind of crime land, he noted. “However, a lot has been done, including the formation of an anti-smuggling task force, patrolling, and conducting awareness campaigns,” he said.
According to him, in the awareness campaign, TRA sensitises the need for businesses within the East African Community and the Southern African Development Community (Sadc), to make use of a free trade area committed, amongst other things, to eliminating tariff and non-tariff barriers amongst its members.
“This means that goods originating from Tanzania and destined for any of Sadc or EAC member states, enjoy no tariff rates and no or reduced quantitative restrictions at destination countries. The same applies to goods imported into the country from other Sadc and EAC member states,” he reassured.
TBML results in revenue losses and that it uses a variety of methods such as misrepresenting the value of a transaction on an invoice to illegally transfer value across borders.
Other methods include falsely describing a product, intending to misrepresent the quality, type of goods or services in order to manipulate the transaction value.
The TBML perpetrators also issue multiple invoices for the same trade transaction as well as creating a mismatch in the quantity of invoiced goods versus the amount of the actual shipped goods. It also incorporates the use of the informal value transfer system (IVTS), that is transferring value between two jurisdictions without the actual movement of funds such as sending remittances at a reduced cost or for settling accounts across international borders.
According to the report, the aforementioned deceitful acts are often used in other trade-based financial crimes, such as trade-based terrorism financing and sanctions evasion. “In total, nine percent of cases identified involved terrorism financing and 3 percent involved sanctions evasion,” the policy memo reads in part.
Therefore, GFI was of the view that several measures should be adopted in order to fight the illicit trade, these includes, the formation of an inter-agency task force as multiple government agencies need to be involved in order to effectively combat TBML.
The implementation of national beneficial ownership registries as shell and front companies are frequently used for financial crimes, including TBML as well as ensuring beneficial ownership information extends to trade.
Transaction-level trade information should be shared in its real time as well as the utilization of new technologies to assess pricing of trade transactions and having national anti-corruption efforts that cover and strengthen supervision over free trade zones.
“Harmonize regional customs frameworks: Member countries of regional communities with existing frameworks on trade should align and strengthen country of origin rules,” reads the policy article.
“In fact, Tanzania is among Africa’s top five performing economies that are projected to grow by more than 5.5 percent on average in 2023/24 and to reclaim their position among the world’s 10 fastest-growing economies,” said Dr Hamis Juma, an independent financial analyst.
“Moreover, such growth may become meaningless if large amounts of money is lost in the illicit trade, leaving rural Tanzania struggling with rising cost of life, yet depending on rain-fed agriculture, shortage of teachers, medicine, running water,” the report reads in part.
In yesterday’s meeting of anti-illicit trade campaigners in South Africa, it was said that a growing number of countries, civil society actors, and decision-makers seem to have concluded that it is time for a new approach.
In May 2019, Senegal, on behalf of the Africa Group, called for the development of a separate international convention on tax, which would assist in tackling all aspects of IFF.
By Dickson Ng’hily
In-depth reporting & investigative journalist