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Efficient, resilient, and accountable governance systems are essential to successfully manage natural resources, provide public services, foster trade, attract private investment, and manage aid relationships. Corruption and secrecy are often at odds with such goals. Illicit financial flows, for example, undermine development and governance while secrecy in extractive industries can squander a nation’s wealth and weaken the social contract.
CGD’s work in this area focuses on contact transparency, tax evasion and avoidance, efforts to combat money laundering and terrorism financing, and the negative effects they can have on remittance flows and international security.
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Transfer pricing is what happens when goods and services are traded between companies that are part of the same multinational group. It is often stated that developing countries are “haemorrhaging billions of dollars” of tax revenues through companies abusing this mechanism, in particular by mispricing commodities. Numbers racking up in the tens and hundreds of billions have influenced international debates on the subject (see for example: here, here, here). These big numbers—based on gaps and mismatches in trade data—are unreliable and should be taken with a pinch of salt. So too should narratives which offer extraordinary examples, such as the accusations being made in the ongoing case of Acacia Mining in Tanzania, as a guide to general expectations.
There is no doubt that customs inspection and auditing of transfer prices are significant technical challenges, and that companies can take advantage of weak regulations and enforcement. There are real gains to be made by developing countries strengthening transfer pricing rules and auditing capacity, and from developed countries sharing information with them to reduce information asymmetries between international businesses and national authorities.
However, the scale of revenues that might be recovered is unlikely to match up to heightened popular expectations. South Africa developed new transfer pricing rules in 2012, and in the following four years the revenue service successfully finalised 35 transfer pricing cases which raised around $650 million (see annual reports from 2013-2016). Early results from the “Tax Inspectors Without Borders” programme include increasing revenue from transfer pricing audits in Colombia from $6 million in 2012 to $33 million in 2014, in Kenya from $52 million in 2012 to $107 million, and in Vietnam from $3.9 million in 2013 to $40 million in 2014.
If the popular “billions and trillions” studies are not a good guide to sizing the prize from improving international corporate tax compliance, what is? A number of revenue authorities including the UK’s HMRC, the South African Revenue Service, the Finish tax authority, and the IRS allow carefully vetted researchers to analyse anonymised tax records under controlled conditions. Studies based on microdata from such “datalabs” may yield a clearer picture of the revenues which might be at stake.
Some recent studies
Hayley Reynolds and Ludvig Wier used firm-level tax returns to estimate profit shifting in South Africa. They find “a semi-elasticity of taxable income with respect to the parent tax rate of 1.7.” That means that a South African subsidiary of a foreign company whose headquarters is based in a country where the tax rate is 10 percent lower than South Africa’s (i.e., something like the UK or Singapore) would tend to have a 17 percent lower taxable income than one whose parent company is in a country matching South Africa’s rate. They make a ballpark estimate of revenues lost in this way; finding that it amounts to 7 percent of subsidiary income or 1 percent of the total corporate tax base. This implies that profit shifting removes 0.2 percent of the total tax base in South Africa, reducing government revenues by 0.05 percent of GDP (around $147 million or $2.60 per person per year).
Li Liu, Tim Schmidt-Eisenlohr, and Dongxian Guo look at UK company tax returns and transaction level trade data to explore transfer pricing of goods exports from the UK. They find that transfer prices of exports to lower tax countries such as Ireland, Turkey, Denmark, Russia, and Netherlands are most sensitive to changes in relative tax rates, while there is little mispricing of exports via small economy “tax havens.” The price differential is more pronounced for R&D intensive firms (i.e. where the product exported are specific rather than generic). However again the revenue forgone was small in absolute terms—amounting to £168 million in 2010 (0.01 percent of GDP, again $2.60 per person per year).
There are many caveats to these studies. Both rely on statutory tax rates for their calculations, which does not allow for the impact of special incentives. The UK study only looks at goods trade, so does not include profit shifting via services, interest and royalties. On the other hand, it is not at all clear that the price differences it identifies as “mispricing” would necessarily fall outside of a defensible arms length range. The South African study only considers revenue losses associated with foreign multinationals, not profit shifting by South African headquartered companies.
Nevertheless, what is clear is that the figures they show, which approximate to the price of a hamburger per person per year, are far removed from the great expectations of transformative amounts of public revenue. Both studies suggest that companies are undertaking a significant degree of profit shifting, but this has a relatively small impact on overall public revenues, simply because multinational companies are a limited portion of the corporate tax base, and this in turn is a limited portion of the overall tax base.
Are these findings surprising?
These findings are similar to other studies of corporate tax elasticities. It is notable, however, that they are at least an order of magnitude smaller than those that were generated by the ‘spillovers’ study conducted by Ernesto Crivelli, Ruud De Mooij and Michael Keen of the IMF in 2015. This much quoted study gave a speculative figure that losses to developing countries from tax avoidance were in the order of 1 percent of GDP ($200 billion overall).
The amount of corporate tax revenues that countries might be losing fundamentally depends on the amount of profit that is generated by companies in the jurisdiction, the extent to which those companies are able to access international profit shifting opportunities (are they part of a multinational group?), the nature of their business (for example does it involve differentiated products and intangible assets?) and the effectiveness of the tax administration.
The IMF study did not include any of these factors but instead looked how fast a subset of countries (where data was available) were “broadening the base and lowering the rate” of overall corporate taxes, to try to identify a general relationship and isolate the impact of “base erosion” via tax havens. They then applied this tentative relationship more generally to a wider set of countries. A follow-up study by Alex Cobham and Petr Janský provides a breakdown by country, and notes that the methodology leads to some hard-to-believe findings. For example, Chad is said to be losing tax revenues worth some 8 percent of its GDP. Pakistan is said to be similarly losing tax revenues worth 5 percent of GDP. For this to be true untaxed profits related to internationally connected formal sector business would account for 20 percent of GDP in Chad, and 14 percent in Pakistan—suggesting the corporate sector might be more prominent in these economies than in countries such as the UK and Denmark where the corporate tax base is around 11 percent of GDP.
One place where findings from bottom-up studies, top-down studies, and popular expectations are closer together: the United States.
Kimberley Clausing uses microdata from confidential surveys carried out by the US Bureau of Economic Analysis. She estimates that losses to profit shifting from the US to countries such as the Netherlands, Ireland, Luxembourg, and Singapore was around $100 billion in 2012; that is around 45 percent of actual corporate taxes collected, or around 0.7 percent of GDP. (The lost revenue is around half of the amount suggested for the US by the IMF methodology, according to Cobham and Jansky’s disaggregation or more than 125 hamburgers per person per year.) This aligns with what we know from specific cases, which is that many US multinationals have very low effective tax rates on profits from revenues generated in other countries (including global household names such as Google, Starbucks and Microsoft) and US companies have permanently reinvested around $2.4 trillion of earnings offshore in order to defer US tax liabilities.
The United States is also exceptional—both as a major originator of globally-used intangible assets, and as a country with an unusual tax system that encourages retaining earnings offshore. Further studies using microdata will help to understand the nature of corporate profit shifting globally in different countries, but we should not be surprised if they don’t look like the United States.
In The Shadow List, State Department crisis expert Judd Ryker is chasing an American banker who’s disappeared after falling for a Nigerian scam. Meanwhile, his CIA wife Jessica is hunting a notorious Russian mob boss. Little do they know, they’re pulling on opposite ends of the same dangerous thread. Throw in Chinese oil companies under attack, corrupt American politicians, a kidnapped NBA star, and an undercover FBI sting operation and it’s the latest diplomatic thriller ripped from the headlines by CGD senior fellow Todd Moss.
On July 4, the Financial Stability Board (FSB), an international body of financial-sector policymakers, published its long-awaited report on the decline in international correspondent banking.
Building on work by the World Bank and the Committee on Payments and Market Infrastructures (CPMI), it finds that international correspondent banking has become more concentrated and that, as a consequence, payment chains have likely grown longer. This finding is consistent with the results of a recent CGD analysis, which found a 10 percent decline in the volume of correspondent banking, mostly to very poor countries. Correspondent banking relationships are critical to businesses in poor countries that lack the credit they need to create jobs. To get access to this credit, they need local banks to have easy connections to large international banks. The results of the FSB report highlight the constraints faced by businesses, especially in poor countries, when it comes to establishing a banking relationship.
The FSB report’s findings are based on two sets of data. The first is a new survey of banks and national authorities in 48 jurisdictions. Three hundred and forty-five banks participated in the survey, including many of the large international banks that provide correspondent banking services. The second is an updated dataset on international correspondent banking activity provided by the Society for Worldwide Interbank Financial Telecommunications (SWIFT)—the most widely used messaging service for international payments. The dataset covers more than 200 jurisdictions over the six years from 2011 through 2016. It includes information on payments volume (the number of payment messages sent), payments value, and the number of correspondent banking relationships (CBRs)—all disaggregated by currency, corridor, and payment direction.
The FSB finds that the number of active CBRs has declined by 6 percent since 2011. This decline is a global phenomenon, affecting all regions and major international currencies, and has continued through 2016. Over the same time period, however, the number of payment messages sent has increased substantially—by 36 percent since 2011. The value of those payments has also risen, but not by nearly as much—less than 10 percent. With fewer correspondent banks, payment messages may have to travel more indirect routes, via additional intermediaries, to reach their destination. As the FSB points out, it is not yet clear what the effects of this concentration will be. On the one hand, consolidation may put the industry on more sustainable footing. On the other, it may further increase the fragility of correspondent banking networks, lower competition, and make international payments costlier.
While payments volume has risen globally, 42 jurisdictions have seen it shrink. In 30 jurisdictions, the value of correspondent banking payments has also fallen. Importantly, the number of correspondent banking accounts that transact in dollars or euros has declined by 15 percent. Dollar and euros denominated more than 80 percent of payments via SWIFT in 2016.
Similar to the earlier CGD paper, the FSB’s analysis suggests that small economies are among the most affected by CBR withdrawal. Correspondent banking is typically a fee-based service, and small economies may not be able to generate sufficient payments volume to cover the costs of servicing them. While the largest economies have barely been affected, small economies have lost, on average, nearly a third of their CBRs.
Another important factor is compliance with international anti-money laundering/combatting the financing of terrorism (AML/CFT) standards, as laid out by the Financial Action Task Force (FATF)—a standard-setting body. Countries whose compliance with FATF AML/CFT standards is either incomplete or uncertain have lost a disproportionate share of CBRs. The 22 countries that have either failed to remedy deficiencies in their AML/CFT frameworks or else have never been assessed by FATF have lost, on average, roughly 40 percent of their CBRs, according to the FSB’s survey.
Other results from the survey paint a more complicated picture. When asked to identify their reasons for terminating CBRs, the primary reason banks gave was not AML/CFT risk or even related compliance costs, but rather changes in business strategy, which accounted for 40 percent of terminations. Three other factors—a lack of profitability, a change in risk appetite, and AML/CFT/sanctions-related issues—each accounted for 20 percent of CBR terminations. Among the various AML/CFT/sanctions-related reasons given, compliance costs and respondents’ inadequate AML/CFT risk controls featured most prominently.
The bottom line: the decline of correspondent banking relationships, especially with smaller and poorer countries, remains an important policy issue. We are currently working on a new report that will highlight both policy and technology solutions. Stay tuned!
A year ago, I requested comments on a draft manuscript about corruption. Last week, we launched the resulting book: Results Not Receipts: Counting the Right Things in Aid and Corruption. I think the text was considerably improved by the comments process (and I hope the commenters agree). So I’m hoping the discussion can continue even though the book is now out.
Last week, Frank Vogl, a founder of Transparency International and long-time advocate and leader in the global fight against corruption, emailed me with a set of comments on the resulting book before the launch, and then raised many of his concerns during the book launch event. In the spirit of an ongoing discussion, I asked him if I could publish his written comments and he was kind enough to agree. They follow below.
Results Not Receipts: Counting the Right Things in Aid and Corruption is an excellent starting point for an important and overdue discussion.
Almost exactly 20 years ago (September 1997) ministers attending the World Bank-IMF joint “Development Committee voiced strong support in their communiqué for major actions by multilateral and bilateral development agencies, as well as by the IMF to promote governance and counter corruption.
Charles Kenny and CGD have gone far further than the reports mentioned above and challenged the core approaches of aid agencies in this area.
Since that time there have been a number of reviews about the ways in which the international community and official public institutions have implemented the Development Committee’s mandate. In September 2007, an independent panel chaired by Paul Volcker issued a report finding fault with the World Bank’s own integrity vice presidency. In 2008, the Bank’s Independent Evaluation Group issued a major report that found far-reaching problems in the ways in which the Bank had sought to counter corruption in its operations. A further IEG critical report was published in 2011.
But Charles Kenny and CGD have gone far further than the reports mentioned above and challenged the core approaches of aid agencies in this area. Millions of very poor people in many countries are what I call ‘double-victims:’ first they suffer because of corruption; second, they suffer because efforts by aid agencies to help them too often do no good and sometimes do harm. As Kenny asserts: “It is time for donor agencies to fundamentally rethink their anticorruption approaches.”
Results do matter and he argues that it is often the case that aid agencies spend so much resources—staff and cash—in bending over backwards to ensure that not a single cent of aid cash flows into corrupt hands that their impact on poverty alleviation is far less than it could be.
But the new book is insufficiently clear in articulating effective remedies. It falls short in fully explaining why the core approaches of the aid agencies are just wrong. In addition to Kenny’s points, the facts are that staff incentives at aid agencies are far greater in terms of shoveling out the cash, than waving red flags because of feared corruption; that aid agencies shy away from meaningful confrontations with governments over grand corruption and wrongly operate, as a result, as if widespread petty corruption is quite separate from grand corruption; and, the aid agencies are extremely reluctant to listen to and work with civil society in the most effective ways.
Kenny devotes considerable space in the book to a discussion of how best to measure corruption. To a degree, like so many others, he overstates the purposes and significance of Transparency International’s Corruption perceptions Index, which is a poll of 13 different polls, makes no claim to be more than a snapshot in time based on surveys. The CPI was originally designed to strengthen public awareness of the pervasiveness of corruption and that continues to be its prime objective.
In discussing aspects of measuring corruption, the new book fails to explore issues of income and wealth inequality. The 2013 report by the African Progress Panel, for example, researched why extreme poverty is so widespread in most of the 20 sub-Saharan African countries endowed with extractive natural resources. The analysis pointed to a good deal of waste and inefficiency, but also to corruption. Studies like this provide us with in-depth understanding of the impact and scale of corruption.
The more we anyalze public sector projects and programs, looking for funding discrepancies, searching for opacity in contracting, seeking weaknesses in project implementation, so more detailed pictures of the scale and impact of corruption emerge. Those most able to purusue such analysis are locally-based non-governmental organizations. Today, there are hundreds of such NGOs across the developing world. They have precise knowledge. They have the skills to engage citizens. They have demonstrated results, as many TI national chapters can attest and is evident by looking at the evaluations of scores of small projects funded and advised by the Partnership for Transparency Fund.
Aid agencies provide relatively small funding to NGOs—and it is decreasing. They rarely listen seriously to what they have to say in so-called “civil society consultations.” Many aid agencies are reluctant to agree to substantive monitoring of their projects by NGOs (this is a positive example).
The first sentence of this important new book in its Preface states: “Governance and corruption remain at the heart of discussion around global development.”
That may have been true a few years ago, but I do not think it is the case today. Part of the reason may be the recognition within aid agencies that curbing corruption is difficult, it does not yield results swiftly and it measurement is complicated. Part of the reason is that there has not been enough high-profile discussion of the inadequacies of the approaches that aid agencies deploy.
So Kenny’s book should be seen as a starting point for what needs to become a robust discussion. In the early 1990s, a few of us waged a campaign to convince the aid agencies to recognize that corruption is a problem in development and to ensure that curbing corruption becomes a meaningful priority for these agencies. Now, it is time to have a new and substantive set of initiatives—and I hope the aid agencies will be constructive partners with CGD and others—to look at all possible approaches to addressing the needs of the victims, especially those who live in acute poverty, so that their basic human rights are secured and that they can live in dignity.
I agree with much of what Frank says. And where I disagree, it is worth noting our comparative credentials on the topic. But here a few reactions:
There certainly are a lot of incentives at donor agencies to “shovel out the cash”—I wonder if the receipts-monitoring process is in part a response to that incentive. While not particularly effective at reducing corruption, receipts monitoring precisely measures the shoveling. Results measurement (and in particular payment on results) is at least a distraction and at worst a positive block to getting cash out of the door.
I do think inequality is linked to corruption—in particular in the broad sense of systems being stacked against the average person. Inequality is about equal between rich countries and poor, and I take this as evidence corruption in this broad sense is not simply a “problem of poor countries.” That even though straightforward bribery is far more common in poor countries than rich ones.
I’d say that aid agencies are very focused on corruption, but very narrowly focused. They are spending a lot on financial and procurement oversight of their own projects and not nearly enough on tackling corruption at the country level.
Frank’s helpful and deeply informed reactions certainly demonstrate the benefit of an ongoing discussion. I’d be very grateful for any more reactions to the book, by email or below. And many thanks in advance!
At the Buzwagi and Bulyanhulu gold mines in Tanzania, and at the Port of Dar Es Salaam, around a thousand containers of copper-gold concentrate (a processed product between rock and refined metal) are stockpiling. They belong to Acacia Mining PLC, who operate the two mines, and are not moving because of a ban on concentrate exports that has been in place since the beginning of March.
In May, President Magufuli appointed two special committees to investigate the contents of 277 of the containers stuck at the port. The first committee reported that the concentrate contained around twice as much copper and silver, and eight times as much gold than was declared by the company (the main value of the concentrate comes from gold). They also detected a range of rare earths. According to their calculations, each container contains 28 kg of gold and is worth $1.36 million while information published by Acacia suggests that each container contains 3.3 kg of gold, 2.8 tonnes of copper, and 2.6 kg of silver and is each worth around $0.15 million. If the committees’ findings are accurate, the extent of the undervaluation would be enormous, amounting to almost $4 billion annually (one tenth of Tanzania’s GDP). The second committee scaled these figures up to cover 61,320 containers exported between 1998 and 2017, suggesting the true value of concentrate exports was $83 billion and that the government had lost $31 billion of revenue trade due to misinvoicing and transfer price manipulation. Acacia maintain that they have always declared all materials produced and paid all royalties and taxes that are due.
Credit: Maya Forstater (author), based on data from Mruma Committee Report and Acacia/SGS information
We should summon them and demand that they pay us back our money. If they accept that they stole from us and seek forgiveness in front of God and the angels and all Tanzanians and enter into negotiations, we are ready to do business.
The business in question is the demand that Acacia build a local smelting facility (the government’s stated aim for the ban on concentrate exports). In 2011, The Tanzania Minerals Audit Agency examined the viability of a smelter and concluded that it would not be profitable given the volumes and quality of concentrate involved. If the concentrate produced by the mines turned out to contain eight times more gold than previously thought, these calculations might look different.
However, the committee’s belief that they have uncovered a case of massive misinvoicing (i.e., misrepresentation of the value or quantity of exports) does not seem plausible for five reasons:
1. The findings suggest a massive scale of hidden metals production.
The committee’s reports say that the 277 containers (which represent around one month’s production) contain around 7.8 tons of gold. This is roughly equivalent to the total amount of gold Acacia reports that these two mines produce in a year. Acacia note that the committee’s findings on the amount of Iridium in the concentrate (16.9 tonnes annually), would be nearly three times global consumption of the metal. The findings for Ytterbium (9.8 tonnes annually), would be on par with largest producer in the world.
2. These findings are geologically implausible.
Acacia notes that the results imply that they produce (from Acacia’s three mines in Tanzania) more than AngloGold Ashanti produce from 19 mines, Goldcorp from 11 mines, and Kinross from 9 mines, and that this is implausible given the size of the mines. They also argue that economic Iridium concentrations are only found as by-products in certain types of mines, not in gold deposits of the type found at Bulyanhulu and Buzwagi, and similarly, that significant levels of rare earth elements such as Ytterbium are not found in this kind of deposit.
3. The committee’s analyses suggest an extraordinary conspiracy has undermined Tanzania’s efforts at monitoring minerals exports, as well as international financial regulations.
The Tanzania Mineral Audit Agency (TMAA) undertakes careful work to monitor minerals exports. Normally four samples are taken from every shipping container—one for Acacia (which is verified by SGS), one for the TMAA, one for the smelting company, and an umpire sample in case of disputes. Furthermore, Acacia is a FTSE250 company; it must comply with international regulatory agencies in the UK, Canada, and the United States, which require the company’s financial statements and figures to be audited in accordance with international standards. For Acacia to under-report its gold production and revenues would mean defrauding shareholders through an enormous global conspiracy.
4. The committee’s approach to pricing the concentrate does not reflect how the metals industry works.
The committees calculated a value for every element including trace elements such as tantalum, beryllium, and ytterbium, and bulk ones such as sulphur. However, smelters do not pay out for every element in the material, but only the ones they contract for, since the rest end up in the waste pile or eventually as “anode slime” by-products at the end of the copper refining process. Acacia say they are only paid for copper, silver, and gold (and MRI Group which buys the concentrate from them confirm this).
5. There is no sign of an additional $4 billion a year of unexplained sales in Acacia’s accounts.
Acacia’s shareholders, who have some skin-in-the-game to know what is going on, are not reacting like they have just found out that the company’s management have been defrauding them, nor that the company owns assets which are worth several times more than they thought.
While the committees’ findings are hard to believe, this doesn’t necessarily mean government isn’t justified in its concern that Acacia has not been paying enough tax. Between 2010 and 2015, Acacia paid $444 million in dividends to shareholders, despite not yet paying any income tax in Tanzania. OpenOil explains that generous fiscal terms are the primary cause, specifically, an additional capital allowance meant Acacia could deduct 100 percent of its $4 billion investment, plus a 15 percent margin, before paying any income tax.
$252 million was a “special” dividend following an initial public offering (IPO)—in other words, these funds went from new shareholders to Barrick Gold, not from the Tanzanian subsidiaries to all shareholders. However, the question of how profits to pay the rest of the dividend were available in London has never fully been answered. One possibility is that Acacia is engaging in “base erosion and profit shifting” via its Group Finance Company in Barbados. Acacia may be raising equity, and, through the Group Finance Company, providing it as intercompany loans to its Tanzanian subsidiaries. Because interest payment on the debt can be deducted from taxable income, the more debt the mines have the less taxable income they generate. Plus, interest payments are a way of shifting profits earned in Tanzania, to the Group Finance Company in Barbados. This practice of “earnings stripping,” could explain how Acacia financed the dividends. But, without access to disaggregated data for finance charges, it is not possible to know whether this theory is correct.
In Tanzania, there is significant risk attached to challenging the committees’ findings. The Minister of Mines and the chief of the TMAA were both fired following the first committee’s report, and a weekly magazine was ordered to shut down for two years after publishing an article questioning the role of previous presidents in negotiating the original mining agreements. The “Publish What You Pay” coalition of NGOs working on extractive industry transparency report has issued a general statement, but has not offered any analysis, while the Tanzania Extractive Industry Transparency Initiative has made no public statement.
It is not clear that compelling Acacia to build a smelter would be a win for Tanzania. Thomas Scurfield at NRGI warns that it would distract government attention and power supplies from other areas of the economy and might result in lower government revenues, not higher, if the marginal increase in export value it generates is offset by higher costs. Without balanced coverage of the issues related to revenues, and the economic prospects for smelting, Tanzania may end up worse off. To date, media coverage of the situation has been unbalanced, and potentially misleading.
Securing mining revenues is a major challenge for Tanzania, as with other resource-rich developing countries. Often governments know something is wrong, but lack the information, resources, and expertise to pinpoint the precise cause. However, it is vital that public debate is informed and critical, and that simplistic narratives portraying multinational mining companies as undertaking massive ‘illicit financial flows’ through widespread mispricing of ores and metals are not accepted without evidence. Governments should also avoid this trap at risk of raising public expectations of mining revenues to unsustainable levels.
">Acacia and the government are now sitting down to talks with the hope of reaching a “win-win” solution. Finding a way to unwind inflated expectations, build trust and effective, realistic public scrutiny will be critical to finding a solution which is not just win-win for the president and Acacia but also for the people of Tanzania.
">Alexandra Readhead is an independent advisor on international tax and extractive industries.
What impact does corruption have on development, and what’s the best way to stamp it out? In a new book called Results, Not Receipts, CGD senior fellow Charles Kenny offers a way to strengthen the case for aid and reduce corruption at the same time: focus on outcomes, rather than inputs.
Misunderstandings about the scale of multinational tax avoidance are common. Last week’s example of this was perhaps the largest: Premium Times reported that Nigeria loses $1 trillion a year to tax evasion by multinationals. The claim was syndicated, repeated, and retweeted without question, including by organizations working on illicit financial flows, and several Members of the European Parliament.
$1 trillion is more than double the size of Nigeria’s whole economy and suggests additional corporate profits of nearly seven times the whole economy. Surely it cannot be true.
Premium Times has since updated the article removing the claim, but the syndications remain. And this is not the first time the $1 trillion figure has appeared. The same figure was widely reported in Nigeria last year (although some papers tried to make sense of it by reporting the figure as a trillion Naira).
So where does the trillion figure come from? Is it in dollars or Naira? What could it mean? Why is it so readily repeated? And can the confusion be cleared up so that no one else falls into the same misunderstanding?
The source seems to be a 2016 statement by the Information and Culture Minister, Alhaji Lai Mohammed, which several papers reported verbatim:
Where multinational companies operate in more than one country, it's quite easy for them to move profit from one territory to another territory where the tax law is very favourable to them. And what has happened over the years is that the revenue companies have lost a lot of money. As at the last count, over 1 trillion dollar has been lost over a period of time. And the revenue companies have found that they were losing more money in terms of tax evasion and avoidance than what they were even receiving as grants from multinational agencies.
So it is not just a typo between trillions and billions or dollars and Naira. But the reference to “revenue companies” is unclear. And where did he get this huge figure from?
The sound is not sharp, but if you listen and look closely you can see the Minister is not saying “revenue companies” at all, but “developing countries” (at just after 50 secs.).
If you are a follower of these big numbers you may have figured out the likely source and what he was talking about by now; $1 trillion is a widely cited (but problematic) estimate of illicit financial flows from developing economies. It is not a figure about Nigeria. Or about tax losses.
So the origin story for $1 trillion figure is a case of bad lip reading. But the explanation for why it proliferated is because it reflects the belief that there are absolutely huge sums of money for development at stake from cracking down on multinational tax avoidance, and that major companies are engaged in massive misinvoicing. The figure itself may be ridiculous but these myths are serious—they undermine both trust in revenue authorities and businesses, overheat disputes, and make it harder to judge practical progress on improving tax systems and compliance.