James K. Boyce and Léonce Ndikumana

This is part 4 of a five-part series, drawn from Political Economy Research Institute (PERI) working paper No. 361, “Strategies for Addressing Capital Flight,” by James K. Boyce and Léonce Ndikumana, available here. The paper is forthcoming in Capital Flight from Africa: Causes, Effects and Policy Issues, S.I. Ajayi, and Leonce Ndikumana, eds. (Oxford University Press, 2014), accessible here.

Illicitly acquired wealth that has been transferred abroad can be recovered and repatriated via the legal process known as “stolen asset recovery.” In the period from 1995 to 2010, approximately $5 billion was recovered and repatriated in this manner worldwide. Although this is a modest amount compared to the total magnitude of capital flight and illicit wealth, the sums involved are by no means inconsequential for the authorities who have successfully recovered stolen assets. For example, Switzerland has repatriated to Nigeria $700 million of assets held in Swiss bank accounts by former military ruler Sani Abacha and his family.

The importance of stolen asset recovery efforts go beyond the amounts successfully recovered. These efforts can have a demonstration effect, acting as a deterrent against future capital flight. They may encourage voluntary repatriation of some flight capital, and even payment of attendant tax penalties, if this alternative comes to be seen as preferable to the outright seizure and forfeiture of the entire amount of assets in question. Similarly, the “naming and shaming” that accompanies asset recovery can have a deterrent effect on banks and other institutions that collaborate in the illicit transfer and sequestration of stolen funds.

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When 21 Countries Opposed World Bank Plans for an Investor-State Dispute Institution

Robin Broad

Fifty years ago this fall, at the 1964 World Bank annual meeting in Tokyo, 21 developing-country governments voted “no” on the convention to set up a new part of the World Bank Group where foreign corporations could sue governments and bypass domestic courts. It was to be called the International Centre for Settlement of Investment Disputes (ICSID). The 21 included all of the 19 Latin American countries attending as well as the Philippines and Iraq.[1]

The historic vote was dubbed El No de Tokyo, or the Tokyo No.[2] It could well be the largest collective vote against a World Bank initiative ever. And perhaps the one time that all Latin American representatives voted “no.”

So I write in part to toast that Tokyo No on its fiftieth anniversary. But I also write because it is time to recognize that the 1964 “no” vote has been vindicated by history.

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When 21 Countries Opposed World Bank Plans for an Investor-State Dispute Institution

Robin Broad

Fifty years ago this fall, at the 1964 World Bank annual meeting in Tokyo, 21 developing-country governments voted “no” on the convention to set up a new part of the World Bank Group where foreign corporations could sue governments and bypass domestic courts. It was to be called the International Centre for Settlement of Investment Disputes (ICSID). The 21 included all of the 19 Latin American countries attending as well as the Philippines and Iraq.[1]

The historic vote was dubbed El No de Tokyo, or the Tokyo No.[2] It could well be the largest collective vote against a World Bank initiative ever. And perhaps the one time that all Latin American representatives voted “no.”

So I write in part to toast that Tokyo No on its fiftieth anniversary. But I also write because it is time to recognize that the 1964 “no” vote has been vindicated by history.

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Patrick Bond

An impression is forming that the South African government is hostile to global business thanks to its recent cancellation of a few bilateral investment treaties (BITs). With the World Trade Organisation (WTO) stagnating, BITs have protected foreign firms from expropriation or other politically related financial harm.

Boston University political economist Kevin Gallagher, for example, argued last week that along with Ecuador, South Africa “leads by example” when it comes to fighting transnational corporate (TNC) domination of the BITs’ arbitration panels, where weak states’ sovereignty is usually lost.

But look a bit more closely at how demands for protection of TNC profits are made and won in South Africa, using class analysis. At stake is whether state sovereignty can be maintained against an international arbitration regime that typically favours the TNCs.

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James K. Boyce and Léonce Ndikumana

This is part 3 of a five-part series, drawn from Political Economy Research Institute (PERI) working paper No. 361, “Strategies for Addressing Capital Flight,” by James K. Boyce and Léonce Ndikumana, available here. The paper is forthcoming in Capital Flight from Africa: Causes, Effects and Policy Issues, S.I. Ajayi, and Leonce Ndikumana, eds. (Oxford University Press, 2014), accessible here.

Curbing trade misinvoicing and transfer pricing

A substantial amount of capital flight from African countries occurs through the underinvoicing of exports and the overinvoicing of imports (Ndikumana et al., 2014). When a firm understates the price and/or quantity of exports on invoices submitted to the African authorities, it can retain abroad the difference between the true value and the declared value, rather than surrendering the full amount of its foreign exchange earnings to the central bank in return for local currency. When a firm overstates the true value of its imports, it can obtain extra foreign exchange to send abroad, and again retain the difference in foreign accounts.

Strategies to curb trade misinvoicing must include interventions on both sides of trade transactions; that is, both in Africa and in trading partner countries. African governments need to strengthen trade regulation and exchange control mechanisms to better track international trade. The governments of Africa’s trading partners need to cooperate in enforcing transparency in international trade and combating corporate sector corruption. The automatic sharing of invoice data submitted to trading partners’ customs authorities would make it possible to identify discrepancies in the prices and quantities recorded on both sides of trade transactions. In addition, the African trader who files a falsified invoice often has a cooperating partner overseas who may corroborate inaccurate information and remit the hidden funds to designated accounts. Africa’s trading partners can assist the continent by establishing and enforcing regulations and laws that make such complicity costly.

Transfer pricing poses a different set of challenges, since it cannot be detected by the comparisons of invoices submitted to the customs authorities of the originating and receiving countries. Instead, the same fictive price is recorded at both ends of the transaction, so as to relocate profits to low-tax or no-tax jurisdictions, thereby lowering the firm’s overall global payments of taxes.

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Sunita Narain

In my previous article I wrote that India should demand an ambitious climate change deal, because we need the world to stay safe—below the guardrail of 2°C rise in temperature. I also said that for the deal to be effective, it is necessary to ensure that every country has the right to development but within the planetary limits. In other words, we must operationalise equity, a prerequisite for global cooperation on climate change.

But at times a week can be a long time for international negotiations that have been stuck for 20 years. Last week, the US and China signed a bilateral agreement to cut greenhouse gas emissions. Western commentators have been ecstatic, lauding the deal as both historic and ambitious. With China in the bag, India is the target. It is already painted as the bad boy in climate change negotiations. The question on the minds of US-based journalists and NGOs is: when will India agree to cut its emissions?

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