By Chimezie Godfrey
The Chairman, Independent Corrupt Practices and Other Related Crimes Commission (ICPC) Prof Bolaji Owasanoye has said losses to commercial Illicit Financial Flows (IFFs) contributes 60% of corruption in Nigeria.
Owasanoye made the assertion Tuesday in Abuja, during a Hybrid Sensitization Workshop on “Revised Guidelines on Negotiation and Drafting of Contracts and Agreements By Government Parties to Prevent Corruption and Illicit Financial Flow and Sustainable Development”.
The ICPC Chairman said the government of President Tinubu has embarked on aggressive FDI drive to reboot the economy, create jobs, improve infrastructure, catalyse development and stabilise the polity.
This he said is the essence of governance as expressed in S.14(2)(b) of the 1999 Constitution as amended which provides that the security and welfare of the people shall be the primary purpose of government. Security in this wise includes economic, social, political and territorial and geographical security.
He noted that the noble pursuit of government for economic security would inevitably increase the quantum of agreements that Nigerian entities within the public and private sectors will sign with external parties.
The ICPC Chairman stressed that negotiated agreements must promote the security and welfare of the people otherwise they will be contrary to the constitution’s prescription, adding that poorly negotiated agreements will drive the country’s economic situation from bad to worse.
He lamented that losses to commercial Illicit Financial Flows (IFFs) contributes 60% of corruption in the country.
He said,”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.
“Since negotiation is so important it is expected that countries negotiate with their best team and equip them with guidelines, rules of the game and dos and don’ts. Furthermore, big ticket international commercial agreements are often tainted by mixture of legal and political factors and usually require greater sensitivity. The influence of politics is however never so dominant that the parties fail to sign a legal agreement.
“These factors warrants training negotiators of developing countries that the erroneous assumption that commercial agreements can be concluded and implemented mainly by diplomatic, political, compassionate, human rights or other considerations rather than by well drafted clauses that protect the economic interests of the parties is misplaced. Since the outcome of an agreement is binding legal obligation, it behoves negotiators to prepare themselves for legal outcomes and its implications on development rather than on sentimental considerations.”
Delivering the Key note address, the Attorney General of the Federation and Minister of Justice, Prince Lateef Fagbemi said corruption is a major challenge to the rule of law, stressing that the political system loses its legitimacy when power is used for private advantage, and that it depletes national wealth and erodes trust in the system.
Fagbemi noted the United Nation’s Agenda 2023 for Sustainable Development and the African Union’s Agenda 2063 both acknowledge that combating IFFs are interconnected and concurrent to development.
“The African Union in its publication titled: Domestic Resource Mobilization: Fighting Against Corruption and Illicit Financial Flows (2019) affirmed that the diverity of forms of WES requires diversity and a cocktail of approaches, meaning there is no one was all approach to combating corruption and illicit financial flows One thing however clear, there can be no sustainable development without stemming corruption and IFFs.
“The key is the methodology of approach. Experience h however shown that law and order approach alone is not sustainatde Effectiveness and efficiency require a nuance combination or well-tailored mixture of governance reforms, prevention and sanctions.
“It is estimated that Nigeria loses an average of $1-18 billion annually to illicit financial flows, more than 60% of which is due to commercial IFFs which would be largely prevented with capable negotiation, drafting, transparency and patriotic zeal.
“Consequently, the methodology adopted with this workshop is a preventive effort aimed at enlightening key stakeholders charged with the responsibility of negotiating contracts on behalf of Government, on the contents of the Revised Guidelines. This would hopefully deter corruption in negotiation and execution of Government contracts, which is part of the Federal Government’s Ministerial deliverables on Improved Governance for Effective Service Delivery,” he said.
The AGF emphasized the need for MDAs to develop capacity and competence in negotiating and drafting Government contracts.
He expressed his conviction that the revised guidelines would capacitate negotiators in negotiation of contracts and agreements for ministries, departments and agencies of the federal government.
“I am convinced that the “Revised guidelines on negotiation and drafting agreements by government parties to prevent corruption, illicit financial flows and ensure sustainable development” will set the stage to capacitate negotiators in negotiation of contracts and agreements for ministries, departments and agencies of the federal government towards the attainment/actualization of Sustainable Development and Agenda 2030 and government’s policy priorities,” he said.
In his goodwill message, Director General/Chief Trade, Ambassador Vonav Fred Agah, PhD, commeded the ICPC Chairman and his management for the production of these guidelines; and the efforts being made to disseminate them to the wider public and relevant stakeholders, particularly those Ministries, Departments and Agencies (MDAs) that may often be involved in the drafting and negotiation of agreements.
“I am happy to note that these guidelines also underscore the unwavering resolve to uproot corruption and ensure the prudent utilisation of public resources, thereby cultivating an environment that is not only conducive for sustainable economic growth and development, but also a better future for our country,” he said.
The Chairman, Presidential Committee on Fiscal Policy and Tax Reforms, Taiwo Oyedele lamented that Nigeria was deep in revenue, and debt crises, as he cautioned that if urgent action was not taken, it would spell doom for the country.
He said,”We are at a point today where you can say that Nigeria has a revenue crises and you will be right. If you don’t like that way and you say we have a debt problem you will not be far from the truth, or if you also say that the quality of spending is questionable you will not be wrong. Now when you have the combination of these three very important areas of our economy it calls for a lot of concern.
“Our revenue to GDP ratio as at end of 2021 is stands at about 10.86% and that is easily one of the lowest in the world. Our spending of course not surprisingly so, is only just about 13% to GDP. What this means is that even without corruption we will still struggle as a country. And you can only then imagine what it means if you add corruption to it. We don’t have a lot of money, the little we have we are not efficient in the way we spend them.
“Sometimes these spendings is not just about whether the money have been stolen, which does happen, it is about whether we have the right priorities.So, what is the point building an airport in a state where you don’t have a road from the farm to the market, where you do not have primary schools with covered roofs, no seats, you don’t have health centres for your people. Even when you don’t have wrong priorities what if the projects are delayed. The lawyers would say that “Justice delayed is justice denied”, it also means that “Value of benefit delayed is also value of benefit denied”. And we have seen that all over the place. We have seen roads being constructed for more than 10years.
“Quality of spending is also important. Our debts to GDP ratio has increased significantly over the past few years currently standing at 40% to GDP ratio. The more concerning aspect of that story is that the cost of servicing the debts is now in the ratio of 96%. So at the Federal government level just imagine what that will mean. 96kobo of every one naira (N1) that we earn, we use to service debt not that we are paying the debt. If you do nothing about this the outcome is predictable and that is not what we want for our country, so we have to do something and do it urgently.
“Sometimes when we have bad contract agreements is as a result of the contract being negotiated by people who are ignorant or self centered. Sometimes we have the combination of both ignorant and self-centred people. My view is that ignorance and self interest are equally devastating when you enter into any arrangement with either of them or both.
Oyedele noted that the real issues when it comes to default and capital flights includes unnecessary tax waivers, tax cost, tax clauses, risk of reputational damage, and lack of negotiation skills, among others.
He pointed out that one of the major challenges was that tax is treated as after thought. He said others include the issues of tax treaty provisions, framework for agreements and KPI regarding taxes, sanction and consequences managements, arbitration clauses and dispute resolution provisions, politics and diplomatic pressure, and negligence, vested or conflict of interest.
Speaking on the way forward, Oyedele stressed the need for standardized approach using templates and approved checklists constantly reviewed and updated. He advised that there should be the involvement of specialists and subject matter experts in the negotiation and drafting of contract agreements.
Among other recommendations for negotiators, he mentioned that they should check local requirements, there should be compliance with counterpart’s jurisdiction, and that the currency of payment should be in naira.