Journalists must ensure that COVID-19 response is no vehicle to steal public money

By Teresa Nannozi

It is hard to think about much when it appears as if everything is irrelevant in the face of COVID-19, a pandemic that has brought the fear of imminent death to our doorsteps.

But it is a relief that journalism in Uganda has been preserved from the lockdown as an essential service to maintain our link with the world — the case-counts, guidelines, daily evolving presidential directives, keep us tethered to a new normal. The anxiety of being confined without any idea what was going on in the world beyond is hard to imagine.

Keeping a healthy perspective is important for all of us, but doubly so for journalists because plenty of public resources are being channeled toward combating the pandemic.

A couple of weeks ago the World Bank released a report showing how its 22 most aid-dependent countries systematically lost funds to private bank accounts in tax havens.

Tracking the flow of funds over 10 years, researchers found that almost like clock-work, every quarter, as soon as World Bank released aid funds to poor countries, a respective amount was systematically and consistently transmitted out of these countries to private bank accounts in tax havens. Tax havens are countries notorious for helping the rich and powerful to hide money from their own authorities by offering secrecy, low or no taxation and freedom from regulation. In essence, impunity.

The report states that an aid disbursement equivalent to 1% of a country’s GDP (Gross Domestic Product) in a given quarter induced a 2% increase in haven deposits.

Uganda is one of the countries losing money to tax havens — $73 million (about Shs270 billion) in 10 years (1998-2009). In the context of national spending needs, this looks like a modest sum, equivalent to only about 10 percent of the national health budget of UGX 2.6 trillion (FY 2019/20). However, it is close to the Shs284 billion supplementary budget that the government obtained to finance the COVID 19 response measures. Much of the money will be borrowed (ironically in this case) from the World Bank. If previous World Bank money had been properly used at the time of its release, it would have paid for poverty reduction measures, perhaps setting up health systems that would have had the country a little better prepared to deal with the current crisis.

It is likely that that the amount reported is a gross underestimate, given that the report only assessed World Bank aid, which accounts for only a fraction of total foreign aid to Uganda.

On top of the list of destination countries for the lost funds is Switzerland, a leading haven with some of the strictest bank secrecy rules in the world. Switzerland is reported to account for 40% of the global private wealth management market, of which up to 95% is hidden from authorities in the owners’ home countries. Unsurprisingly, Switzerland also sits on top of the Financial Secrecy Index compiled by the Tax Justice Network, ranking countries whose systems facilitate the erosion of resources from poor countries through tax avoidance, tax evasion, trafficking, and as shown by the World Bank report, embezzlement of public funds.

This was an important report as, possibly for the first time, a figure was put on the amounts of money Uganda lost in tax havens. It debunked the false assumption created by the relative absence of Ugandan names in major leaks like the Panama Papers, Paradise Papers and others over the past few years, that Uganda’s corrupt were at least patriotic because they appeared to invest their loot at home.

Unfortunately, when it first came out at the beginning of March 2020, the eyes of the entire world (both journalists and readers) were already trained on only one story — COVID-19. Save a few mentions in publications like The Independent newsmagazine and a few online publications, it went unseen in the mainstream Ugandan media outlets.

This is understandable. COVID-19 has repurposed our lives to only one reality — to avoid getting sick, going to hospital, likely dying there because the health system is a mess.  However, this is a tunnel-vision we cannot afford.

Critical services necessary for our survival, like health care (testing, quarantine, treatment); relief provisions for the most vulnerable (especially food and hygiene products); law enforcement (including the constantly evolving directives of the president); amnesties (from loans, rents and charges); tax breaks being called for, etc., all cost money. Civil society organisations under the Tax Justice Alliance Uganda and Oxfam Uganda have made comprehensive arguments in this area.

Because state officials systematically embezzled public funds and stashed them away in secret bank accounts in tax havens over decades, the government now has to borrow money for the COVID-19 response — up to Shs1.6 trillion ($440 million), according to the Ministry of Finance.

“Who” are the culprits that own these private accounts in Switzerland, Luxembourg or any of the other tax havens? The report accuses “ruling politicians, bureaucrats and their cronies”, giving us a general direction where to look. But no names are named, largely because secrecy is the main service these jurisdictions offer their clients that not even the World Bank (let alone their own authorities) would get a name. In fact, it is said that the higher the haven deposits, the stronger the secrecy laws that conceal the identity of account holders. However, the general description does narrow down the list of possible culprits that need to be held accountable. How many ruling politicians, bureaucrats and their cronies would be powerful enough to have such consistent and unrestricted access to World Bank aid?

Journalists must remember that while the money already in tax havens may be beyond reach, the new COVID-19 response aid, including the expected new World Bank lending for this purpose, can be secured with close monitoring to ensure that once here the cash does not just bounce off to tax haven accounts.

The subject of tax havens is not complete without noting the World Bank’s own culpability in this matter, especially through its dealings with private sector investors.

An Oxfam study in 2016 found that up to 80% of funds from the International Finance Corporation (World Bank’s private sector lending arm) to countries in Sub-Saharan Africa were channeled through multi-national companies based in tax havens, notably Mauritius.

On one hand this was a function of global economic architecture: Tax havens are sovereign states free to set up any laws they want so long as they do not contravene international law. And companies (and individuals) are within their rights to set up shop in any country they see fit, including a tax haven. Short of any tax claims Uganda Revenue Authority might make, this is perfectly legal.

On the other hand, if the monies in question are public funds diverted from services, as those referred to by the World Bank report, this is criminal. Account holders should be identified and called to account.

Even now when we are obsessed with staying safe and flattening the curve, the corrupt should be given no room to get away with it.

 

Ms Nannozi is a journalist and media trainer focusing on business and economics.