Illicit Financial Flows (IFFs) are plaguing the whole world, but in Africa the poorest populations are paying the highest price.
“Illicit financial flows represent an example of systemic inequalities as they significantly impact the poorest and most vulnerable groups,” underscores Munir Akram, Permanent Representative of Pakistan and President of the Economic and Social Council (ECOSOC).
The term IFFs broadly refers to cross border exchanges of value, monetary or otherwise, which are illegally earned, transferred or used. These flows originate from various sources, including revenues from illegal activities, tax avoidance, abusive profit-shifting, trade mis-invoicing, human and drug trafficking, corruption, and others.According to the United Nations Conference on Trade and Development (UNCTAD) in a published in September 2020, every year Africa loses about US$88.6 billion as illicit capital flight, equivalent to 3.7 per cent of the continent’s gross domestic product. The billions of funds lost annually to IFFs are almost equal to Official Development Aid (ODA) and Foreign Direct Investments (FDI) flows to Africa combined.
This amount translates into unbuilt bridges, erratic power supply, as well as limited access to health, education and broadband internet to name a few.
UN Under-Secretary-General and Special Adviser on Africa, Cristina Duarte, says “The estimated $88.6 billion that Africa loses annually in illicit financial flows is not just a figure. It should be looked at through the lenses of missed development opportunities, lost livelihoods and increased poverty.”
This, she says, should be seen in the context of the millions of people that could have been lifted out of poverty; the enormous number of job opportunities that could have been created for Africa’s burgeoning youth population; the thousands of hospitals and schools that could have been built; and how these all could translate into strengthening stability and cohesion for societies and communities on the continent.
“Illicit financial flows and corruption are inhibiting African development by draining foreign exchange, reducing domestic resources, stifling trade and macroeconomic stability and worsening poverty and inequality,” explains Mukhisa Kituyi, Secretary-General of UNCTAD.
He adds that confronted with high capital flight, tax avoidance and a marked dependence on corporate income taxes, African Governments face significant constraints to widening their tax base.
“Tackling illicit financial flows, however, will open the door to releasing much needed investments in education, health and productive sectors. African Governments – in concert with Africa’s private sector actors – should take the lead in strengthening stolen asset recovery, setting new standards for avoiding illicit flows and committing to more concerted actions to combat the negative impact of illicit financial flows on African economies,” Kituyi adds.
Besides the considerable amounts drained annually, IFFs represent lost opportunities. Once, combined they can become the tinder that fuels conflicts and threatens peace and security in Africa. The international community is determined to put an end to this scourge. Therefore, the fight against IFFs has been acknowledged by both the UN 2030 Agenda for (SDGs) and the African Union’s as a development priority.
Goal 16 of the SDGs calls for the significant reduction of illicit financial and arms flows, strengthening the recovery and return of stolen assets and combating all forms of organized crime. It also calls for the substantial reduction of corruption and bribery in all their forms and encourages the development of effective, accountable and transparent institutions at all levels.
of Agenda 2063 calls on the continent “to take full responsibility for financing its development” and in order to achieve this goal, “eliminate illicit capital outflows and promote the involvement of civil society organizations to track and bring back any illicit capital outflows.”
The international community’s resolve is there but results are what populations are longing for. Although there is no agreed definition of illicit financial flows, this does not prevent Member States from taking action in policy areas relevant to financial accountability, transparency and integrity.
In 2019, the President of the UN General Assembly and the President of the UN Economic and Social Council launched the High-Level Panel on International Financial Accountability, Transparency and Integrity for Achieving the 2030 Agenda (). This panel aims to improve the world’s chances of achieving sustainable development by making recommendations that both strengthen current efforts to combat IFFs, and close remaining gaps in the international system. The FACTI panel is not a watchdog group but has been tasked to review current challenges and trends related to financial accountability, transparency and integrity, and to make evidence-based recommendations on making systems more comprehensive, robust, effective, and universal in approach.
Global partnership for a global problem
The (AU Commission dedicated the year 2018 to “Winning the Fight against Corruption: A Sustainable Path for Africa’s Transformation,” in a concerted effort of the organization’s willingness to combat poor financial governance, misallocation of budget resources, obstacles to productive investment, and systemic increase of inequality across the continent. As part of the activities to support the objectives, the Commission, through its Department of Economic Affairs, published a illustrating best practices from various member states and partners on their efforts to combat IFFs.
The AU and its Members States are also in strategic partnerships for closer collaboration in addressing the existing and emerging challenges and gaps in the fight against the outflows. Such partnerships include the African Tax Administration Forum (), the Global Forum on transparency and exchange of information for tax purposes, and the Financial Action Task Force. In December 2020, the AU launched a �7 million (US$8.4 million) Multi Donor Action with the European Union and the German Federal Ministry of Economic Development and Cooperation. The joint action will enhance efforts to combat the scourge of IFFs on the African continent.
Recently and to support the AU and international community’s efforts in this fight, the UN Office of the Special Adviser on Africa, on 10 December 2020, in partnership with the African Union Permanent Observer Mission to the United Nations organized an event on: “AU Silencing the Guns Initiative - The Role of Illicit Financial Flows in Fuelling Instability in Africa.” With more than 250 participants from across the globe and from various walks of life, including ambassadors, grassroot level civil society organizations, academia and media representatives, the interest in the topic was palpable. For one obvious reason, if that problem can be solved a lot of other development priorities could be addressed. It is like a key that would unlock endless entangled possibilities.
The currency of trust
Now, the question is how can we stop these huge leaks and redirect these flows towards Africa’s Development needs? UNCTAD estimates the to reach the SDGs by 2030 in Africa is $200 billion per year, almost the combined amount of the IFFs and an improved tax collection. Right now, it is still too easy for warlords to have unobstructed access to illegally acquired financial resources. This well-oiled machinery supports all kind of illicit activities, leaving in its wake terrorist attacks, smuggling, human trafficking and conflicts on the continent. A simple answer would be to eliminate offshore safe havens which are often blamed for the situation. By providing storage and access to ill-gotten wealth at short notice, IFFs and secrecy jurisdictions encourage perpetrators of violence.
To put an end to this practice would require addressing the long chain of people involved, namely, lawyers, accountants, banks and also some lenient laws turning a blind eye on dubious origins of the funds. All participants agree that only a global response can address this global issue. As long as there is a single safe haven left on the planet where the IFFs can transit and prosper, no lasting solution is possible. It is a journey on which the international community is fully determined to embark and where the civil society, the academic institutions and the media can play their roles as watchdogs to keep their leaders accountable.
“These illicit flows rob Africa and its people of their prospects, undermining transparency and accountability and eroding trust in African institutions,” Kituyi stresses.
That confidence link between the institutions and populations must be rebuilt or reinforced. As Aksel Jakobsen, State Secretary of Norway states, “Transparency is the currency of trust.” And that currency is in short supply. In that regard, “We need to support and protect journalists, free media and civil society groups as they play a key role in promoting accountability,” he adds, further pointing out the close interlinkages between criminal activities, security concerns and economic corruption.
“Both developed and developing countries share the responsibility to address the systemic and institutional weaknesses that criminals and terrorists exploit to conduct illicit flows and hide proceeds of crime,” he concludes.