Addressing IFFs requires tackling imbalance in the international financial and trade systems, and confronting weak institutions
According to the Economic Development in Africa Report 2020 by the UN Conference on Trade and Development (UNCTAD), Africa loses about US$88.6 billion, 3.7 per cent of its gross domestic product (GDP), annually in illicit financial flows. The High-Level Panel on International Financial Accountability, Transparency and Integrity for Achieving the 2030 Agenda (FACTI Panel) report released in February 2021 cautions that IFFs — from trade misinvoicing, tax abuse, cross-border corruption, and transnational financial crime — drain resources from sustainable development, as well as worsen inequalities, fuel instability, undermine governance, and damage public trust.
The UN Office on Drugs and Crime (UNODC), in its Strategic Vision for Africa 2030 launched in February 2021, notes that illicit financial flows remain a key impediment to Africa’s attainment of the 2030 Agenda and the African Union Agenda 2063. Given the multidimensional and transnational nature of IFFs, significant domestic resources – illicitly acquired and channelled out – pose a continent-wide development challenge. Stemming the inflow and outflow of money-laundering linked to terrorism, organized crime, corruption and other crimes would make a significant contribution to economic growth, the vision states.
“Given the magnitude of illicit outflows, these resources, if recovered or retained, have immense transformative potential,” the FACTI report states, noting that tackling these leakages would enable developing countries to provide their citizens with basic social services, such as adequate water, sanitation, electricity healthcare, and housing. Curbing IFFs, according to UNCTAD, could almost halve the $200 billion annual financing gap Africa faces to achieve the sustainable development goals (SDGs).
Under-Secretary-General and Special Adviser to the UN Secretary-General on Africa, Cristina Duarte says while the systems that enable IFFs to thrive are well known, action to tackle them has been limited at national, regional and international level.
“Everybody knows that illicit financial flows are a shared problem between developed and developing countries, we are clear on the mutual accountability. Everybody knows the global enablers of illicit financial flows, among which are the key foundations of the international taxation system behind the IFFs; the selected mechanisms for tax evasion, tax avoidance and money laundering; the global actors of the network of tax evasion, tax avoidance and money-laundering; the data opacity across value chains and the special case of extractives behind the IFFs,” Ms. Duarte says.
The FACTI panel report aptly sums up this view, stating that “global finance is currently skewed, as gaps, loopholes and shortcomings in rules, and their implementation, allow tax abuses, corruption, and money laundering to flourish.”
“These illicit financial flows represent a double theft: an expropriation of funds that also robs billions of a better future. This situation undermines trust in public ethics, drains resources, pushes people into poverty and hamstrings efforts to tackle global challenges, including COVID-19 and the climate crisis,” the report adds.
Yet, despite this knowledge and the negative impact of IFFs, remedial action falls short.
The Strategic Vision for Africa 2030, points out that “a lack of data, together with the absence of a universally accepted methodology to monitor IFFs, limits understanding of both the size of estimated flows and the policy required to address them.”
However, Ms. Duarte notes that some of the challenges cited, such as limited data, lack of clarity on the concept of such financial flows, the absence of a uniform and consensual definition of IFFs and a deficit in global leadership to tackle the scourge, are excuses for inaction.
At the global level, Ms. Duarte says addressing IFFs requires tackling the imbalance in the international financial and trade systems, while curbing such flows at national and regional levels requires confronting weak institutions that have prevented Africa from exercising the necessary ownership over economic and financial flows, such as managing natural resources, particularly in the extractive industry.
Stemming the flow of money-laundering linked to terrorism, organized crime, corruption and other crimes would make a significant contribution to economic growth, the FACTI report says. It further acknowledges that African countries are increasing their ability to trace and recover laundered assets from human trafficking, corruption and wildlife crime, as well as other types of crime, with the forfeited assets being used to support development, including COVID-19 relief efforts.
However, the report notes that Africa still faces a multitude of challenges in repatriating stolen assets, with a wide gap between the levels of frozen or confiscated assets and those returned. The FACTI report adds that many practitioners lack the recovery expertise to enforce, prosecute and confiscate assets. In line with the AU Common African Position on Asset Recovery, effective, accountable and transparent institutions are required to effectively address corruption and accelerate the repatriation of assets stolen from Africa.
Sign up for free AllAfrica Newsletters
Get the latest in African news delivered straight to your inbox
Almost finished…We need to confirm your email address.To complete the process, please follow the instructions in the email we just sent you.
There was a problem processing your submission. Please try again later.
In fact, the FACTI report states, taking action to strengthen financial integrity would directly contribute to the realization of SDG 16, which calls for the promotion of just, peaceful and inclusive societies, including by providing access to justice and building accountable and inclusive institutions.
The COVID-19 pandemic has been the most disruptive phenomenon to impact the world in the last two decades. Yet, encapsuled within the crisis lies the opportunity to address some of Africa’s long-standing challenges and build a better continent, Ms. Duarte says, adding that this calls for collective efforts to seize the opportunities created by the COVID-19 crisis in Africa.
“Amidst the ongoing COVID-19 crisis, it is more important than ever to invest in and foster societies that are resilient to the threats of tomorrow. We can make this investment by working towards balanced drug control; stronger measures against transnational organized crime, terrorism and violence; protecting Africa’s resources from illegal exploitation; safeguarding Africa’s economies from corruption, economic crime and illicit financial flows; and more effective criminal justice systems and capabilities,” says Ghada Waly, UNODC Executive Director.
As an Amazon Associate, I earn from qualifying purchases. Amazon and the Amazon logo are trademarks of Amazon.com, Inc, or its affiliates.