COMBATTING ILLICIT FINANCIAL FLOWS IN AFRICA THROUGH GLOBAL EFFORTS

IFFs as a development challenge for Africa In order to significantly improve its domestic resource mobilization efforts, Africa has to urgently address Illicit Financial Flows (IFFs). In order to significantly improve its domestic resource mobilization efforts, Africa has to urgently address Illicit Financial Flows (IFFs). IFFs are a huge drain on Africa’s resources, including tax revenues, and hinder the level of savings required to address key development issues. IFFs are a huge drain on Africa’s resources, including tax revenues, and hinder the level of savings required to address key development issues. These illicit flows derive from: These illicit flows derive from:  proceeds of tax evasion and laundered commercial transactions;  proceeds of criminal activities; and  proceeds of theft of public resources, bribery and other forms of corruption

Currently, Africa is estimated to be losing in excess over $50bn to $60bn in IFFs annually; Currently, Africa is estimated to be losing in excess over $50bn to $60bn in IFFs annually; These estimates may well be short of reality because; These estimates may well be short of reality because;  accurate data does not exist for all African countries,  estimates often exclude secretive forms of IFFs which cannot be properly estimated e.g. proceeds of bribery and trafficking in drugs, people, and firearms. These outflows are of serious concern given inadequate growth, poverty, resource needs and the changing global landscape of official development assistance; These outflows are of serious concern given inadequate growth, poverty, resource needs and the changing global landscape of official development assistance; Although Africa has been growing at an average of about 5% per annum, this rate is considered encouraging but inadequate; Although Africa has been growing at an average of about 5% per annum, this rate is considered encouraging but inadequate;

Impact of IFFs Weakening Governance - weakening public institutions and ultimately reducing the capacity of the state to provide public resources and welfare for the people. Weakening Governance - weakening public institutions and ultimately reducing the capacity of the state to provide public resources and welfare for the people. Development Consequences – high opportunity cost of lost revenues given the scale of the outflows which have an impact on growth and ultimately job creation. Development Consequences – high opportunity cost of lost revenues given the scale of the outflows which have an impact on growth and ultimately job creation. Discouraging Transformation and Transparency - by discouraging value creation, IFFs impact negatively on African aspirations for structural transformation. Discouraging Transformation and Transparency - by discouraging value creation, IFFs impact negatively on African aspirations for structural transformation. Undermining International Development Cooperation - global efforts to promote partnerships for aid effectiveness and development effectiveness are undercut by illicit financial flows. Undermining International Development Cooperation - global efforts to promote partnerships for aid effectiveness and development effectiveness are undercut by illicit financial flows.

Understanding IFFs Illicit financial flows can be defined as “money illegally earned, transferred or used” to enable it come to good grips with its assignment. Illicit financial flows can be defined as “money illegally earned, transferred or used” to enable it come to good grips with its assignment. It is generally agreed that there are three causes of IFFs in Africa. It is generally agreed that there are three causes of IFFs in Africa. I.Commercial activities, which arise primarily from business-related activities. II.Criminal activities which essentially keep the transactions out of the purview of law enforcement agencies or revenue authorities. III.Corruption: Although seen to be synonymous with public sector corruption such as bribery and abuse of office. The key role played by private sector actors like multinational firms is relevant.  For example through payment of bribes to public officials and by exerting undue influence on public processes via personal connections.

The Mosaic of Actors The issue of illicit financial flows is highly complex with many technicalities relating to origins, destinations, scale, modalities, drivers and. The issue of illicit financial flows is highly complex with many technicalities relating to origins, destinations, scale, modalities, drivers and actors. Some of these actors are implicated as perpetrators while others are actively engaged in combating IFFs. Some of these actors are implicated as perpetrators while others are actively engaged in combating IFFs. I.African governments - law enforcement and regulatory agencies II.The private sector - multinational corporations, international banks, and international legal and accounting firms are of particular interest because a lot them engage in illicit financial flows. III. Civil Society Organizations (CSOs) IV.Criminal Networks

Global Actors: Global Actors: I.Non-African governments - Apart from helping to set a global norm against illicit financial flows, non-African governments have a key role to play in assisting African countries to acquire the capacities to fight the scourge. II.International organizations - Different entities such as the OECD, World Customs Organization, and Financial Action Task Force are working on different aspects of illicit financial flows and from different perspectives.

Drivers & Enablers of IFFs Illicit financial flows are driven by a number of ‘push’ and ‘pull’ factors. Illicit financial flows are driven by a number of ‘push’ and ‘pull’ factors. Push Factors: Push Factors: I.Poor governance II.Weak regulatory structures III.Tax incentives Pull Factors: Pull Factors: I.Financial secrecy jurisdictions and/or tax havens

On-going Efforts to Curb IFFs National and Regional Efforts: One such effort to curb the growth of illicit financial flows is the ‘whole of government approach’ promoted by the Oslo Dialogue of the OECD which covers a wide range of issues and related institutions pertaining to IFFs including tax, customs, law enforcement, anti-corruption, financial regulation and prosecuting authorities. One such effort to curb the growth of illicit financial flows is the ‘whole of government approach’ promoted by the Oslo Dialogue of the OECD which covers a wide range of issues and related institutions pertaining to IFFs including tax, customs, law enforcement, anti-corruption, financial regulation and prosecuting authorities. Challenges at the national and regional levels include the; I.lack of adequate regulatory framework; II.lack of adequate funding and reliance on unpredictable foreign assistance; III.lack of technical and human capacity to deal with crime perpetuated by sophisticated individuals;

Global Efforts: One key principle that is emerging with regard to tackling IFFs at the global level is the exchange of tax information between countries. One key principle that is emerging with regard to tackling IFFs at the global level is the exchange of tax information between countries. The automatic exchange of information (AEOI) for instance, is increasingly favoured by developed countries including the OECD. The automatic exchange of information (AEOI) for instance, is increasingly favoured by developed countries including the OECD. At the global level, some of the key items relate to transparency, which encompasses issues like; At the global level, some of the key items relate to transparency, which encompasses issues like; I.availability of information relating to compliance with the arm’s length principle; II.country-by-country reporting; III.asset recovery;

Emerging Issues Illicit Financial Flows from Africa are increasing. Illicit Financial Flows from Africa are increasing. The issue of Illicit financial flows is ultimately a political one. The issue of Illicit financial flows is ultimately a political one. Transparency is important for tackling illicit financial flows. Transparency is important for tackling illicit financial flows. Commercial routes of illicit financial flows need closer monitoring. Commercial routes of illicit financial flows need closer monitoring. African countries depend on mainly on their extractive industries. African countries depend on mainly on their extractive industries.

Conclusion The necessity of curtailing illicit financial flows cannot be overstressed. The necessity of curtailing illicit financial flows cannot be overstressed. High and increasing illicit financial flows from Africa impact on development and a global consensus in tackling the problem is required. High and increasing illicit financial flows from Africa impact on development and a global consensus in tackling the problem is required. Tackling the issue of illicit financial flows requires concerted efforts by countries of origin and destination countries alike. Tackling the issue of illicit financial flows requires concerted efforts by countries of origin and destination countries alike.  the legal and financial approach must be transparent  the international asset recovery regime integrated, in an effort to curb these outflows and unlock the much-needed resources.

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