- Developed and developing countries remain concerned about illicit financial flows
- Outflows made up of commercial activities, criminal activities and corruption
- Inadequacy and non existence of appropriate institutional architecture exacerbate illicit financial flows
- African and global coalition must be formed to curtail illicit financial flows
Addis Ababa, 30 March 2014 (ECA) - Addressing the issue of, and curtailing, illicit financial flows to which Africa loses US$50bn a year require strong political commitment and leadership both on the African continent and globally, says the High Level Panel (HLP) on Illicit Financial Flows from Africa (IFF) in a Progress Report, which was submitted today by HLP Chairman and former South African President Thabo Mbeki to the 7th Joint Conference of Finance Ministers of the African Union.
In its report, the HLP says that IFFs are of concern to governments of developed and developing countries alike because of their implications for resource mobilisation, policy and legislation and international geopolitics.
The HLP was inaugurated in February 2012 and has ever since embarked on a round of regional and global consultations as well as country visits to raise awareness about IFF and meet stakeholders to discuss IFF, its scales, manifestations and impacts on African economies. The Progress Report summarizes the Panel’s findings on IFF and a final report will be made public in July 2014.
According to the Progress report, the bulk of IFF is made up of commercial transactions, tax evasion and laundered commercial transactions while criminal activities - including drug trafficking, racketeering, counterfeiting, contraband and terrorist financing – also are an important component of IFF. The outflows generated through bribery and abuse of office by public officials accounts also for a share of IFF.
African countries, especially those endowed with vast natural resources, often have to deal with very powerful multinational companies (MNCs), some of which having annual turnovers superior to those of countries in the continent. Some African countries’ uneven or non-existent institutional architecture to respond to IFF put them at a great disadvantage in their dealings with MNCs, the imbalance this creates giving MNCs “disproportionate influence over inward investment flows and negotiations of contracts, especially for the extraction of natural resources”. The situation exacerbates IFFs, which in turn impact on African governments’ fiscal policies and the transparency of financial transactions.
The Progress Report also says that criminal networks involved in money laundering, drug, arms and human trafficking resort now to “shady transactions and increasingly innovative means to carry out their activities. They have the ability to infiltrate and undermine State structures and occupy influential spaces in some African countries”, it adds.
The HLP has found corruption to be a cross-cutting issue across all categories of illicit financial flows and noted the key role played by private sector actors, for example through payment of bribes to public officials and by exerting undue influence on public processes via personal connections.
The consultations undertaken by the Panel have revealed widespread awareness about such illicit means of taking finances out of the continent. However, the general concern and complaint in this regard is about lack of capacity to address these matters.
IFFs have serious consequences for African development. The most obvious effects are the loss of investment capital and revenues that could be used to finance public services including infrastructure, education and health. The Progress Report says that without IFFs from the continent, the African Gross Domestic Product would have been at least 16% higher. IFFs undermine state institutions and public confidence in them as well as weakening the rule of law.
They also threaten stability and security by facilitating criminal activities within and across borders, such as the illegal trafficking of people, weapons and drugs. Equally pernicious is the temptation that African countries face to become tax havens and secrecy jurisdictions. This is the illicit financial outflow equivalent of the race to the bottom that occurs with regard to tax holidays.
The report concludes by saying that while the problem manifests itself in stark relief in Africa, the solutions require international cooperation, including by building relevant capacities on the continent.
ENDS
Issued on behalf of the High Level Panel on Illicit Financial Flows from Africa by:
John Kaninda
Communications Specialist,
Macroeconomics Policy Division,
Economic Commission for Africa
Tel: +251 11 544 5246