Windhoek - Illicit financial flows (IFFs) continue to plaque African economies with the continent estimated to be losing US$100 billion annually.
Illicit financial flows have always been a major concern on the continent, but the only problem is that this was not documented.
The African Union and United Nations Economic Commission for Africa High-Level Panel on IFFs out of Africa in 2015 brought the issue of African IFFs to the fore.
The report estimated that Africa loses approximately U$50 billion due to IFFs annually. Further, this was considered to be an underestimate as transactional data was found wanting in most African countries.
According to the IFF panel, the 2013 African Progress report at the World Economic Forum, the continent was reported to be losing more through IFFs than it receives in aid and foreign direct investment.
Similarly, the Thabo Mbeki-led commission reported an annual average of US$73 billion left Africa between 2000 and 2015.
The report states that losses annually in recent years range as high as US$100 billion. Growth rates are at their lowest in more than 20 years, reflecting sharp declines in investments and trade.
For many countries, the long-term average has exceeded 10% of their recorded Gross Domestic Product (GDP), which inadvertently drains them of the necessary financial resources needed to achieve sustainable development goals.
Capricorn Group head of anti-money laundering, Njeri Siska, told The Southern Times this week that one doesn’t have to be well-read or learned to be aware of the rife corruption, tax abuse, and money laundering cases frequently courting headlines and news stations on the continent.
“However, the result of these gasping daily stories begs the question: We know it’s bad, but how bad is it? In addition to the consequences to the taxman, IFFs strain our continent’s capacity to strengthen governance, discourage transformation and undermine international development cooperation,” she said.
There are four main components of IFFs, namely laundering of the proceeds of crime, which also involve hidden transactions with illegal capital; corruption and theft of state assets, which also involve hidden transactions with illegal capital; corporate and individual tax abuse, which involves illicit or illegal transactions with legally obtained capital; and hidden ownership to hide conflicts of interest and to facilitate market abuse.
“Often money illegally shifted abroad is lost forever. This is primarily because some financial secrecy havens welcomed IFFs for decades until the recent pressure by the likes of the Financial Action Task Force to enforce morality and clean up IFFs forced them to open their books.
“In a sweeping sea of change, some global efforts such as the US Kleptocracy Asset Recovery (KAR) Initiative, the World Bank’s Stolen Assets Recovery Initiative and UN’s Office of Drugs and Crime are encouraging,” said Siska.
African government’s response to IFFs
Siska said Namibia was among other African countries that recognise the importance of tackling IFF, especially through money laundering.
“However, the SME Bank was reported to have lost approximately R200 million in dubious investments to South Africa. It cannot be negated that IFFs aid in widening the gap between developed and developing countries.
“On a positive note, according to the Transparency International Corruption Perception Index, Namibia has moved up the rank which is demonstrates positive efforts to curb corruption,” she said.
Various countries have taken steps to establish legislation, tighten existing laws and create anti-IFF mechanisms.
These reforms have also brought about additional requirements for the man on the street such as the establishment of a source of funds at onboarding and the de-risking (exclusion) of customers by financial institutions due to the increased compliance costs and risk of hefty sanctions.
Other regional efforts include membership with Inter-Governmental Action Groups against money laundering such as the Egmont Group and the Eastern and Southern African Money Laundering Group, a financial action task force regional body.
However, despite their efforts aimed at curbing IFFs and related problems, the magnitude of the challenges experienced by these institutions overwhelms their implementation capacities.
Further commendable initiatives that have led to the successful recovery of IFFs, include the curtailing of aggressive tax avoidance by multinational corporations in South Africa. Swiss officials have returned US$380 million siphoned by former Nigerian military ruler, General Sani Abacha, during his tenure and the return of US$145 million to source countries through the KAR initiative.
Noteworthy is that these examples pale in comparison with the amounts siphoned away and are yet to be recovered. Egypt is still unable to recover an estimated US$11 billion believed to have been transferred illicitly from the public purse during the era of the former President Hosni Mubarak.
“Anti-Money Laundering and Financial Crime Specialists alike can drive the effort of tackling IFFs by working hand in hand with competent authorities to proactively prevent IFFs and effectively identify the beneficial owners of all their legal entities. As for the general public, the call to action will be to report all suspicious IFFs to competent authorities for action i.e. if you see something, say something,” said Siska.