“The definition requires broadening because businesses are indulging in activities that, while not criminal, significantly impact domestic resource mobilization.” The world lacks a clear, universally agreed-upon explanation of illegal financial flows (IFFs), resulting in a myriad of interpretations.
Illicit financial flows encompass unauthorized or unethical financial exchanges across borders, including money laundering, tax dodging, and the financing of terrorism. These flows seriously threaten, particularly impacting developing nations.
IFFs, driven by corruption, tax evasion, organized crime, and money laundering, are seen as eroding public trust, siphoning resources away from sustainable development, and aggravating poverty. Such transfers result in significant revenue loss, notably in Africa, undermining local institutions, reducing private investments, and deepening inequality.
Organizations like the G20, World Bank, IMF, European Commission, and African Union Commission (AUC) are focusing intently on IFFs, aiming to define, confront, and curb these issues.
Yet, the focus often narrows to illegal activities like tax evasion, which sheds light and allows for law enforcement, but draws critique for letting broader illicit flows persist.
“A comprehensive definition of illicit financial flows is crucial for crafting measures that tackle not only illegal but also morally dubious financial activities, capturing the full scope of financial strains undermining Africa’s economic stability,” explained Ms. Mukumba.
Financial Drain
There is a proposal for the European Commission to adopt a broader developmental perspective on IFFs, encompassing deliberate tax avoidance aimed at reducing tax liabilities in an abusive manner, whether illicit or illegal, across borders.
This developmental approach ensures all facets of IFFs are covered, even if enforcing them proves more challenging.
The discussion around defining IFFs emerges as Africa loses approximately $90 billion each year to financial leakage, comparable to the most recent replenishment of the International Development Association. Furthermore, multinational companies’ tax avoidance and incentives result in an annual $220 billion loss.
Domestic Funds
These losses make up over half of the estimated $500 billion needed annually for African development funding.
“Illicit financial flows are robbing the continent of about $390 billion annually, roughly 75% of the required funds for African development,” stated Dr. Patrick Ndzana Olomo, acting head of economic policy and sustainable development at the AUC.
“Thus, tackling illicit financial flows is crucial as they hinder our capability to harness domestic resources and invest in productive sectors like agriculture, industry, and services, which are essential for inclusive growth and sustainable development.”
Ex-South African President Thabo Mbeki spearheads the fight against illicit financial flows (IFFs) from Africa, as leader of the African Union’s 10-member High-Level Panel on IFFs.
As billions drain from the continent, over 400 million Africans survive on less than $1.25 a day—the absolute poverty line. Africa’s GDP per capita is a mere $2,000, a fraction of the global average, as highlighted by Mr. Mbeki’s panel’s report, “Track It! Stop It! Get It!” Mbeki suggests Africa loses at least $50 billion annually in illegal transactions.
Some accounts propose that the continent might have forfeited upwards of $1 trillion over the past five decades. Main mechanisms facilitating IFFs include shady commercial activities by multinational corporations, drug trafficking, smuggling, and corruption such as bribery and embezzlement.
Edited by: Ali Musa
Axadle international–Monitoring
