By Retlaw Matatu
Matorwa
United Nations
Economic Commission for Africa (UNECA) estimates the continent is losing US$50-60bn
per annum through illicit Financial Flows (IFFs). According to Economic Outlook
Report the figure represents 4% Gross Domestic Product (GDP) for the period
2003-2012. The report also noted that IFFs outpaced Development Assistance (ODA)
and Foreign Direct Investment (FDI) which averaged between USD 42.1 billion and
43.8 billion respectively. This level of financial loss impact negatively on developing
countries by reducing their domestic resources and tax revenue needed for
poverty eradication and provision of social services. Furthermore, IFFs related
activities remains a threat to regional economic, social and political security.
Illicit Financial
Flows involves the illegal cross border movement of money which has been
unlawfully earned, transferred and utilised. Common perpetrators
involved in IFFs activities include but not limited to; drug dealers,
government officials, traders, human traffickers, terrorists, multi-national
corporations, and financial institutions. These perpetrators exploit
sophisticated but poorly regulated financial and trading system to their unfair
advantage.
As a result, Sub Sahara Africa suffered the largest loss emanating from illicit
financial flows averaging 6% of its GDP in 2015. Africa’s economic giants South
Africa and Nigeria are losing averagely between US$209.22bn and correspondingly
US$178.04bn per annum, Liberia’s illicit outflows in 2015 were pegged at 61.6%
of the country’s GDP and Equatorial Guinea estimated to be approximately US$
4000 per person (GFI 2015). Whilst the continent grapples with IFFs losses, the
activities are escalating at an alarming average rate of 20.4% per year since
2012 (Trust Africa org, 2013).
According to African
Union (AU) and UNECA, large corporations are responsible for 65%, organized
crime 30% and corruption 5% of IFFs transactions in the region. Even though Corruption
is as low as 5% of illicit Financial Flows, its effect must not be underestimated.
Referring to the pertinence of curbing corruption to reduce IFFs; Khalil Goga,
a researcher with Institute of Security Studies noted that “Tackling corruption
is as important as stopping IFF’s in Africa.” Corruption is at the heart of
IFF’s in Sub Sahara Africa as it diverts public resources to private and
individual consumption. Private consumption has much lower positive multiplier
effects than public spending on social services. Proceeds of corruption or
criminal activities will generally be spent on consumption of luxury vehicles,
or invested in real estate, art, or precious metals (World Bank, 2006). The
social impact of a Euro spent on buying a yacht or importing champagne will be
very different from that of a Euro spent on primary education. The situation is
worse particularly, where resources are taken out of the country hidden somewhere
instead of benefiting the already ailing economy.
Illicit Financial Flows creates an underworld system
which pause a serious threat to regional peace and security. The loopholes in world financial systems and prevalent rate of IFFs
activities may be responsible for sustaining terrorism and organized crime. How
do terrorist groups such as Boko Horam, Al-shabaab and others able to secure
resources to arm and conscript others into their systems? How does organized
crime networks fund and buy their way through the justice systems, customs and
law enforcement agencies?
In essence, IFFs reduce
the ability of African countries to achieve their development goals, draining
the continent’s capital stock and shifting resources from more productive
activities with strong after-tax returns to less productive activities with
high pre-tax returns (Stephanie Keene, 2015). In this case, tax burden is
transferred to poor citizens and loss on social spending- as states no longer
receive equitable share of tax income. The poor remain poorer whilst inequality
increases.
Despite widespread concerted effort to curb IFFs in developing countries;
International financial institutions supposed to anchor financial integrity are paying huge fines for their involvement in IFFs related offences. In 2012
alone, HSBS was fined US$1.921 million, Standard Chartered Bank US$ 677 million
(BBC 2012; New York times 2012), ING US$ 619 million (United States department
of treasury 12a, 12b) and many other financial institutions such as JP Morgan,
Lloyds Bank, RBS (AN AMRO) and Riggs Bank have all been sanctioned for their
involvement in IFF’s irregularities. Frankly, these institutions are
benefitting a lot from this practice. The fact that they are able to pay such
huge fines and still remain afloat is an indication of the lucrative nature of
this business. Stiffer penalties and more restrictive approaches need to be
considered to discourage financial institutions to partake in this malpractice.
In addition, the absence of political will on the part of African
kleptocracy to curb illicit Financial Flows is derailing progress in this
regard. The reality on the ground suggests that African political and business
elites have unjustified deposits stashed in financial institutions in the west.
Spooner (2015) reported that Eritrea a
country which was ranked 182 out of 187 countries in the 2014 United Nations Human
Development Index (HDI) report – topped the list, with a single client banking
a whopping $695.2-million. The son of President Teodoro
Obiang of Equatorial Guinea was compelled to remit US$230 million worth of
assets and funds stashed in the United States and France. As a matter of fact,
for more than half a century the Alpine nation of Switzerland has built a reputation
as the world’s center for tax evasion, fraud, money laundering, racketeering,
safe haven and above all a staunch ally of corrupt African leaders and great
beneficiary of third world corruption ( Rakgomo, 2016). This is a worrisome
situation!
However, given the high levels of corruption, susceptibility to bribes
among law enforcement agencies, public officials, and compounded with
inadequate training- tightening the screws on IFFs is a mammoth but doable
task. Progressive and commendable efforts by African Union, United Nations and
civil society organizations such as Thabo Mbeki Foundation and Trust Africa can
only bear fruits in the presence of genuine commitment from the region. Protecting
the integrity and stability of international and regional financial systems,
cutting off resources available to terrorists and making it more difficult for
those engaged in crime to profit from their criminal activities can impact
positively on regional peace and security.
Curbing corruption and
bribery which further weakens the ability of judiciary, police and public
institutions from effectively discharging their roles and duties remains
central to this challenge. Above all, Africa must spearhead a lobbying and
advocacy initiative calling upon financial institutions from the west to adhere
to ethical financial practices based on transparency and accountability.
Ndomafungiro angu
@ blackSeptember 2016
