Africa’s illicit financial flows

Illicit Financial Flows mean that Africa is the world’s biggest net creditor. The United Nations says these outflows are at least double the amount of development assistance the continent receives. A new panel will try and address the massive resource leakage – some say $50 billion a year, some much more.

The ‘High Level Panel on Illicit Financial Flows from Africa’, established by the United Nations Economic Commission for Africa (UNECA) was inaugurated on February 18th at the Sandton Convention Centre, Johannesburg.

The multinational panel is to be chaired by Thabo Mbeki, ex-President of South Africa, with Abdoulie Janneh, Executive Secretary of ECA as his deputy.  The members include human rights lawyers, businessmen, financiers and politicians from across Africa and beyond.

In the communiqué issued by the panel after the first working session, they agreed to come up with a communication strategy which will include a dedicated website on illicit financial outflows from Africa.

A technical committee is also going to delve further into the nature, scope, dimensions and impact on development of illicit financial flows and to feed this information through to the panel.

These outflows drain foreign exchange reserves, reduce tax collection, dwindle investment inflows and worsen poverty. The methods and channels are many and varied including tax havens and secrecy jurisdictions, over-invoicing, under-pricing, and different money laundering strategies.

The combination of a heavy debt burden and sustained illicit outflows of capital make Africa the world’s largest net creditor.

In the past four decades, Africa has lost US$1.8 trn through intricate scams involving western companies and local officials. The looting continues up to today and benefits the west while depriving Africa of development funds, says the Southern Times.

Its report – ‘The Trillion Dollar Con’ – looks at multinational corporations (MNCs) and their routine tax evasion, mis-invoicing, import over-pricing and under-pricing of exports.

Washington-based Global Financial Integrity (GFI) also shows how the West is the ultimate beneficiary of laundered money from Africa and Asia.

Africa registered 32.5 % growth in illicit financial outflows between 2000 and 2009 through trade mis-pricing.

GFI says falsified pricing is facilitated by tax havens and secrecy jurisdictions in offshore financial centres that have created space for billions of dollars in unseen and unrecorded proceeds to be moved across borders. The bulk of MNCs have corporate headquarters offshore and through “tax planning” devise ways to reduce or even totally avoid corporate taxes.

The UK hosts more than half of the world’s tax havens, such as those that come under the British Crown Dependencies (Jersey), British Overseas Territories (Cayman Islands, BVI, Bermuda) and members of the Commonwealth.

A UN paper titled “Tackling Ilfflicit Capital Flows for Economic Transformation“, presented to the African Union  in May 2011, reveals the top five African losers as Nigeria (US$89.5bn), Egypt (US$70.5bn), Algeria (US$25.7bn), Morocco (US$25bn) and South Africa (US$ 24.9bn).”Illicit financial outflows from the entire region (Africa) outpace official development assistance coming into the region at a ratio of at least 2:1,” the report says.

GFI estimates Africa’s annual outflows at $30bn but the African Union’s estimates are around $148bn, nearly four times the foreign aid received.

The UN Conference on Trade and Development (UNCTAD) in 2009 estimated the continent’s accumulated stock of capital flight between 1970 and 2004 at around US$607bn, almost three times the continent’s external debt over that period. UNCTAD’s report cited the example of Sierra Leone where capital flight was 425 % of the country’s GDP in 2004. In the DRCongo and Zimbabwe, capital flight was 344 % of GDP and 312 % in Burundi (2004).

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