The World Must Fight Illegal Financial Flows

The time has come for the world to join hands to find a way of fighting the big thieves who have helped to destroy economies around the world through Illegal Financial Flows (IFFs) from their countries. And this must be done fast because Africa, especially is running out of time.

In doing so, we must fight the irony that keeps big thieves who engage in IFFs from jail. It is life’s ironical twist that, petty thieves, especially those who are forced by poverty to pilfer in order to get something to eat or feed their children, are those who are easily arrested, taken to court and jailed. The big thieves, who steal huge sums of money in the form of  IFFs and thus distort economies of many countries, are never caught because they are shielded by several schemes. Some have found their way into politics and so, have the protection of the political class.

It is not only individuals, corporate bodies are also engaged in this sinister affair. These corporate organisations use all forms of tricks to send out money that should have helped develop local economies. What is annoying is that they are assisted in the stealing spree by people who have been put in positions to fight these criminal activities.

One way that some African politicians and crooked businessmen are stashing stolen money outside of Africa is to use banking systems in countries such as Mauritius and Cayman Island to hide money they have illegally acquired. These monies run into millions of dollars and if officials could keep an eye on these activities to stop them, there would be no need for countries like Ghana to keep going for ‘peanuts’ as aid. The truth is there are Ghanaians who have over $50 million in tax havens and yet, watch the country go begging for small change to build roads and hospitals.

Three years ago, the UN Secretary General, World Bank Group President, Jim Yong Kim said Africa is suffering from IFFs from the elite who literally steal money from the continent through companies and corporations that avoid paying taxes, and called for  a global transparency effort to end the trend.

Global Financial Integrity (GFI) has IFFs as illegal movements of money or capital from one country to another and classified this movement as an illicit flow when the funds are illegally earned, transferred, and/or utilized.

It named some examples of IFFs, as a drug cartel using trade-based money laundering techniques to mix legal money from the sale of used cars with illegal money from drug sales; an importer using trade mis-invoicing to evade customs duties, VAT, or income taxes; a corrupt public official using an anonymous ‘shell’ company to transfer dirty money to a bank account in the United States and a human trafficker carrying a briefcase of cash across the border and depositing it in a foreign bank.

The Tax Justice Network (TJN) says IFFs are thriving because of Financial Secrecy, which it says enables an entity to refuse to share financial information with legitimate revenue and security authorities. It said, there are varying degrees of financial secrecy such as bank secrecy and corporate secrecy as well as non-cooperation, and said each of these forms of financial secrecy are present within the borders of all countries. Every country, is  therefore engaged in the practice of facilitating financial secrecy. Financial secrecy and its facilitation by secrecy jurisdictions often tend to be associated with movement of finances that have been obtained in a manner that is not necessarily legal.

The TJN said several years of research and data collection has revealed that secrecy jurisdictions are complicit in the generation, movement, and harbouring of illicit financial flows, of which a significant amount originates from developing regions including Africa. In Africa, for example, it is estimated that $80 billion is lost annually through IFFs, up from about $50 billion over the past two years.

When considered in the wider context of development finance, the dollar amount lost to IFFs from Africa outstrips the dollar amount in Official Development Assistance (ODA) and Foreign Direct Investment (FDI).

The facilitation of secrecy jurisdictions by some of these tax havens, erode the moral fibre of society and undermine the governance structures that are created to provide accountability, safety, and security to citizens.

Some officials of TJN have commented that financial secrecy in Africa is what is presenting new challenges in the fight against IFFs. They have in various blogs and studies pointed out that, when the  2018 Financial Secrecy Index (FSI) was launched in January this year, it revealed “an uncomfortable truth for many growing African economies.”

Tax Justice Network Africa’s (TJNA’s) Executive Director, Alvin Mosioma has described these tax havens as “a safe haven for the world’s dirty money- money looted from many poor countries across Africa. These funds would have been used to ensure that more people across the continent have access to basic rights like quality healthcare and education. There is need for more to be done to end financial secrecy. An end to tax havens is the beginning of greater openness and transparency in the corporate world for the benefit of the majority.”

Fortunately, the German international development organisation, GIZ has put in place pilot measures in selected countries and regions to initiate change processes, both in key areas for detecting and tracing IFFs and in international cooperation in criminal matters.

These pilot initiatives are intended to measure the impact of IFFs in the partner countries, in order to generate empirical knowledge, new approaches to combating IFFs and new forms of cooperation. These programmes are being promoted at regional and international level. The GIZ said experience from the countries when harnessed can be fed into national, regional and international discussions both by the partner institutions and by German development cooperation actors.

So far, the GIZ efforts are yielding some results. In Peru, the project has teamed up with the project on Citizen-Oriented State Reform to support the analysis of money laundering risks in various sectors and to assist in updating and implementing the national plan to combat money laundering.

It said, it is also collaborating with some national institutions on Supporting Good Governance to Strengthen Integrity and Accountability in Kenya. This is helping partner institutions in Kenya in developing capacity to detect and recover stolen assets.

In addition, the GIZ said it is also cooperating on a programme to support the African Tax Administration Forum in combating IFFs. In conjunction with the Asian Development Bank and the Organisation for Economic Co-operation and Development (OECD), the project has enabled the launch of a Law Enforcement Practitioners Network in Asia-Pacific and has promoted capacity development and regional networking of prosecution authorities.

The project has also joined forces with the projects on Regional Resource Governance in Fragile States of West Africa and Regional Cooperation for the Sustainable Management of Mining in the Andean Region to conduct analyses of IFFs in the resource sector, for example in connection with tax evasion and smuggling.

It is not an African problem, in May 2013 it was discovered that India, Malaysia and Indonesia had been fleeced of $517 billion through illicit financial outflows over the previous decade, a Washington DC based research and advocacy organisation, Global Financial Integrity (GFI) said.

In a report released to coincide with the G20 Summit in Petersburg, Russia, DGFI said, “India suffered illicit financial outflows of $123 billion, Malaysia hemorrhaged $285 billion in illegal capital flight, and Indonesia lost $109 billion in dirty money.

GFI which seeks to promote transparency in the international financial system, also said in  a report it produced in February this year that it also found that, Russia has “experienced illicit inflows and outflows totalling US$764.3 billion since the fall of the Soviet Union.”


Perspectives with Francis KOKUTSE


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