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Illicit Financial Flows

Illicit Financial Flows


In February, a high level panel of the UN  Economic Commission for Africa and the African Union Commission published a report on Illicit Financial Flows (IFFs) from Africa. The report indicates that African countries are losing more than US$ 50 billion annually to illicit financial outflows. Profits, resources and funds that should be invested in-country or consumed domestically end up offshore, invested in other parts of the world less needy of economic input. Extremely poor countries like the Democratic Republic of Congo (DRC), paradoxically with vast mineral wealth, can ill afford to lose 25% of their GDP to IFFs. A table on page 55 of the report illustrates how much more rapidly 34 African countries could achieve the Milennium Development Goal 4 of reducing child mortality rates if the IFFs were eliminated.


Another side of the same coin was seen later in February when confidential client details were leaked from the HSBC revealing how that British bank helps international clients to operate Swiss accounts below the radar of their respective national governments. This way African nations are cheated of vast potential tax revenue. Johannesburg’s Mail & Guardian conducted a brief analysis of some of these clients in Africa.  Topping the list is a single Eritrean who was banking US$ 695 million. Yet Eritrea is ranked as 182nd out of the 187 countries on the 2014 UN Human Development Index (HDI). Similarly Chad and the DRC are ranked among the bottom 10 of the HDI, yet have individual HSBC clients among the top 10 in terms of the amount they are banking. It is stretches credulity to breaking point to assert that these amounts are all legitimately gained.


Lest I be accused of being unduly critical of Africa, I hasten to state that this isn’t a problem in Africa alone. A 2014 OECD report shows that the same is happening all across the ‘developing world.’ The (British) Guardian reported (13 February 2015) that developing countries lose US$ 1 trillion annually to IFFs, and that this rate of cheating is increasing at about 10% annually. The OECD report was not a purely benevolent act of showing empoverished developing nations how much more they could generate in tax revenue if they kept better control of their corporate and citizens’ finances. Rather the report was written in the context of concern raised in ‘developed’ countries at their own loss of tax revenue due to offshore financial activity.


IFFs thrive on weak governance, in situations where there is little or no commitment to the common good, where the entrusted powers are willing to abuse their positions, where national and international institutions have little oversight or transparency, where the logic of the market trumps the exigencies of nation-building, in a climate where existing laws can be broken with impunity. Africa’s heavy reliance on income from natural resource extraction makes the continent particularly vulnerable to the IFFs, because export documentation for these resources can be easily falsified.


Clearly in conducting business in Africa, many businesspeople are pleased to exploit infrastructural lacunae. In many cases, conditions of trade are heavily weighted in favour of corporations or local elites who have acquired mineral rights or concessions to exploit natural resources. As ‘odious debt’ was re-negotiated and frequently cancelled around the time of the millennium Jubilee, so in the past decade, DRC has re-negotiated and occasionally cancelled ‘odious’ contracts which had been awarded by previous regimes, and which brought minimal benefit to the republic. However unfair these might have been, they were contracted between state authorities and legitimate companies, so do not technically qualify as ‘illicit.’


Whilst re-negotiating contracts might be a first step, one suspects that it may be merely cosmetic if it does not address the tendency to dishonest and criminal financial activities. The epithet ‘illicit’ in ‘IFF’ means that these finanical flows are conducted outside of already-weak laws, and thus criminal. Until structures are in place designed to ensure more equitable trade, and until the political will exists to enforce compliance, African countries will continue to fall behind in most development indices.


Peter Knox SJ

Hekima College, Nairobi