Seal illicit finance loopholes to save Africa’s billions

Efforts to combat the outflow of illicit finance from Africa risk failing if loopholes that facilitate the haemorrhage are not sealed.

Global Financial Integrity (GFI), a Washington-DC based research and advocacy organization, said the establishment of a bilateral US – Africa Partnership to Combat Illicit Finance might be a move in futility if deficiencies that facilitate the illegal flows are not addressed.

The bilateral partnership was established during the US – Africa Leaders Summit in Washington-DC and is aimed to tackle the flow of illicit finance through which a staggering $55.6 billion is drained from the African continent annually.

The substantial outflows of massive resources from a continent that is just emerging from the shackles of doom in terms of political and socio-economic development is fueling crime, corruption and tax evasion.

“Illicit financial flows are by far the most damaging economic problem facing Africa. By announcing the creation of the US – Africa Partnership to Combat Illicit Finance, President Obama and African leaders have taken the first step towards tackling the most pernicious global development challenge of our time,” said Raymond Baker, GFI President.

He added that for the partnership to achieve the desired results, the underlying problem of trade misinvoicing that is at the heart of illicit outflows must be tackled.

GFI’s research has found out that most of the illicit outflows from Africa, totalling $35.4 billion, occur through the fraudulent over and under-invoicing of trade transactions, a trade-based money laundering technique known as trade misinvoicing.

“The misinvoicing of ordinary trade transactions is the most widely used method for transferring dirty money across international borders, and it accounts for the vast majority of illicit financial flows from Africa,” said Heather Lowe, GFI’s legal counsel and director of government affairs.

He added that while it is easy to place the blame on corrupt officials or transnational crime networks, the truth of the matter is that the bulk of the fraudulent trade transactions are conducted by normal companies, many of them major US and European companies.

Over the last decade, illicit outflows sapped 5.7% of Sub-Saharan Africa gross domestic product, which is more than any other region in the developing world. More alarmingly, outflows from the region are growing at an average inflation-adjusted rate of more than 20% per annum.

The massive haemorrhaging of resources from Africa is robbing the continent much-needed billions of dollars for investment.

According to Lowe, although the doing business campaign announced by President Obama is essential in increasing trade to boost economic growth across Africa, there is need for honesty and adherence to market values.

“The single most important step that wealthy nations like the US can take to help African economies curtail illicit flows is to trade legitimately and honestly with the continent,” he noted.

The US also needs to address the structural deficiencies of its financial system, which are also responsible for driving the outflow of illicit capital.

“For every country losing money illicitly, there is another country absorbing it. Illicit financial outflows are facilitated by financial opacity in tax havens and in major economies like the US” said GFI Policy Counsel Joshua Simmons.

He added the US is the second easiest country in the world—after Kenya—for a criminal, kleptocrat, or terrorist to incorporate an anonymous company to launder their ill-gotten-gains with impunity.


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