Despite the proliferation of international, regional, and national legal instruments and mechanisms that regulate the issue of illicit financial flows, Africa struggles to reverse the trend against these scourges that bleed its economies and act as a bottleneck to its development. According to a report commissioned by the Conference of African Ministers of Finance, Planning, and Economic Development, produced by the high-level panel on illicit financial flows from Africa, the biggest obstacle to development financing in Africa is the problem of illicit financial flows. It is estimated that these flows amount to between $50 billion and $80 billion annually, surpassing the level of foreign aid received by African countries (Report 2015).

From 2000 to 2015, the total amount of illicit capital fleeing Africa reached $836 billion. Compared to the total stock of Africa’s external debt, which was $770 billion in 2018, this makes Africa a “net creditor to the world.” While Africa received $29.7 billion in official development assistance in 2018, it simultaneously lost over $50 billion in illicit financial flows. The large-scale illegal money movements each year prevent developing countries from having the necessary resources to progress and build basic public infrastructure for the population.

According to a joint initiative by the United Nations Office on Drugs and Crime and the World Bank’s Stolen Asset Recovery Initiative (StAR), between $20 billion and $40 billion are diverted annually by corrupt public officials in developing countries and transferred abroad. These amounts primarily come from diverted public funds or bribes received in relation to public decisions, such as awarding public contracts or obtaining permits. In cases of corruption, the payments to corrupt public officials often originate from foreign multinational corporations from developed countries. In addition, improper commercial invoicing, transfer of multinational corporations’ profits, and offshore banking deposits to conceal crime proceeds or evade taxes deprive national treasuries of much-needed resources that could be invested in development.

The adverse effects of corruption on the economies of African states are well known. Corrupt practices worsen poverty, reduce government tax revenues, constrain spending on health and education, discourage foreign direct investment, or stifle new business creation. Furthermore, they create a fertile ground for organized crime and terrorism. Unfortunately, a large portion of money acquired in the poorest countries is transferred and held abroad, often in the wealthiest countries, in the form of cash, stocks or bonds, real estate, or other assets.

While the sources of illicit financial flows are indeed within the continent itself, the mechanisms for channeling funds often involve non-African private and public actors and are sometimes the result of policies and laws adopted by intergovernmental bodies and governments of other continents.

In February 2010, Equatorial Guinea was targeted in a report by the U.S. Senate. Titled “Keeping foreign corruption out of the United States: Four case histories,” the report examines how Teodorin Nguema Obiang Mbasogo, son of the Equatorial Guinean president, used the services of American lawyers and real estate agents to introduce over $100 million of suspicious funds into the country and serve his interests there, including buying a $35 million villa in California and a $38 million private jet. The report notes that this is not the first time the Obiang family has been investigated by a U.S. Senate task force. Similar cases are widespread worldwide.

Developing countries, especially those in Africa, lack institutional and administrative capacity in measuring illicit financial flows, regulating them, and enforcing existing laws and regulations. Therefore, multilateralism has a key role to play in reducing illicit financial flows, which are among the most serious threats to the contemporary world. The rationale for asset recovery is that, for centuries, developing countries have suffered greatly from the loss of vital resources due to illicit outflows of their assets, thus depriving these countries of the resources needed for economic development, social well-being, and political stability.

The return of assets to their countries of origin, especially in Africa, can have a significant impact on education, employment, health, infrastructure, and overall development. Asset confiscation and restitution are powerful tools and a panacea for sustainable development prospects in Africa. The resource needs of African countries for the provision of social services, infrastructure, and investment underscore the importance of eliminating illicit financial flows from the continent.

Recommendations to the Conference of States Parties to the United Nations Convention against Corruption to eliminate illicit financial flows from Africa:

To Africa’s partners:

1. We recommend enhanced collaboration and consistent engagement between Africa and major global players such as the United States and the European Union to improve transparency in the international banking system, inviting banks to share necessary information about bank assets (identity, asset origin, and country of deposit and depositors).
2. We recommend the IMF, the United Nations, the World Bank, etc., to assist African States in adopting measures and instruments to combat illicit financial flows and to place the issue on the global agenda, seeking greater coherence in the efforts undertaken for this purpose.

To African States:

1. Strengthen genuinely independent bodies and administrations responsible for preventing illicit financial flows.
2. Improve supervision of banks and non-bank financial institutions.
3. Establish a mechanism for analyzing the nature and extent of illicit financial flows from Africa and disseminate information to the public to raise awareness of the negative effects of illicit financial flows from Africa.
4. Develop mechanisms for sharing and coordinating information among various public institutions and administrations responsible for preventing illicit financial flows.

Author: Musa Nzamu ([email protected])