07 Aug 2019

IFFs and money laundering / Civil society key in fighting IFFs

Financial crimes are rife in West and Central Africa, but a more active civil society can change that.

A meeting in March on combating illicit financial flows (IFFs) in West and Central Africa concluded that civil society needs to play a more active role in this fight. The meeting was held in Dakar, Senegal, and convened by TrustAfrica, a private grant-making foundation.

There is no universal definition of IFFs, but they are referred to as ‘cross-border transactions of money illegally earned, transferred or used’ and the ‘financial side of criminal activities’. Participants and speakers at the meeting included West and Central African representatives of civil society, including various non-governmental organisations (NGOs), the media, and government officials. They provided indications of the extent of IFFs in the two regions, and recommendations for strengthening the role of civil society organisations in combating this scourge.

Citing sources like the 2015 Report of the High-Level Panel on IFFs (which was commissioned by the African Union and United Nations Economic Commission for Africa, also known as the Mbeki Report), participants noted that IFFs cost Africa between US$50 billion and US$100 billion each year. But measuring IFFs remains difficult due to their secretive and opaque nature. Civil society could work with actors from government, academia and the private sector to translate IFFs into accessible language for the general public, and drum up citizens’ support and engagement.

West Africa, the continent’s most affected region, accounts for 40% of these estimated amounts. In Central Africa it is about 10%, according to Jean Mballa Mballa, executive director of the Cameroon-based African Regional Centre for Endogenous and Community Development. He was quoting the Specialised Technical Committee on Finance of the African Union.

IFFs cost Africa between US$50 billion and US$100 billion each year

Trade, mining, petroleum and agriculture are the sectors most affected by IFFs in the two regions. It is not surprising, then, that Equatorial Guinea and the Republic of Congo, whose economies depend on the extractive sector, are the countries most implicated in IFFs in Central Africa, Mballa Mballa noted.

Participants explained that IFFs in West Africa and Central Africa occur through a wide range of complex mechanisms using legal loopholes. In addition to money laundering, the issue of tax avoidance – often perpetrated by multinational companies – was also highlighted. Strategies include over-invoicing of imports and under-invoicing of exports, transfer pricing, branding and management fees, and intergroup loans instead of equity. The use of intermediary countries and tax havens to transfer invoices also enables IFFs. These methods affect 65% of financial movements – both licit and illicit. They have an impact on the delivery of social services and infrastructure development, explained Briggs Bomba, Programme officer of the Zimbabwe Alliance anchored by TrustAfrica speaking at the meeting.

As elsewhere around the world, IFFs affect development in West and Central Africa. Oumar Diallo, a representative of Senegal’s Ministry of the Economy, even attributes Africa’s status as ‘a rich continent with poor people’ to IFFs. These financial crimes ‘plague economies, compromise growth and constitute the basis of a financial delinquency’, he added.

This translates into a gap between the potential for wealth creation and actual living conditions of citizens. The mining sector is a clear example, noted Ibrahima Aidara of the Open Society Initiative for West Africa. Across the two regions, basic infrastructure (such as schools) and services (such as access to medical facilities and employment opportunities), are lacking – partly as a result of IFFs, Aidara stressed.

In Central Africa, information and data about the extent and impact of IFFs are almost non-existent

But addressing IFFs in West and Central Africa remains challenging for institutional actors such as the Inter-Governmental Action Group Against Money Laundering in West Africa (GIABA), the body responsible for facilitating the adoption and implementation of anti-money laundering legislation and policies under the Economic Community of West African States. For GIABA, defining conceptual issues, and loopholes in legal systems are primary constraints on its work. Tracking IFFs and repatriating funds also hinder the fight against these crimes.

Nigeria is a prominent example of the difficulties that countries in the region face in recovering stolen funds – due to both the internal challenges in the countries where the funds come from; and legal hurdles in the countries harbouring those funds. Since 1998, the Nigerian government has struggled to repatriate funds stolen by the late military ruler, Sani Abacha, and hidden in countries such as Switzerland, the United States and the United Kingdom. The sums repatriated since 1999 are impossible to quantify with certainty. These difficulties also reveal the gaps in international cooperation on IFFs.

Central Africa faces even greater challenges. Information and data about the extent and impact of IFFs in the region are almost non-existent. Like West Africa, the region has a Task Force on Money Laundering in Central Africa (GABAC). But GABAC has not carried out a regional study on IFFs, which could shed more light on this issue.

Both GIABA and GABAC are affiliates of the inter-governmental Financial Action Task Force (FATF), a global anti-money laundering and financial crimes watchdog based in Paris, France. FATF, which sets standards on financial transparency, has faced criticism for not ensuring that its recommendations contribute to reducing crimes effectively. Instead, critics say it places a burden on states, the private sector and NGOs to implement its standards without guidance or evaluation.

Attempts to repatriate funds back to African countries point to gaps in international cooperation on IFFs

Given the limited impact of global and institutional efforts to address IFFs, the TrustAfrica meeting recommended a shift in strategy, essentially to focus on local and regional solutions in West and Central Africa and comprehensive reforms of the financial system. Governments have a key role to play in addressing this highly technical problem by setting up reliable tax systems. But participants stressed the need for greater and more coordinated civil society involvement in efforts to combat IFFs.

Specifically, participants recommended building on TrustAfrica’s ‘Stop The Bleeding’ initiative, which was launched in 2015 to fight IFFs on the continent. Many members of the initiative, which is a loose coalition of NGOs and professional associations, were present in Dakar.

The meeting encouraged these civil society actors to be more strategic and specific in their actions. Particularly, it  tasked them with undertaking more research, knowledge management and capacity building for NGOs, grassroots organisations, government and regional bodies, and the media, in addressing IFFs. Finally, the meeting recommended focusing on the Central African region in particular, where the scope and impacts of IFFs remain under-researched and unaddressed.

Agnes Ebo’o, ENACT Regional Organised Crime Observatory Coordinator – Central Africa


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