Combating Illicit Financing in Africa

On November 16, representatives from the public and private sectors gathered to discuss the issue of illicit financial flows (IFFs) and its impact on African nations, as well as key recommendations on how to effectively address and tackle this problem.

According to the UNODC and UNCTAD, African nations are losing substantial resources through IFFs — an estimated $88.6 billion dollars or the equivalence of 3.7 percent of Africa’s GDP. These flows differ across countries and regions, and may originate from several sources, such as illegal activities, tax avoidance, profit shifting, trade misinvoicing, corruption, and other activities. Regardless of their origin, purpose, or mode, they represent a considerable threat to stability and prosperity in the region and negatively impact governments, legitimate businesses, consumers, and society.

While deterring IFFs has been a longstanding mission and is particularly instrumental towards achieving the Sustainable Development Goals (SDGs), it is especially important in this time of global crisis due to covid-19. Governments are losing valuable funding that could otherwise be directed to sustainable development and health infrastructure efforts. And businesses who abide by the law and contribute to economic growth through legitimate trade, are severely impacted, an outcome that in a weakened global economy cannot stand.

The discussion of this private roundtable circled around finding an effective response to combating illegal trade in its many forms, ranging from the fraudulent trade of consumer goods, to even human and wildlife trafficking. It sought to explore the global challenge from a local perspective, accurately define challenges so that sustainable and effective solutions might be explored, and promote cross-sector collaboration that leverages the strengths of all sectors and stakeholders.

What can be done to address this problem?

• Fighting illicit trade -and successfully countering IFFs and its far-reaching consequences for governments, businesses and consumers- is fundamentally linked to securing good governance at the local level. Discussants connected a legacy of colonialism (and its associated abdicated accountability in governance) along with a sense that the resources being exploited are often, as one participant described, culturally seen as ‘god given’ and without direct ownership as fuel for IFFs in Africa. Eradicating corruption, raising awareness of the issue, and fostering the commitment of stakeholders in African nations are the first steps to building long-lasting solutions to illicit trade. There needs to be accountability, as well as leadership with political will to address this problem.
• Fostering collaborative efforts between the public and private sectors, together with civil society, is key to effectively develop anti-illicit trade plans that can counter the impact of illegal trade, in all its forms, on issues of economy, public health, environment, security, generation of decent employment and quality of life of the African population. Coordination amongst stakeholders is key to meaningfully understand, assess, and impact the networked aspect of IFFs. If relevant stakeholders associated with source, channel, destination, use, and players or beneficiaries are not integrated into the solution, the challenge will simply evolve around any temporary but incomplete solution. If one sector alone is left with the mandate to eliminate IFFs, solutions will similarly flounder.
• Recognizing the uniqueness of the issue in different African countries is a crucial step to advance our efforts to countering illicit trade. International coordination and collaboration, such as adhering to international instruments and treaties aimed at curbing illicit trade -like the WHO Framework Convention on Tobacco Control’s Protocol to Eliminate Illicit Trade in Tobacco Products, or the Convention on International Trade in Endangered Species of Wild Fauna and Flora- is critical, but it needs to be concretely embraced and operationalized at the national level. Similarly, different industries facing illicit trade require different interventions. For example, illegal wildlife and timber trade may be easily detectable across channels, but their regulatory capacity is less developed. Terrorist financing is confronted with a robust set of internationally approved enforcement tools, but is very difficult to identify at the source level.
• Dedicated resources that enable effective law enforcement controls need to be coupled with robust compliance systems, as well as the promotion of increased information sharing from various stakeholders. This information sharing and compliance system alignment extends across borders and pertains to both the public and the private sector. Industry wide and institutional efforts are necessary to help the private sector mitigate the increased costs of compliance, and privacy sharing frameworks are essential to facilitate the necessary data sharing across parties and nationalities. Tax havens and financial secrecy jurisdiction were called out against, and the disclosure of beneficial owners publicly accessible via a registry were seen as internationally required for Africa to more effectively confront IFFs.
• Leveraging new technology innovations to address the illicit trade problem is fundamental, as it can help to increase transparency and reduce pervasive corrupt practices. The acceleration towards a digital economy offers new tools and mitigation measures in the fight against IFF, and technology can remove some elements of human risk. 

Illicit financial flows are proving to be major obstacles for African countries to achieve a sustainable development. And it is organized crime that stands to profit from this illicit trade. The role of cross-sector, public-private partnerships in tackling this issue then becomes crucial, as it can ultimately help us counter illicit trade and its devastating effects on African societies and economies.