Why combatting illicit financial flows must be Africa’s top priority

Illicit financial flows (IFFs) are notoriously difficult to measure. In 2020, UN Trade and Development estimated that Africa loses an $89 billion annually to illicit financial flows (IFFs), which is about 3.7 percent of the continent’s GDP. This staggering figure—surpassing the total annual foreign aid to the continent—represents more than just a financial loss; it is a theft of opportunities, resources, and hope. financial loss; it is a theft of opportunities, resources, and hope. 

These illicit outflows of money, often originating from tax evasion, corruption and trade mis-invoicing, deprive African nations of the means to invest in critical areas like education, healthcare, and infrastructure. They deepen inequality, exacerbate poverty, and weaken the social contract between governments and their citizens.

IFFs are not abstract figures; they represent stolen opportunities. Every dollar diverted offshore is a child denied education, a community left without healthcare, or a nation burdened by debt. As someone deeply engaged in advocating for transparency and justice, I see firsthand how the pervasive nature of IFFs erodes the very foundations of progress in Africa.

Imagine the vast improvements in education if these funds were available to build schools, train teachers, and provide learning materials. 

Likewise, hospitals could be equipped with more up-to-date facilities, healthcare workers could receive better training and remuneration, and hospitals could stock essential medicines, making healthcare more accessible.

Consider this: while millions of Africans struggle for necessities, recent research from Transparency International looking at 78 cases using data available from court records, leaked information, investigative reports and other public sources has found US$3.7 billion in corruption-linked African assets found hidden in wealthy nations.

 This systemic siphoning of resources deepens inequality within countries and across borders, leaving our continent more vulnerable to external shocks and less equipped to address global challenges such as climate change.

IFFs are not just an African problem; they are a global injustice. Advanced economies, often seen as models of fiscal discipline, play a significant role in this issue. Major financial centres have financial systems that make it easy for individuals and corporations to move money secretly. These systems include financial secrecy, poorly supervised banks and unregulated intermediary professions – such as lawyers, trust and company service providers, and real estate agents – who play an important role in cross-border corruption schemes. Their financial systems, filled with loopholes, enable practices that undermine sustainable development of African nations. 

Fortunately, African governments are making progress in addressing corruption and illicit financial flows. The ratification of the African Union Convention on Preventing and Combatting Corruption and the United Nations Convention against Corruption are steps in the right direction, demonstrating a collective commitment to transparency and accountability. More recent efforts to curb IFFs include setting up the Africa Union Sub-Committee on Tax and Illicit Financial Flows.

The committee is coordinating efforts among member states to develop a strategy for tax and another to curb IFFs; including collective positions for global reforms on IFFs. In addition, the regional body is moving to strengthen asset recovery mechanisms for countries in a bid to not only stop IFFs but also recover stolen assets by operationalising the Common Africa Position on Asset Recovery (CAPAR).  These conventions provide a framework for strengthening anti-corruption measures, improving governance, and promoting international cooperation to trace and recover stolen assets. 

Many African countries have also taken steps to establish anti-corruption agencies, financial intelligence units and introduce stricter legislation to close loopholes that enable illicit financial flows. Many have implemented robust public financial management systems and are utilising digital tools to enhance transparency and accountability in governance. Although these efforts indicate progress, they unfortunately remain insufficient when considered against the vast scale of the problem. Ultimately, the implementation of preventative measures, given the dynamic nature of corruption and IFFs, remains a weakness across the continent, particularly in the area of beneficial ownership transparency—that is, the disclosure of an entity’s real owner through a central public registry.

The reality is that illicit financial flows are deeply entrenched in a global system that enables its ubiquity. Weak international mechanisms allow wealth to be siphoned off through tax havens, shell companies, and complex financial networks. Developing countries often suffer the deficits of the global system exacerbated by the insufficiency of national legislation and the inadequacy of local institutional capacity.  

For Africa to effectively tackle IFFs, global mechanisms must be reformed to ensure greater transparency and accountability in international financial systems. This includes stricter regulations on tax havens, mandatory disclosure of beneficial ownership of companies, and stronger penalties for financial institutions and professionals that abet illicit financial activities. 

What is needed now is bold, coordinated action at every level across the region:

1. Increase transparency

• A regional standard on beneficial ownership transparency to harmonise rules across the region needs to be implemented. Beneficial ownership registers should be established with urgency in countries where they are lacking. 

2. Regulate Enablers

• Anti-money laundering rules for relevant professionals, requiring due diligence, and penalisation of facilitators with licence revocation and sanctions should be enforced. Bilateral working relationships between authorities across the region and the most important destination countries of IFFs should be supported. International frameworks must hold financial enablers accountable and eliminate the secrecy that fuels IFFs. 

3. Strengthen asset recovery

• Across the region, better asset data is needed to identify risks, boost financial intelligence resources, enhance cross-border cooperation, and prioritise confiscation and return of stolen assets. 

As Africans, we are at a crossroads. We can choose to let IFFs continue robbing us of our future, or we can rise to meet this challenge with bold action, and an unshakable belief in our ability to build a better, fairer continent.

The fight against IFFs is not just an economic imperative—it is the moral reckoning of our time.

By Robert Mwanyumba, Africa Regional Coordinator, Transparency International.