Illicit Financial Flows (IFFs)

Africa is unquestionably confronted with substantial development financing needs, which are further exacerbated by two independent, yet interrelated problems that are depleting the already scarce resources: illicit financial flows (IFFs) and a growing burden of unsustainable debt. To effectively tackle the complex challenges of Africa’s development; including achieving the SDGs, combating the effects of climate change, and resolving human rights issues; it is imperative to address IFF by promoting tax justice and to confront unsustainable debt through debt justice. Given the importance of establishing this link, this blog post delves into the challenges and nexus between IFF and unsustainable debt and provides high level policy recommendations.

In the last decade, there have been seven major leaks of financial documents in tax havens which have exposed the international web of financial flows, mechanisms to facilitate these flows and the major role players in these activities. In each leak, questions often arise on how both legal loopholes and illicit means are used to facilitate the outflow of funds from low- and middle-income countries to tax havens by corporations, wealthy individuals, and politically exposed persons (PEPs). These leaks are often the result of whistleblower-led investigations and the release of these financial documents has become a primary resource in understanding how financial corruption works globally. The effects of these leaks have seen heads of government sacked or resigned in some cases while little to no action takes place in other countries. However, what is undeniable is the role of whistleblowers is increasingly becoming central to curbing illicit financial flows (IFFs) especially as the global digital economy and stronger privacy-enhancing technologies make the detection of IFFs harder. Within Africa, very few countries have comprehensive national laws for whistleblowers despite the majority ratifying international agreements for the protection of whistleblowers. Using Nigeria, Kenya, and South Africa as case studies, this note reviews the regulatory landscape in the countries and the extent to which current laws and practices aid or hinder whistleblowing on IFFs.

There is no gainsaying the fact that Illicit Financial Flows (IFFs) constitute a major impediment to Africa’s sustainable development. In fact, IFFs have a direct impact on a country’s ability to raise, retain and mobilise its own resources to finance sustainable development. Its negative impact further includes draining a country’s foreign exchange reserves, reducing domestic resource mobilization, preventing the flow of benefits of foreign direct investment, and worsening insecurity, poverty and economic inequality.

Contributors to the symposium offer unique perspectives and draw on different theoretical and methodological approaches to the practice and scholarship related to IFFs in African states and beyond. Several themes were addressed by the contributors, including tax justice, technology, corruption, accountability, political will, repatriation, recovery of Assets, migration, whistleblowing, international investment, and real estate.

In summary, as stakeholders gather and discuss at the COP28 summit in Dubai, it is important for them to bear in mind that while debt-for-climate or ecological debt for fiscal debt swaps offers a promising approach to addressing debt and climate challenges simultaneously, they need to be implemented with careful attention to transparency, accountability, and integrity. Otherwise, it could become just another pathway to facilitate IFFs in Africa, which have the potential to undermine the fiscal benefits that should ordinarily result from these swaps.

As the AU enters its twenties, understanding and addressing its funding challenges must be embedded in the broader political economy of Africa and the world. Global fiscal justice will go a long way in enabling African agency through more self-funding and leadership in the AU's agenda-setting and programme implementation. The AU can and should balance the shouldering of a steadily increasing burden of funding itself with continued pragmatic partnerships. In so doing, the AU will be able to roll out its reforms without losing access to vital resources in the short-term.

Illicit Financial Flows (IFFs) are one of several impediments to achieving sustainable development in developing countries across the world. While there is no globally accepted definition of IFFs, there is global acceptance that IFFs undermine the efforts of developing countries to generate domestic revenues to finance their national development agendas. According to the United Nations (UN), developing countries face an estimated annual funding gap of $2.5 trillion to deliver on Agenda 2030. In Africa, the continent loses approximately $100 billion annually through IFFs that are generated in and moved from the continent to tax havens.