Africa losses $88.6 billion to illicit financial flow, says UN
By Fredrick Wright
A recent report by the United Nations Conference on Trade and Development (UNCTAD) on economic development in Africa has found that an estimated $88.6 billion leaves the continent as illicit capital flight.
The UNCTAD said the sum was enough to finance almost half the annual financing gap of $200 billion that the continent faces to achieve the Sustainable Development Goals (SDGs),
The report also showed that African countries with high Illicit Financial Flows (IFFs) spend on average 25% less on health and 58% less on education.
IFFs refer to the illegal movement of money from one country to another. This occurs not only through organized crime and trade in illegal goods, but also through illegal and illicit tax and commercial practices, such as trade misinvoicing, profit shifting and the transfer of funds to offshore destinations.
UNCTAD’s chief statistician, Steve MacFeely, said: “Measuring IFFs is a challenge for developed and developing countries alike, and the lack of statistics undermines policy action with costly consequences,”
UNCTAD however, said it was working with national statistical offices to better measure the scale of illegal movements of money across borders to inform firmer policy action.
As the world frantically searches for the funds needed to recover from the COVID-19 crisis and achieve the United Nations Sustainable Development Goals (SDGs), concerns remain that billions of dollars of illicit financial flows (IFFs) will slip through the cracks this year.
“The pandemic has made it even more urgent to track illicit financial flows. Without resources, countries will not be able to achieve SDGs, and progress that has been made may even be reversed.” MacFeely said.
UNCTAD noted that the urgent task of tackling IFFs is hindered by the fact that the information needed to measure the illicit flows of money cannot be captured by a single data source.
“And the required statistics and expertise are scattered across many agencies, including central banks, tax and revenue authorities, customs, and ministries of finance and justice,” it stated.
To help, UNCTAD and the United Nations Office for Drugs and Crime (UNODC) – the custodians of SDG indicator 16.4.1 on IFFs – established an international statistical task force in 2019 to develop common definitions and methodologies to measure the indicator.
The two UN organizations, according to UNCTAD, produced the first-ever conceptual framework for the statistical measurement of IFFs, which was approved by the UN’s inter-agency and expert group on SDG indicators and published in October 2020.
The framework defines what IFFs are and identifies four main types of activities that can generate them:
These are: Illicit tax and commercial activities; Illegal markets
Corruption; Exploitation-type activities and financing of crime and terrorism.
MacFeely said: “The next step is to work with national statistical offices so that they plug the data they have into the framework,” he said, adding that UNCTAD is currently working with official statisticians from countries across Africa, Asia and Latin America and the Caribbean.
Besides, UNCTAD said more pilots are needed, noting that in addition to the framework, it has developed new methodological guidelines proposing methods and formulas – with step-by-step instructions – to measure different types of IFFs, including trade mis-invoicing, profit shifting and IFFs related to undeclared offshore wealth.
UNCTAD encourages all interested statistical authorities to test these methods and review their relevance for the types of IFFs affecting their economies.
