Illicit financial flows thwart human rights and development in Africa
The Universal Declaration of Human Rights turned 70 on 12 December and governments and civil society organisations around the world were commemorating the day with a range of activities. However, the threat of illicit financial flows to the respect of human seems to have been forgotten on that day.
The United Nations launched a global campaign earlier this year to engage audiences to promote understanding and to reflect upon the ways that everyone can stand up for human rights. The Declaration has been a global beacon for Africans fighting against colonialism and for inclusive economic equality and sustainable development.
They stand as aspirational goals for nations, and standards that nations are duty-bound to uphold and promote. But, what if despite your country’s commitment to uphold these and other fundamental freedoms, every year it was robbed of the financial resources necessary to promote and protect rights?
This is the case for most nations in Africa where Illicit financial flows (IFFs) rob countries of US $60-100 billion [some reports say more than double this figure] each year; losses that in many countries exceed foreign direct investments and development assistance. Funds that could be used to secure basic economic and social rights, for example the rights to social security, decent work and human dignity, are instead held in secret tax havens for the benefit of corporate elites.
In 2015 the African Union’s Economic Commission on Africa released Illicit Financial Flow: Report of the High-Level Panel on Illicit Financial Flows from Africa. The report, generally known as the Mbeki Report, after the panel’s chair, former South African President Thabo Mbeki, defines IFFs as “money illegally earned, transferred or used,” a definition that includes money laundering, tax abuse, market and regulatory abuse, along with practices that ‘go against established rules and norms, including legal obligations to pay tax.”
Some 30 percent of IFFs are attributed to criminal activities, and five percent to corruption. The panel determined that 65 percent is attributed to commercial, or business activity. The most prevalent method of commercial theft is the practice of trade misinvoicing, where companies report export values to the developing countries that are far below their actual worth, which results in a reduction in corporate income taxes, customs duties, and value added taxes.
Nigeria, Africa’s most populous nation and its largest economy, lost US $2.2 billion in 2014, which according to Global Financial Integrity (GFI), a Washington, DC-based think tank, was equal to four percent of total government revenue, resources that could have been used for investment in education, health or to address the persistent problem of government wage theft.
Nearly 30 out of Nigeria’s 36 states are unable to pay their workers on time. According to Working for Peace in North-East Nigeria, a September 2018 report by the Solidarity Center, a US-based international labour organisation, medical professionals caring for internally displaced victims of Boko Haram are paid their government wages irregularly, despite the fact that they, along with teachers and civil servants, are targeted and killed by the extremist group.
Ghana loses nearly US $1.4 billion a year to IFFs. As monies owed to Ghana left the country, it borrowed US $930 million from the International Monetary Fund (IMF).
South Africa, one of the most economically unequal countries in the world, reports an average of US $7.4 billion per year lost to IFFs, from 2010 – 2014. In a country with 36.3 percent unemployment, where nearly a quarter of the country goes hungry every day, IFFs can have deadly consequences.
With this type of normalised theft, how can citizens in developing countries secure the global promise of fundamental freedoms?
Combatting IFFs is an African priority, but countries around the world have a role to play.
When the 116th Congress convenes, addressing IFFs is an important opportunity. The Mbeki Report notes that the US is a top destination for IFFs, mainly those derived from trade mispricing related to oil from Nigeria and Algeria, precious metals from countries in the Southern Africa Customs Union, and cocoa from Côte d’Ivoire.
Despite the acrimony, division and hyper-partisanship that characterises politics in Washington, today, there are issues where success and progress can be achieved; combatting IFFs is one such issue. Majorities in both parties support efficiency and efficacious international development spending programmes and what is more powerful than plugging the resource gap created by IFFs?
The new Congress has an opportunity to consider and advance policies that make corporate ownership and control more transparent, support anti-corruption measures, strengthen African customs and border capacity, require banks to do their part to eliminate IFFs and support the recovery of stolen assets, so that countries can invest in inclusive economic development that will help guarantee fundamental freedoms for all.
GFI’s President Raymond Baker called IFFs “the ugliest chapter in international affairs since slavery”. The incoming Congress has an opportunity to contribute to ending this chapter and achieving fundamental rights for many in Africa.
* Imani Countess is a development consultant who has worked with United States-based Africa advocacy, development, and social justice organisations for 30 years.