In 2012, the Economic Commission for Africa (ECA) and the African Union Commission (AU) established the High Level Panel on Illicit Financial Flows (IFFs) from Africa. This High Level Group focuses on hidden resources and their effects on the development of the continent.

Let us already note a sad paradox: while in 2018, Africa received $29.7 billion in official development assistance (ODA), it simultaneously lost more than $50 billion in illicit financial flows (IFFs )! Indeed, according to the latest interim report of the High Level Panel, the average amount of IFFs lost annually by Africa is between 50 and 148 billion dollars (ECA, 2013). Several other estimates, including one entitled “Financing Africa's post-2015 development agenda”, show that between 1970 and 2008, illicit financial flows caused Africa to lose between 854 and 1.800 billion dollars, while in the same period the continent has received $1.07 trillion in official development assistance (OECD, 2012a).

In other words, without this haemorrhage of IFFs, Africa could, in theory, free itself from ODA, from the weight of the heavy debt which is suffocating it and, above all, finally operate this structural transformation which is essential for it to grow…finally!

The concept of IFF must already be clearly defined, in particular to distinguish it from the concept of capital flight with which it is often mistakenly confused.

Illicit financial flows are all funds obtained, transferred or used illicitly beyond a country's borders. It is illegality that is the main characteristic here, which is reflected in the way the funds were acquired (for example through criminal activities), how they are transferred (for example tax evasion) and/or how they are used (e.g. terrorist financing). Capital flight, on the other hand, corresponds to funds leaving a country (or the continent), often due to economic instability, but it is not necessarily illicit.

FFIs can take several forms, which can be as mundane as a simple bank transfer to a foreign account without paying the taxes due in the country of origin, or more "daring" forms, such as the physical transport of cash from corruption by plane! There are also, of course, structured and complex financial arrangements, which involve multiple jurisdictions and the use of shell companies to hide the identity of the true owner of the funds.

There are generally three (3) categories of FFI, depending on their source or use:

Illegal transfers within the framework of legal commercial activities (or illicit commercial financial flows): it is in this category that international tax evasion, the falsification of the prices of goods and services and the transfer prices practiced by multinationals are located . They represent the majority of IFFs, and it is also this category of IFFs that drastically reduces public tax revenues, thus hampering the ability of States to provide public resources intended to improve the well-being of their populations. The Global Financial Integrity (GFI), which is a non-profit organization based in Washington (USA), estimates that at least 60% of IFFs come from commercial activities.
Transfers of funds of illegal origin: this is the category to which belongs in particular the laundering of funds resulting from various criminal activities, including corruption, counterfeiting, human trafficking, etc. This type of IFF, in addition to aggravating the socio-political instabilities of African states, also reinforces corruption by facilitating the concealment abroad of stolen assets. In terms of 'monetary value', however, this category is well below commercial FFIs.
Transfers of funds used for illegal purposes: this is mainly the financing of organized crime, including terrorism, but also sums intended to pay bribes in foreign countries. From a purely security point of view, this is the most dangerous category, because it directly contributes to threatening or destroying human lives, or threatening the good governance of States.
Although it is difficult to accurately assess the amount of illicit financial flows, due to their secretive nature, all estimates show that Africa has been a net creditor to the rest of the world, not a debtor, due to massive illicit capital outflows from the continent.

Another very interesting fact to analyze, the IFFs from Africa seem to circulate very massively towards a small number of countries, which happen to be the main economic partners of Africa and its main creditors. This list includes both developed countries (United States, Canada, Japan, Republic of Korea, France, Germany, Spain, etc.) and emerging economies (mainly China and India). For example, in 2008, over 75% of IFFs from Nigeria's oil sector ended up in just five (5) countries: the United States, Spain, France, Japan and Germany.

What costs Africa the most, in terms of IFFs, are false invoicing. Indeed, the Global Financial Integrity estimates at 84 billion dollars per year what false invoicing causes the countries of sub-Saharan Africa alone to lose, ie 23 million dollars per day. This amount represents on average 17.8% of trade with developed countries. These alarming figures are taken from the latest in a series of GFI reports on financial integrity around the world, titled “Illicit Financial Flows to and from 148 Developing Countries, 2006-2015”.

Clearly, the States of sub-Saharan Africa do not collect the amount of taxes due to them on nearly 18% of all their trade with advanced countries. This is a huge loss for countries that so badly need financial resources to meet the basic needs of their populations and finance their development.

IFFs from Africa via trade mispricing are highly concentrated in a few sectors, particularly extractive and mining industries. The main channels used by IFFs in these sectors are corruption, illegal resource exploitation and tax evasion. Given the central importance of these sectors for many countries in sub-Saharan Africa, we will return more broadly to IFFs and corruption in the field of extractive industries in a future article.

Among the many avenues advocated to end the scourge of IFFs, we can cite the recommendation of the High Level Panel on IFFs from Africa for improved tax transparency, the expansion of information sharing networks , and the participation of States in automatic exchanges of information between countries.

The ECA, in its "Economic Report on Africa 2019: Fiscal Policy for Development Financing", formulates, among its recommendations, the need for African States to put in place national action plans as well as coordination frameworks that are based on evidence, in order to effectively fight against IFFs, notably through the points below:

Better understand how IFFs are practiced at the national level
Formulate a national action plan to reduce key vulnerabilities
Develop a coordinated framework for combating IFFs by specifying the responsibilities of each branch of government for each element of this plan.
We can also cite an IFM study from January 2017, entitled “Accelerating the Program of Action to Combat IFFs in African Countries”, which proposes a list of fourteen (14) concrete measures that can be implemented quickly and easily. , or at least serve as a basis for subsequent reforms. Each of the measures is briefly detailed in the GFI publication, with concrete examples and key references.

Africa is far from being the only continent from which IFFs emerge massively, far from it, but it is essential to put two contradictory realities into perspective: we “export” in IFFs more than we receive aid! It is a paradox, an economic aberration. There are many possible solutions, and although their implementation is not easy, a general awareness is essential, both at the level of African governments and civil society. There more than anywhere else, a strong political will is essential to stop this haemorrhage.

The continent can no longer afford to continue losing nearly $100 billion each year in illicit financial flows, while, compared to the 1990s, the number of Africans living in extreme poverty has increased by more of 100 million. All these billions, which very often come out because of the complicity, greed and guilty silence of certain corrupt African leaders, should be allocated to financing its development in general, and to financing services that will improve the lives of Africans in particular. .

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