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Illicit Financial Flows

Illicit financial flows (IFFs) refer to the cross-border movement of money that is illegally earned, transferred, or utilized. Although IFFs are closely related to capital flight, they differ in one major respect; capital flight is an expression that places virtually the whole of the problem upon the developing countries out of which the money comes. It suggests, without quite saying so, that it is almost entirely their responsibility to address and resolve the concern.

photo3According to the latest update of Global Financial Integrity’s 2012 report, ‘Illicit Financial Flows from Developing Countries: 2001-2010’, it is estimated that at least US$859 billion left the developing world in 2010 in illicit financial flows. From 2001 to 2010, developing countries lost US$5.86 trillion to illicit financial outflows, which according to experts appears to be an escalating problem.

IFFs constitute a massive developmental problem in Africa because of the scale and their systematic adverse impact on the continent’s development and governance agenda. The increasing IFFs out of Africa have become a matter of major concern as it stifles the various efforts in the continent to improve public finances and enhance democratic institutional building. IFFs drain foreign exchange reserves, reduce tax collection, dwindles investment inflows, worsens poverty in Africa, as well as constitutes a major source of resource leakage from the continent.

There are several reports in the public domain that link foreign banks with aiding and abetting several African leaders and politically exposed persons in laundering public funds that have been diverted for personal gain. Unfortunately, these practices have continued despite international anti-money laundering protocols such as the Financial Action Task Force recommendations (FATF-40) and the Wolfsburg Anti-money laundering guidelines.

Illicit Financial Flows and New Technology Platforms

The combination of enormous growth in social networks, the complexities of peer-to-peer systems and software, and the number of internet and wirelessly connected devices is altering the landscape of financial transactions at a rate and to a degree that is unprecedented. Today such transactions can be conducted not only using traditional, state-backed currencies but also through digital currencies, virtual currencies and virtual goods. In addition, mobile phone based money transfer systems enabling currencies to be moved in novel ways are experiencing rapid adoption particularly in developing nations.

photo5As a result, the landscape of financial transactions today involves levels of complexity that would otherwise have been unimaginable. In large parts of the developing world that were once predominantly cash and barter, economies are now being transformed by the widespread adoption of innovative technology platforms, such as mobile phone enabled payments in locales that have high numbers of “unbanked” persons. Many of these technology platforms while helping to provide broad based banking services to the population also aggravate the vulnerability of the banking and financial sector to IFFs.

Illicit Financial Flows and the Banking Sector

The banking sector could play a crucial role as the first line of defence against corrupt funds but this is far from the reality. Due diligence is required from banks to establish the customer and the source of their funds, but the current system is full of loopholes, whether in the anti-money laundering laws themselves, or the way that they are enforced. The result is that the international banking system may be complicit in helping to perpetuate poverty, corruption, conflict, human suffering and misery.

Our Role

  • In support of several initiatives being undertaken on the continent to curb IFFs; Influence Africa is involved in the following:
  • research activities including case studies of different African countries showcasing challenges and successes of key initiatives and practices;
  • use of different multi-media platforms as tools for advocacy and communication including video and film documentaries;
  • facilitating a Pan-African multi-stakeholder consultative meetings, as well as workshops for stakeholders within the financial and banking sectors; and
  • facilitating the development and uptake of pan-African wide principles and guidelines on IFFs.

 

Special Film: Basket of Water

Our latest film, titled "Basket of Water: The Secret Behind Africa's Under-development" explores illicit financial flows out of Africa in a captivating, entertaining, educative and informative manner. The production is narrated by award wining South African and Nigerian esteemed music icons: Judith Sephuma and Femi Kuti respectively.

This production has been filmed in over 20 African countries, covering continental and international voices from organisations such as Global Financial Integrity in Washington DC, The Tax Justice Network in Africa, Financial Transparency Coalition as well as other key institutions with regards to the theme.

The film aims to complement and engage with ongoing initiatives on Illicit Financial Flows and where possible, creating new platforms for engagement and advocacy for change in practice. It also seeks to show the impact of the scourge on ordinary African citizens, so as to find ways of strengthening the spotlight on the subject and to enhance awareness, participation, engagement with, and collaborative initiatives with like-minded institutions and organisations globally.

This film, which is 90 minutes in length, is formatted as a special 3-part Series of 26 to 30 minutes per episode. This is presented in English with French subtitles.

 

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