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Africa loses $50 Billion yearly in illicit financial flows

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Over the last 50 years, Africa is estimated to have lost in excess of $1 trillion in illicit financial flows (Kar and Cartwright-Smith 2010; Kar and Leblanc 2013).

This amount excludes capital flight. Capital flight is a large-scale exodus of financial assets and capital from a nation due to events such as political or economic instability, currency devaluation or the imposition of capital CONTROLS. This process could entirely be legal or licit.

To resolve the crisis of illicit financial flows and outflows from Africa, the African Union and the United Nations Economic Commission for Africa tasked the fourth Joint African Union Commission and United Nations Economic Commission for Africa (AUC/ECA) Conference of African Ministers of Finance, Planning and Economic Development held in 2011to handle the matter.

The Conference established a High Level Panel on Illicit Financial Flows from Africa. Illicit financial flows (IFFs) is defined as money that is illegally earned, transferred or utilize. These funds typically originate from three sources: commercial tax evasion, trade mis-invoicing and the abuse of transfer pricing.

Other origins of illicit financial flows include criminal activities such as the drug trade, human trafficking, illegal arms dealing, and smuggling of contraband, illegal wildlife trade and bribery and theft by corrupt government officials.

The Panel headed by South Africa’s former president, Thabo Mbeki, established that Africa loses over $50 billion a year through tax avoidance and fraud schemes largely perpetrated by multinational corporations operating in Africa.

It became clear that Africa was a net-creditor to the rest of the world, despite the regular inflow of official development assistance. The continent continues to suffer from a crisis of insufficient resources for development, largely caused by illicit financial flows.

The Report of the High Level Panel on Illicit Financial Flows from Africa recommended that Africa must implement measures to radically reduce illicit capital outflows from Africa.

The Panel recognised that the goals of ending poverty in Africa, the goal to achieve Sustainable Development Goals (SDGs) aimed at reducing inequality within and among nations, and the hope to give practical effect to the fundamental objective of the right of all to development, was attainable if African governments and its partners curbed the illicit financial outflows.

 

 

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