Tackling Tax related Illicit Financial Flows in Africa:
The term “Illicit Financial Flows” (IFFs) was first coined in the 1990s and was initially associated with capital flight, a phenomenon typically associated with outflows of money from a country. It now generally refers to cross-border movement of capital associated with illegal activities, or more explicitly, money that is illegally earned, transferred or used. Although the expression “Illicit Financial Flows” is increasingly used, no agreement could thus far be reached on its precise definition. There is an ongoing global discussion on whether and what commercial activities – which lead to tax avoidance – should be regarded as part of IFFs, considering that many business practices to lower tax liabilities are legal (at least) according to the letter of the law.
However, there is consensus that IFFs cover three areas that overlap in practice:
Although these criminal activities are damaging to countries worldwide, Africa is especially vulnerable because of the fact that most countries have a rapidly growing national debt and scarce financial resources. The leakage of wealth from poor countries through tax evasion, money laundering, trade mispricing and other misdeeds poses a huge challenge to political security, and economic and social development on the continent. This is particularly the case in fragile and conflict-affected states as well as in resource-rich countries – illegal activities are more concentrated in the extractive and mining industries than others. In addition, weak governance is regarded as an enabler and a consequence of IFFs.
The Good Financial Governance (GFG) in Africa programme supports a pan-African dialogue on IFFs on behalf of the German Federal Ministry for Economic Cooperation and Development (BMZ), co-funded by the European Union and the Ministry for Foreign Affairs of Finland. The overall objective of the Multi-Donor Action is to contribute to reducing Illicit Financial Flows in Africa. The project will leverage on existing partnerships and develop new approaches to enhance activities to combat Illicit Financial Flows.
The capacities of the AUC in the development, implementation and monitoring of anti-IFF measures at reginal and national level are strengthened.
Understanding and awareness of the nature and extent of IFFs in Africa is increased among public institutions (including the AUC and AU member states) and CSOs.
Accountability of public institutions regarding IFFs is improved at national and regional levels, through the implementation, among others, of good governance standards
Increased effectiveness of pilot government efforts to tackle IFFs.
The GFG in Africa programme supports the African Union Commission together with regional networks in their efforts in combating IFFs: