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Illicit Financial Flows from Africa – Track It, Stop It, Get It

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Ibrahim  Lamorde,Chairman, Economic and Financial Crimes Commission
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Illicit money outflows are draining Africa’s domestic resources, depriving it of crucial investment funds

The figures are staggering: between $1.2 trillion and $1.4 trillion has left Africa in illicit financial flows between 1980 and 2009 – roughly equal to Africa’s current gross domestic product, and surpassing by far the money it received from outside over the same period.

Illicit financial flows are money earned illegally and transferred for use elsewhere. The money is usually generated from criminal activities, corruption, tax evasion, bribes and transactions from cross-border smuggling.

The numbers tell only part of the story. It is a story that exposes how highly complex and deeply entrenched practices have flourished over the past decades with devastating impact, but barely made it into the news headlines.

“The illicit haemorrhage of resources from Africa is about four times Africa’s current external debt,” says a joint report by the African Development Bank (AfDB) and Global Financial Integrity, a US research and advocacy group.

The report, Illicit Financial Flows and the Problem of Net Resource Transfers from Africa: 1980-2009, found that cumulative illicit outflows from the continent over the 30-year period ranged from $1.2 trillion to $1.4 trillion.

The Guardian, a British daily, notes that even these estimates – large as they are – are likely to understate the problem, as they do not capture money lost through drug trafficking and smuggling.

Turning logic upside down “The traditional thinking has always been that the West is pouring money into Africa through foreign aid and other private-sector flows, without receiving much in return,” said Raymond Baker, president of Global Financial Integrity, in a statement released at the launch of the report earlier this year.

Mr. Baker said the report turns that logic upside down, adding that Africa has been a net creditor to the rest of the world for decades.
Professor Mthuli Ncube, chief economist and vice-president of the AfDB, agrees: “The African continent is resource-rich. With good resource husbandry, Africa could be in a position to finance much of its own development.”

The composition of these outflows also challenges the traditional thinking about illicit money.

According to estimates by Global Financial Integrity, corrupt activities such as bribery and embezzlement constitute only about 3% of illicit outflows; criminal activities such as drug trafficking and smuggling make up 30% to 35%; and commercial transactions by multinational companies make up a whopping 60% to 65%.

Contrary to popular belief, argues Professor Baker, money stolen by corrupt governments is insignificant compared to the other forms of illicit outflow.

The most common way illicit money is moved across borders is through international trade. Information scanty and scattered

A ten-member high-level panel chaired by former South African President Thabo Mbeki leads research by the UN Economic Commission for Africa (ECA) into illicit financial flows, assisted by ECA Executive Secretary Carlos Lopes as the vice-chair.

Other members of the panel include Professor Baker and Ambassador Segun Apata of Nigeria. The ECA blames illicit outflows for reducing Africa’s tax revenues, undermining trade and investment and worsening poverty.

Its report will be released in March 2014. Undoubtedly the panel faces a daunting task. Charles Goredema, a senior researcher at the South Africa-based Institute of Security Studies, cautions the panel on the challenges ahead.

Writing in the institute’s newsletter, ISS Today, Goredema warns the panel that it will find that in many African countries, data on illicit financial flows “is scanty, clouded in a mixed mass of information and scattered in disparate locations.”

He ranks tax collection agencies and mining departments among the bodies most reluctant to share data.

Goredema lists Transparency International, Global Financial Integrity, Christian Aid and the Tax Justice Network as some of the advocacy groups that have tried to quantify the scale of illicit financial flows.

The extent of such outflows remains a matter of speculation, he says, with the figures on Africa ranging between $50 billion and $80 billion per year.

Other estimates by the ECA put the figure at more than $800 billion between 1970 and 2008.

“The absence of unanimity on [the amount] is probably attributable to the fact that the terrain concerned is quite broad, and each organisation can only be exposed to a part of it at any given point in time,” Goredema writes, adding, “It is less important to achieve consensus on scale than it is to achieve it on the measures to be taken to stem illicit financial outflows from Africa.”

Underpricing trade deals Nonetheless, research and advocacy groups who have worked on illicit outflows see a direct link between these outflows and Africa’s attempts to mobilize internal resources.

Despite annual economic growth averaging 5% over the past decade – boosted in part by improved governance and sound national policies – Africa is still struggling to mobilize domestic resources for investments.

If anything, the boost in economic growth has caused a spike in the illicit outflows, says Ambassador Apata in an interview with Africa Renewal.

Overseas development aid, while helpful, has its limits, says the ECA. There are many channels to move illicit money.

These include over-invoicing or underpricing trade deals, transfer pricing and using offshore financial and banking centres and tax havens.

Transfer pricing occurs when multinationals decide how much profit to allocate to different parts of the same company operating in different countries, and then determine how much tax to pay to each government. About three-fifths of global trade is conducted within multinationals.

“Many developing countries have weak or incomplete transfer pricing regimes,” according to the Guardian, citing an issue paper authored by the Paris-based Organization for Economic Cooperation and Development (OECD), a group of high-income economies.

The paper says poor countries have weak bargaining power. “Some [countries] have problems in enforcing their transfer pricing regimes due to gaps in the law, weak or no regulations and guidelines for companies,” says the OECD paper, adding that poor countries have limited technical expertise to assess the risks of transfer pricing and to negotiate changes with multinationals.

Offshore tax shelters According to the OECD paper, member countries are failing to identify company owners who benefit from money laundering.

It criticizes OECD members for not doing enough to crack down on illicit outflows. In order to prevent, uncover or prosecute money laundering, says the paper, authorities must be able to identify company owners.

The OECD advises its members to invest in anti-corruption and tax systems in poor countries, as this has high payoffs.

The bulk of illicit money today is channelled through international tax havens, says the Thabo Mbeki Foundation, an NGO set up by the former president to promote Africa’s renaissance.

The foundation accuses “secrecy jurisdictions” of running millions of disguised corporations and shell companies, i.e., companies that exist on paper only.

These jurisdictions also operate anonymous trust accounts and fake charitable foundations that specialize in money laundering and trade over-invoicing and underpricing.

“Developing countries lose three times more to tax havens than they receive in aid,” said Melanie Ward, speaking to the Guardian.

Ms. Ward is one of the spokespersons for the Enough Food for Everyone IF campaign, a coalition of charities calling for fairer food policies, and head of advocacy at ActionAid, an anti-poverty group.

The money lost, she says, should be spent on essential development of schools, hospitals and roads, and on tackling hunger, not siphoned into the offshore accounts of companies.

A 2007 joint report by the World Bank and UN Office on Drugs and Crime estimated that every $100 million returned to a developing country could fund up to 10 million insecticide-treated bed nets, up to 100 million ACT treatments for malaria, first-line HIV/AIDS treatment for 600,000 people for one year, 250,000 household water connections or 240 km of two-lane paved roads.

Support for new rules to rein in offshore tax shelters has come from an unlikely source – the leaders of eight of the world’s biggest economies, the Group of Eight (G8).

Having been stung by the 2008 global financial crisis, the G8 leaders at this year’s summit in Lough Erne, Northern Ireland, introduced – for the first time – rules to fight tax evasion.

The rules will now require multinationals to disclose the taxes they pay in countries in which they operate.

During the run-up to the G8 summit, advocacy groups campaigned to get rich countries to introduce laws on transparency in corporate taxes.

Among them was the Africa Progress Panel, chaired by former UN Secretary-General Kofi Annan.

On the eve of the summit, it published its annual flagship report, Africa Progress Report 2013, strongly criticizing the current rules on corporate transparency. Unconscionable acts

“It is unconscionable that some companies, often supported by dishonest officials, are using unethical tax avoidance, transfer pricing and anonymous company ownership to maximize their profits while millions of Africans go without adequate nutrition, health and education,” Mr. Annan wrote in the foreword to the report.

Tax evasion, he said, has cut into African citizens’ fair share of profits from their abundant resources.

In the end, the G8 leaders adopted the Lough Erne Declaration, a 10-point statement calling for an overhaul of corporate transparency rules.

Among other things, the declaration urges authorities to automatically share tax information with other countries to fight tax evasion.

It states that poor countries should have the information and capacity to collect the taxes owed to them.

The declaration further calls on extractive companies to report payments to all governments, which should in turn publish them.

While the Financial Times embraced the declaration as “an advance” in corporate transparency, Sally Copley, another spokesperson for the IF campaign, says in a statement, “The public argument for a crackdown on tax dodging has been won, but the political battle remains.” Copley wants the G8 to impose strict laws on tax evasion.

For its part, Africa Progress Report 2013 calls for multilateral solutions to global problems because “tax evasion, illicit transfers of wealth and unfair pricing practices are sustained through global trading and financial systems.”

It urges African citizens to demand the highest standards of propriety and disclosure from their governments, and rich countries to demand the same standards from their companies.

Initiatives by institutions in Africa and the adoption of the Lough Erne Declaration raise hopes for strict rules against illicit financial flows from Africa.

“Seizing these opportunities will be difficult. Squandering them would be unforgivable and indefensible,” Mr. Annan warns in his foreword to the panel’s report.

Meanwhile, ECA’s slogan “Track it. Stop it. Get it” aptly captures what needs to be done about money flowing illicitly out of Africa.

 

 


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NIA Questions Legality of Reps’ Financial Probe

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The Nigerian Insurers Association has urged the House Committee on Capital Market and Institutions to respect the constitutional separation of powers as it carries out a probe on over 20 insurance firms.

In a statement on Tuesday night, the Director General/Chief Executive Officer of NIA, Mrs Bola Odukale, said the decision of NIA and the affected firms to approach the court was to seek clarity on the constitutional limits of the House Committee’s probe.

It would be recalled that the House of Representatives on Monday is investigating no fewer than 25 insurance companies operating in the country for various financial infractions spanning financial reporting, claims settlement, premium remittance, and issuance of policies.

The Chairman, House Sub-Committee on Capital Market and Institutions, Kwamoti Laori, during a meeting with the management of the insurance companies at the National Assembly Complex in Abuja, said the meeting was convened following the receipt of a petition on infractions by the insurance companies.

In the statement, Odukale said, “The Association wishes to state unequivocally that all actions taken by the NIA and the affected member companies in response to the Committee’s invitations and pronouncements were based entirely on legal advice by its Solicitors. It was on the firm instruction of legal counsel that recourse was made to the courts.

“The objective of approaching the Court is to seek judicial guidance on the legality, propriety, and constitutional limits of the Committee’s intervention in order to safeguard institutional integrity, uphold regulatory independence, and ensure that legislative oversight remains within the bounds of law.

“The Court action seeks to determine whether the current posture of the Committee reflects an exercise of legislative judgment, which, by constitutional design, is the exclusive province of statutory regulators, such as the National Insurance Commission, Securities and Exchange Commission, Nigerian Exchange, Financial Reporting Council, Nigeria Data Protection Commission, and the National Information Technology Development Agency.

“This raises serious questions about legislative overreach and an erosion of the doctrine of separation of powers, a cornerstone of Nigeria’s constitutional democracy.”

Odukale maintained that the NIA was committed to lawful and constructive engagement with all arms of government, provided that such engagement respects the autonomy of statutory regulators and the boundaries established by the Constitution.

“The NIA will continue to provide its full support to all member companies while upholding the principles of legal compliance and sector-wide integrity,” Odukale concluded.

17 of the companies that went to court were represented by their lawyer, Mr Abimbola Kayode, at the meeting with the committee.


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Horn of Africa Leaders Seek Enhanced Digital Integration for Increased Regional Growth

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Finance ministers and development partners from the Horn of Africa have called for enhanced digital integration to boost trade, drive economic growth and promote regional stability during the 25th Ministerial Meeting of the Horn of Africa Initiative (HoAI).

Held in Nairobi, on July 14, the meeting was co-chaired by the African Development Bank’s Vice President for Regional Development, Integration and Business Delivery, Nnenna Nwabufo and Somalia’s Minister of Finance, Bihi Iman Egeh. Discussions underscored the critical role of digital integration in reducing trade barriers, boosting government service delivery and creating employment — particularly for the region’s youth.

“Digital technologies are shaping today’s economy and tomorrow’s industries. By embedding these technologies into our programs, we can not only improve inclusion but also leapfrog outdated development models,” said Nwabufo.

She called for digital integration a “central enabler” in each of the Horn of Africa Initiative’s pillars – trade, infrastructure, resilience, and human capital,

Learning through experience

Drawing from global and regional success stories, speakers highlighted the transformative potential of technology-led development. The ministers pointed to the Philippines as a strong example, where ICT has generated millions of jobs in business process outsourcing. Similarly, Kenya’s fintech innovation—especially the success of M-PESA—was cited as a model for scaling digital financial services across the region.

Participants urged governments to proactively foster digital ecosystems by capitalizing on the demographic dividend, identifying infrastructure upgrades, tighter regulatory reforms, and digital skills trainings as priorities to enable broader participation in the digital economy.

Minister Egeh reiterated the need for more coordinated regional efforts to create the enabling environment required for accelerated digital integration and expansion. He referenced the HoAI Digital Policy Matrix, adopted in 2023 which provides a blueprint on how to address key obstacles to achieving effective digital integration across the region.

Barack Makokha, Kenya’s Cabinet Secretary for National Treasury, underscored the importance of regionally-aligned public private partnerships and advocated for blended financing to reduce investment risk and expand digital access in underserved areas.

World Bank Vice President for Eastern and Southern Africa, Ndiame Diop, called for a comprehensive multi-pronged approach, combining cross-border coordination, large-scale financing, robust policy support, and digital infrastructure investments. He pointed out that such measures could transform digital integration into, “a powerful engine of economic transformation” for the Horn of Africa—ensuring no one is left behind in the digital era.

The meeting concluded with a shared recognition that sustained political will and the determination to implement a multifaceted approach are essential to unlocking the region’s economic potential and driving long-term growth.

The event also welcomed observers from the East African Community, Agence française de développement, and Shelter Afrique, reflecting strong regional and international backing for the HoAI in the development community.


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CSCS Inaugurates Custodian Portal to Enhance Digital Access, Operational Efficiency

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Central Securities Clearing System Plc (CSCS), Nigeria’s capital market infrastructure provider, has launched its Custodian Portal, a user-centric digital solution designed to optimise custodian operations through intuitive, secure and efficient features.

Haruna Jalo-Waziri, Chief Executive Officer (CEO), CSCS, announced this in a statement on Monday.

The CSCS is a Public Limited Company with a diversified shareholder base, which serves as the Central Securities Depository for the Nigerian Capital Market.

It serves as the Central Depository for Equities, Commercial Papers, Corporate Bonds, Sub-National Bonds, certain Sovereign Bonds like the FGN Sukuk and the FGN Savings Bond, Equity-traded Funds, Real Estate Investment Trusts, Mutual funds and Commodities.

Jalo-Waziri said that the custodian portal offered a streamlined experience for market participants with powerful tools that facilitate comprehensive portfolio and trade management, document tracking, share transfer operations, client symbol search, and real-time access to vital data.

He explained that the portal, designed to operate through a flexible subscription-based model, empowered users to manage their records effortlessly and securely through convenient payment channels such as GTPay and Paystack.

According to him, “Digital transformation remains at the core of our strategy to enhance the efficiency, transparency and accessibility of Nigeria’s capital market services.

“The custodian portal is a significant leap in that direction, offering custodians a centralised platform to manage critical processes in real-time.

“We are excited about the value this innovation brings to our stakeholders, and we will continue to evolve the platform in line with users’ needs and industry trends.”

The CEO also explained that the portal was designed with user experience in mind with feature tools like portfolio viewing and downloads in PDF or Excel format.

He further said that it also featured tracking of stock movements across date ranges, inbox messaging and request tracking, as well as robust user management capabilities including role assignment and status tracking.

Similarly, the Divisional Head, Business Technology and Digital Innovation, CSCS Plc, Tobe Nnadozie, said that the portal aligned with CSCS’s drive to automate the market.

“In addition to the normal features, the platform is a part of an omnichannel platform for custodians, and includes API services.

“It also connects to the market-wide workflow, which CSCS has built to ensure secured communication and approvals across all major stakeholders in the market.

“The platform is well secured with best-of-breed cybersecurity solutions and our SOC,” he said.

The Custodian Portal reinforces CSCS’s commitment to leveraging technology to streamline back-office functions and support a more agile, data-driven capital market ecosystem.

All custodians in the Nigerian capital market have now been successfully on-boarded on the Custodian Portal, marking a significant milestone in CSCS’s ongoing drive to enhance collaboration, standardise operational processes, and promote digital adoption across the market.


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