illicit financial flows

The New Face in Stemming Illicit Financial Flows in Africa

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This article first appeared in my weekly column in the Business Daily on October 10, 2018

Recent action in the banking sector in Kenya ought to be noted where the Central Bank of Kenya (CBK) announced that an unspecified number of banks are under investigation with regards to tracing the recipients of the allegedly irregularly acquired funds linked to the National Youth Service (NYS). Media reports indicate that bank accounts of companies and suspects with money believed to have been questionably acquired via the NYS have been frozen for six months. The CBK ought to be commended for taking this step, which is well within its ambit of authority, largely because it has drawn attention to the local articulation of illicit financial flow involvement. The CBK Governor indicated that regulatory guidelines on handling the proceeds of corruption are clear to all financial institutions making chief executive officers of those that ignored the rules personally liable.

The complexity and weight of what it trying to be done should not be underestimated so it would be prudent to start with definitions. Global Financial Integrity defines illicit financial flows (IFFs) as illegal movements of money or capital from one country to another. GFI classifies this movement as an illicit flow when the funds are illegally earned, transferred, and/or utilized. The first point to note is that this definition is insufficient in the African context.  At least three types of IFFs are present in countries like Kenya. The first is the well-known IFF particularly by private sector which transfer fund to tax havens abroad and use strategies such as transfer pricing to under-declare tax liabilities. The second is to do with the funds irregularly acquired from public coffers, through government-financed projects that are transferred from government accounts to local recipients. The third type of IFF is that linked to government-financed projects that are transferred from government accounts to recipients abroad. I have previously noted that African publics have been relatively disinterested in IFFs because they did not see how stemming IFFs would be of benefit to them.

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The action taken by the CBK has changed this because it is the first time, at least in living memory, a regulator has put the banking sector on the spot with regards to how they facilitate and profit from IFFs. Thus, the action from the CBK ought to be positively noted as Kenya is in a region surrounded by countries in conflict which often use Kenya as a centre for illegal financial transactions.

An example of local participation in IFFs involves South Sudan. An investigative documentary, The Profiteers, unpacks how leaders of states in conflict profit from war using the financial systems of neighboring countries. The only way elites can profit from the war is if key regional financial hubs such as Kenya continue to allow apparently illegally acquired wealth move through their financial systems to their profit. The facilitation of such IFFs expose the Kenyan financial system to the risk of financing of war and civil instability. Because despite the presence of anti-money laundering money legislation, if the banking sector is lax with regard to any type of IFF, it exposes the entire financial system to the transfer of illegally acquired funds. IFFs are a national and regional security issue.

In 2020, Kenya will be subject to a review by the Financial Action Task Force which will scrutinise the country’s financial sector. Any abuse of Kenya’s financial system will put the integrity of the country’s financial system in question and undermine Kenya’s international reputation and attractiveness to investors.

Anzetse Were is a development economist;



Why Africans Seem Unconcerned About Illicit Financial Flows

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This article first appeared in my weekly column for the Business Daily on August 12, 2018

African governments are deeply concerned with the continued scale of illicit financial flows out of the continent. Experts say that Illicit Financial Flows (IFF) from Africa has doubled to USD 100 billion annually. The UN estimates that between USD 1.2 trillion and 1.4 trillion left Africa in illicit financial flows between 1980 and 2009 alone; this is roughly 63 percent of Africa’s Gross Domestic Product, and surpasses the money it received from outside over the same period. IFF far exceeds what the continent receives in aid and the fact that most are not aware of this seeds the impression that the world continues to be altruistic towards Africa when, it can be argued, Africa is financing the world.

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Not only do African governments view the scale of IFF as morally abhorrent, their concern has a level of pragmatism during a time when many governments seek increased investments into their nations. In order to build infrastructure, stimulate private sector and economic growth, African governments consider these flows to be robbing them of funds that are rightfully theirs, pushing them to enter debt agreements that could have been financed if IFF were stemmed.

However, what is clear in this conversation is that the general African public does not seem to be as concerned about IFF as African governments are. This is due to several reasons the first of which is that some African-owned companies benefit from the loopholes that allow IFF to continue unabated. Through transfer pricing many African companies are able to retain more of their profits; and it’s doubtful they view this as immoral but practical business sense that keeps costs down. One is unlikely to see a strong African private sector push to address IFF.

Secondly, IFF features nowhere near the top of the list of priorities for Africans as most are concerned with basics such as access to clean water, health services, educational facilities and adequate nutrition. It will likely be a long time before African masses begin to picket fence about IFF.

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Finally, one will likely not see any great pressure put on foreign governments by African populations concerning IFF because African populations generally do not view their own governments as responsible custodians of public wealth. Why should African populations put their weight behind their governments in insisting on an end to IFF when those governments are not financially accountable to them? Until African government stem fiscal indiscipline and mismanagement, IFF will be viewed as a difficulty African governments can grapple with on their own. Indeed, one can argue that the injustice of IFF in the minds of African governments, mirrors the injustice felt by African people when public funds are embezzled. As African governments starve their people of funds that are rightfully owed to the public, IFF can continue to starve African governments of funds they view as rightfully theirs.

In short, African governments ought to clean up their act and demonstrate that they can responsibly manage public funds if they ever hope to get the African public to amplify their push to end IFF.

Anzetse Were is a development economist;

Why the Panama Papers are so important for Africa

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This article first appeared in my weekly column with the Business Daily on April 10, 2016

Last week a huge leak of confidential documents detailed how the wealthy and powerful use tax havens to hide their wealth. Eleven million documents leaked from Panamanian law firm Mossack Fonseca, were passed to German newspaper Suddeutsche Zeitung, which then shared them with the International Consortium of Investigative Journalists. One of the key elements that is shocking about the revelations is the sheer scale of the number of individuals and the volume of wealth hidden in tax havens either legally or illegally. These ‘Panama Papers’ amount to approximately 3 terabytes of data which is about 100 times larger than the 1.7 GB of data revealed by Wikileaks in 2010. As The Economist points out, the uses to which these shell companies, trusts and the like are put range from the perfectly legitimate to tax evasion to hiding what is the suspected looting of public money.


Africans on the list included president’s relatives, state officials and leading business people such as Ahmad Ali al-Mirghani, former Sudanese president; Alaa Mubarak, son of former Egyptian president; John Addo Kufuor, son of Ghana’s former president; Clive Khulubuse Zuma, nephew of South African president; José Maria Botelho de Vasconcelos, Angola’s minister of petroleum; Emmanuel Ndahiro, Rwanda’s former Chief of Intelligence; Kojo Annan, son of former United Nations secretary general and, closer to home, Kalpana Rawal, Kenya’s Deputy Chief Justice.

In terms Rawal’s activities, the Mail and Guardian reports that Rawal and her husband were directors of two companies based in the British Virgin Islands, prior to her joining the nation’s Supreme Court. The family used other offshore companies to buy and sell real estate in London and nearby Surrey. Her response to this is that she has not been involved with the family businesses except for generally knowing they were involved in real estate. She says she was listed as director on two of them without her knowledge by her husband when he was told two directors were required.

There are three elements that are saddening for Africa in this debacle. The first is that Africans are not surprised that Africans are on the list; not in the very least. Africans have long known that the wealthy, especially those who loot public funds for private gain, scurry their illegitimate wealth from African jurisdictions to obscure tax havens elsewhere. Thus, although there was surprise in many Africans at the scale of activity in the Panama Papers, barely an eyelid batted when Africans appeared on the list. We already knew. The Panama Papers merely elucidate how some Africans engage in what can be arguable described as delinquent behaviour.


 The second saddening element the Panama Papers highlight is that Africa continues to haemorrhage away wealth to the detriment of the continent. This is a not a new revelation; indeed the irony of ironies is that Kofi Anan, whose son is on the Panama Papers list, has been an ardent champion of stopping illicit financial flows from Africa. Figures from the UN for how much has left Africa in illicit financial flows range from between $1.2 trillion and $1.4 trillion between 1980 and 2009 which is almost equal to Africa’s current gross domestic product and about four times Africa’s external debt.

But the truly saddening element of the Panama Papers revelations is that it is not difficult to surmise that public funds constitute some, if not most, of the wealth being hidden by Africans on the list. Thus it can be inferred that some Africans stole taxpayers money then hid the money so as to avoid being taxed on the very same taxpayers money they stole. Thus Africans undergo a double loss of money that should be used for their economic and social development.

What is sure is that as the Panama Papers continue to be mined, more African names will emerge detailing the scale of tax evasion and concealment of wealth in which rich and powerful Africans engage. It will be truly interesting and frankly entertaining to see how Africans on the list explain why they’re on the list or why they should not be there. Get ready Africa.

Anzetse Were is a development economist;