The challenge of illicit financial flows (IFF) continues to undermine the future of Africa, writes Victor Sekese, CEO of SNG Grant Thornton.
This concerning issue hampers our ability to adequately fund education, healthcare, and critical development projects that are essential for lifting our people out of poverty and fostering sustainable economic growth.
As business leaders, politicians, academics, and citizens, we cannot sit back. We must help curb the illegal flow of money out of our country through a cohesive effort by all stakeholders, both locally and internationally, to ensure that safeguards are put into place, laws harmonised, and all enforcement agencies work in tandem while not disincentivising investment.
Ahead of G20 Johannesburg Summitt in November as well precursor meetings – especially the G20 Finance Ministers and Central Bank Governors meeting and the T20 Midterm Conference this month [JUNE] – we must formulate concrete proposals that integrate thinking across the spectrum of private sector, public sector, NPOs, think tanks, and universities.
United, we can make policy recommendations, such as integrating AI to turn a vast amount of data into information that can be used to develop strategic interventions. Working in tandem with each other, we can identify where there are gaps or loopholes in current legal frameworks as well as areas where greater co-operation is required.
It is a socio-economic responsibility that we all seek ways to stem illicit money flows. When individuals or companies evade their tax obligations, deliberately falsify import or export documentation, or misappropriate funds intended for development projects, they are not committing victimless crimes.
These outflows not only weaken our reputation in the eyes of the international markets but also make it harder for the government to raise capital at manageable interest rates. Already, we owe too much: National Treasury predicts that the debt that is carried on our national balance sheet will be 77% of our gross domestic product (GDP) this year.
IFF directly undermine economic growth, costing the South African economy the equivalent of almost 5% of the annual collected tax revenue. That is illicit outflows of about R92.5 billion. When we zoom out to the African continent, the numbers are more alarming with between $50 billion and $90 billion being stolen annually, according to United Nations data.
The United Nations Conference on Trade and Development’s (UNCTAD) 2020 report, the latest available, extrapolates this, stating that IFFs represent as much as 3.7% of Africa’s GDP. Doubtless, this figure has grown since the research was done, given that those that deliberately break laws will keep acting with impunity if there are no consequences.
We recently convened a G20 multi-stakeholder dialogue to better understand this challenge, to quantify its impact, to assess current solutions, and to identify practical solutions for which we can advocate. One of our speakers, International Relations and Cooperation Deputy Minister, Hon Alvin Botes, spelt out what this theft means from a practical point of view. Countries with high levels of IFF spend at least 25% less on healthcare and 50% less on education when compared with their peers.
IFF wipes out any good that the $65 billion in aid that Africa received each year might do. It reduces any progress we may see in making our people’s lives better in an inclusive manner.
There are initiatives underway to address IFF. The Financial Action Task Force (FATF), for example, collaborates with the UN to strengthen countries’ financial systems and prevent illicit outflows.
While South Africa’s inclusion on the FATF’s grey list may be viewed by some as an embarrassment, it does enable us to strengthen our legal and regulatory frameworks and enhance our anti-money laundering capabilities.
Additionally, we are seeing prosecutions of high-level fraudsters, especially those who deliberately used dubious accounting means to move money around and avoid paying their fair share of taxes. It is gratifying to see that there is action.
Other UN entities have developed discussion platforms as well as measurement systems. There are 10 Asset Recovery Inter-Agency Networks that have 178 member countries, allowing illicit money flows to be traced across borders. In addition, Interpol supports national and international law enforcement agencies in investigating, tracing, and prosecuting those responsible for these crimes.
We all must be a catalyst to expand such interventions and to advocate for, and enable, closer alignment between government departments and between our law enforcement agencies and their international counterparts.
Yet, our solutions must not cause more harm than good by discouraging legitimate investment, such as implementing unfair tax regimes that could result in capital flight. We must also not inhibit international investment inflows by making it nigh impossible to comply with legislation and regulations. This would have the negative effect of encouraging companies to operate businesses in sectors such as import and export under the radar.
Through working together in ways such as sharing data, harmonising laws, and holding those who enable IFF accountable, we can develop concrete actions that benefit the economy such as plugging the holes through which money leaks as well as encouraging investment. Our people deserve nothing less.