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Updated Mar 5, 2020

The Brookings Institution, a Washington think tank, recently published a report about the impact on development in Africa of illegal movements of money or capital, or illicit financial flows (IFFs). The most common method of illegally moving money offshore was through deliberately misreporting the value, nature, or quantity of imports or exports, allowing offenders to take advantage of tax incentives, evade taxes or capital controls, and launder money.

An estimated US$1.3 trillion flowed out of Africa illegally over the span of thirty-eight years from 1980 and 2018, the report states. During the same time, sub-Saharan Africa received nearly US$2 trillion in foreign direct investment and development aid. South Africa, the Democratic Republic of the Congo, Ethiopia, and Nigeria were responsible for more than 50 percent of the total value of IFFs, with strong correlation to increasing trade over the same period.


Why It Matters

Aid packages to Africa will not benefit its recipients if the majority of the funds wind up in offshore accounts or spent elsewhere. Although African countries cannot depend on aid entirely to develop into modern economies with middle-class standards of living, aid absolutely can help with certain large-scale projects or help to lighten the burden of industrializing, especially for the continent’s weakest economies. The dramatic case of Angola’s dos Santos family and their siphoning of billions of dollars out of the country highlighted how IFFs directly harms the livelihoods and wellbeing of Africa’s poorest citizens. While Isabel dos Santos became Africa’s richest woman, her compatriots remained some of the poorest in the world.


Stopping the Flows and Repatriating the Funds

The most effective method to curtail IFFs is to prevent them before they start. To that end, the international community has begun to undertake initiatives designed to address money laundering, including the Financial Action Task Force, the Global Forum on Transparency and Exchange of Information for Tax Purposes, and the Inclusive Framework on Base Erosion and Profit Shifting. Repatriation of already stolen wealth is another method of mitigating the impact of money laundering, as was demonstrated last month when the US Treasury and the British Crown Dependency of Jersey agreed to repatriate more than US$300 million to Nigeria, assets stolen by former military ruler Sani Abacha while he was in power.

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