An estimated $88.6 billion is illegally moved out of African countries each year, the United Nations Conference on Trade and Development (UNCTAD) said in a 2020 report [ https://news.un.org/en/story/2020/09/1074052 ] that cited tax evasion, mis-invoicing and criminal activities as leading culprits.
The U.N. report’s loss estimate aligns with a finding in “On the Trail of Capital Flight From Africa,” a book published early this year that examines large-scale illicit outflows from Angola, Ivory Coast and South Africa. Just those three countries combined have lost an average of $60 billion a year for five decades, the book’s research team calculated.
“That’s massively more than what they are receiving in terms of foreign aid … what they are receiving in terms of foreign direct investment, remittances and any other flows,” said Léonce Ndikumana, the book’s co-editor, an economics professor at the University of Massachusetts and director of its African development policy program.
Ndikumana, a former officer with the African Development Bank, has studied illegal financial outflows for years.
“Outflow of resources through capital flight diminishes the country’s ability to fund development projects that would create jobs, that would reduce poverty, that would create more educational opportunities and health,” he told VOA in a recent interview.
Among recent examples of this illegal capital flight:
• Kenya’s Ethics and Anti-Corruption Commission said, in a July 20 Twitter post, [https://twitter.com/EACCKenya/status/1549791821907349504] that it was investigating four National Treasury employees suspected of embezzling public funds. Local media [https://www.kbc.co.ke/eacc-set-to-freeze-bank-accounts-belonging-to-four-treasury-officials/] reported the four were accused of siphoning off 37 million Kenyan shillings, or nearly $307,700.
• The multinational mining and commodity trading firm Glencore pleaded guilty earlier this year – in British, U.S. and Brazilian courts – to bribery and market manipulation schemes, some affecting Africa.
The United Kingdom’s Serious Fraud Office, in a June 21 statement, [https://www.sfo.gov.uk/2022/06/21/serious-fraud-office-secures-glencore-conviction-on-seven-counts-of-international-bribery/] said Glencore Energy Ltd. Personnel “paid bribes of over $28 million” involving oil operations in Nigeria, Cameroon, Ivory Coast, Equatorial Guinea and South Sudan.
A month earlier, the U.S. Justice Department announced [https://www.justice.gov/opa/speech/attorney-general-merrick-b-garland-delivers-remarks-announcing-glencore-guilty-pleas] Glencore had pleaded guilty in two related criminal cases and would pay roughly $700 million in penalties for bribery and $485 million for manipulating oil prices.
Destabilizing effect
The professor said the book’s team has “identified a very strong, systematic relationship” between the “illegal outflow of money from African countries and the phenomenon of external borrowing.”
Many governments borrow money from abroad to finance development projects. But, Ndikumana said, “A big fraction of that money ends up being embezzled by the same people who are supposed to manage it … then siphoned out of the country.”
Ndikumana said the team’s analysis indicated that, on average, 40 to 60 cents of every dollar borrowed by African countries gets lost to bribes, inflated charges, embezzling and more. Less available funding can lead to inferior roads, rail lines or buildings; fewer health clinics, schools and sanitation facilities; fewer police, firefighters and social workers.
And, he pointed out, the loans still have to be repaid in full.
Illegal capital flight also is linked to the decline of a country’s institutions, Ndikumana said, “because the same people who are benefiting from capital flight are actively undermining the ability of the government to control the transactions” involving commerce and taxation.
“African resources are being plundered by acts of collusion between international actors, a network of enablers and takers, including multinational corporations, legal firms, accounting firms that are advising those individuals who are bleeding the continent,” he said.
Solutions proposed
To counter illicit financial flows, “you need to attack all those sources of the problem,” Ndikumana said.
For example, “you need to be sure that, at the global level, there is effort to improve transparency in the banking systems,” he said, calling for stronger “controlling and reporting [of] suspicious transactions.”
The UNCTAD also called for “international tax cooperation and anti-corruption measures.”
Concerns and proposed antidotes to illicit financial flows go back years. A 2015 report by the U.N. and African Union [https://repository.uneca.org/ds2/stream/?#/documents/0ca955c2-2e56-5120-a605-9e8a7566c7d3/page/1] said, “Countries that are destinations for these outflows also have a role in preventing them and in helping Africa to repatriate illicit funds and prosecute perpetrators.”
The African Union Advisory Board Against Corruption has called for stronger “accountability systems” [https://anticorruption.au.int/en/news/news/2022-07-12/african-union-anti-corruption-day-celebration-zanzibar-2022?fbclid=IwAR13a05tiC6vvNKEO899FL5Jb09xwmMzQtrReD9K1nivtAzrcBOZmzyQjwc] among member states, most recently involving emergency funds designated to address the COVID-19 pandemic.
Transparency International, a nonprofit focused on combatting corruption, urges governments and others to do more to counter illegal capital flight. In an open letter to AU leaders to mark the annual Africa Anti-Corruption Day [https://www.transparency.org/en/press/africa-anti-corruption-day-covid-19-relief-funds-and-illicit-financial-flows-top-concerns-open-letter], it called for pressing member states “to open up procurement information, and sanction and prosecute any abuses of COVID-19 recovery funds.” It also encouraged speeding up efforts to fight illicit financial flows and end “secretive company structures.”
“There are definite gaps” in tracking data, said Robert Mwanyumba, Transparency International’s Southern Africa regional coordinator.
The group has set up research programs in nine African countries to track transboundary illicit financial flows “as a reference point and a resource” for their respective governments and civil service, Mwanyumba told VOA. The countries include Nigeria and Ethiopia – the continent’s most populous nations and two of its biggest economies – plus Ivory Coast, Kenya, Mauritius, Morocco, Republic of Congo, South Africa and Zambia.
The goal, Mwanyumba said, is to better understand “the extent and mechanisms that enable illicit financial flows in the region,” where they’re going, how authorities are responding, and the “risks and capacities of these African countries to detect and prevent these monies [from being] siphoned instead of being used to reduce dire inequalities in the region.”
VOA's Carol Guensburg and Eric Manirakiza authored and edited this report.