Taming Illicit Financial Flows in Africa

It is estimated that about $90 billion is lost annually to illicit financial flows in Africa, enabled by trade mis-invoicing, tax evasion among others, and Nigeria alone reportedly accounts for 20 per cent of this figure. Ugo Aliogo examines the drawbacks and the way forward

In 2022, the Director of the Centre for Democracy and Development (CDD), Idayat Hassan, said the Illicit Financial Flows (IFFs) in Africa rose to $80 billion.

Hassan said the African continent suffered an annual loss of over $50 billion as at 2015 through IFFs, which had since risen due to non-practical action on it.

According to her, it is pertinent to note that through corruption and mismanagement, some of the COVID-19 funds in Africa may have become a source of illicit financial flows.

She commended all African countries that have signed and ratified the African Union Convention on Preventing and Combating Corruption (AUCPCC), which was adopted in Maputo, Mozambique on July 11, 2003, and came into force in 2006.

She also lauded the countries that have enacted laws and created independent anti-corruption agencies to tackle corruption.

She espoused that CDD urges all states to work towards complying with the provisions of the AUCPCC and indeed other similar multilateral instruments such as the UNCAC, as well as relevant international resolutions.

Experts have argued that Nigeria loses about $18 billion annually to illicit financial flows. This reportedly accounts for about 30 per cent of Africa’s loss to the IFFs, while the Independent Corrupt Practices and Other Related Offences Commission (ICPC) pegged the figure at $10 billion.

The Chairman of the Independent Corrupt Practices and Other Related Offences Commission (ICPC), Prof Bolaji Owosanoye, said the failure of member states to tackle corruption was behind unconstitutional change of governments in the sub-region.

AFDB’s Efforts

The Deputy Director-General for Eastern Africa Regional and Business Delivery Office at the African Development Bank (AfDB), Abdul Kamara, expressed satisfaction with the project, noting that it is in line with the high-level panel’s mandate to promote a coordinated response of the bank’s regional member countries in ensuring that policies and practices are mobilised in addressing financial crime, tax avoidance, money laundering. (CoDA) recently launched a three-year support project to improve regional coherent and coordinated response to illicit financial flows.

The project would help African stakeholders to actively engage in stemming such flows to improve domestic revenue mobilisation on the continent.

The project aims to improve regional coordination of combating illicit financial flows and the oversight and accountability of public finances, for optimal revenue mobilisation and management in African countries.

It revealed that the project would support the coordinated implementation of recommendations of the high-level panel on Illicit financial flows and the implementation of joint strategies and initiatives related to international taxation.

The grant would support CoDA in its role as the secretariat of both the AU High-Level Panel on IFFs, the Joint Secretariat of the Consortium to Stem IFFs from Africa, and the annual African Fiscal Policy Forum.

ICPCs’ Role

In its quest to find a lasting solution to this unpleasant phenomenon, the ICPC is beaming its search light on areas that are prone to IFFs such as tax avoidance, tax evasion, base erosion and profit shifting.

The commission has initiated a system study and review of the IFFs in the oil and gas, and as well as tax sectors. It has also constituted IFFs/Tax Fraud Group to address the menace. 

ICPC has hosted four international conferences to sensitise Nigerians, Africans and the world on the ills of IFFs and how to collectively work together to stop/combat the menace.  

The commission has also scaled up its operations in profiling all companies mentioned in petitions to the Commission to ensure that they are not in any way short-changing the nation.

Leveraging on two aspects of its three-pronged mandate of prevention and public education, ICPC is re-awakening the consciousness of Nigerians by stimulating dialogues and conversations among critical stakeholders, because public awareness is a key tool in fighting against evolving illicit financial operations.

As part of its efforts to block the loopholes through which funds are ferried out of the country, the Nigerian government in 2019, set up an Inter-Agency Committee on Stopping IFFs with ICPC as the secretariat.

The committee is chaired by the Special Adviser to the President on Economic Matters, Dr. Adeyemi Dipeolu, and tasked with the mission of promoting financial integrity and transparency in consonance with the far-reaching recommendation of the Thabo Mbeki High Panel Report on IFFs.

In recognition of the critical role of technology, a home-grown technology to calm the rising waves of IFFs in Nigeria is being developed in collaboration with NITDA and the Federal Ministry of Communication and Digital Economy. 

Expert Opinion

There have been several commitments by the International Organisations such as the European Union (EU) to assist Nigeria in recovering looted funds. But the argument has always been how effective has these types of efforts being in helping Nigeria recover looted funds.

From an expert angle, Executive Director Civil Society Legislative Advocacy Centre (CISLAC) Auwal Musa Rafsanjani, espoused that the collective effort and multilateral collaboration between Nigeria and the international community on tracking and repatriation of the looted treasury must be acknowledged.

He said the progress hitherto recorded in the asset recovery were in most cases facilitated by some international organisations such as the European Union Agency for Criminal Justice Cooperation (EUACJC) -an agency under the EU, which facilitates the asset recovery process by providing legal and practical support to judicial authorities throughout the different stages of asset recovery, by helping practitioners to resolve issues and answer questions, and by facilitating effective cooperation and communication between the involved States.

In reviewing the efforts of President Muhammadu Buhari’s commitment to tracking Illicit Financial Flows, Rafsanjani commented that IFFs apart from being a technical area that demands greater capacity and commitment to decode in financial crime, from observations, most anti-graft institutions like ICPC, EFCC, CCB and FIRS are currently institutionalising measures and building capacity including extended collaboration with Civil Society Organisations (CSOs) to combat IFFs, adding that these are commendable institutional efforts supported by the administration.

He explained that in terms of enabling legal provisions to effectively combat IFF, the administration has in recent times signed into laws, Money Laundering (Prevention and Prohibition) Act, Terrorism (Prevention and Prohibition) Act, Asset Recovery and Proceeds of Crime (Recovery and Management) Act, Petroleum Industry and Governance Act, and Beneficial Ownership registry, while noting that these laws are paramount in establishing appropriate measures to adequately interrogate the mechanisms and enablers of IFFs in Nigeria.

According to him, “We must at this point understand that absence of enabling legal provisions had in several instances frustrated justice process and backpedalled progress in asset recovery process and our anti-graft institutions’ effort in fighting IFFs. Given these commendations, we cannot conceal some counter-productive loopholes and political interference observed in the administration’s fight against IFFs.

“A very good example of this was the recent presidential pardons granted to high profile persons convicted of monumental financial crimes; and other recurring political interferences that have created a major setback in the fight against IFFs.

“As I stated earlier, lack of enabling legal provisions had created some systemic loopholes in addressing IFFs. Judicious utilisation of the recovered assets could only be possible when there is a legally-backed or designated channel for efficient management of the assets. These have been addressed by Asset Recovery and Proceeds of Crime (Recovery and Management) Act, recently assented by the president.

“Through this process, Civil Society can begin to demand transparency and accountability of the recovered assets from appropriate authorities. We must also reiterate that transparency and accountability around the recovered assets have been lacking coupled with inter-agency rivalry that delayed coordinated effort in their management. This could pave the way for re-looting of the looted assets. We must recall that Civil Society Legislative Advocacy Centre (CISLAC)/Transparency International Chapter in Nigeria (TI-Nigeria) has on several occasions through media and policy advocacy been calling for transparency and accountability of the recovered assets to avoid re-looting. Within this context, recovered assets are expected to be judiciously re-directed towards revitalising our ailing infrastructural facilities and critical sector of the economy through all-inclusive procedures, transparency and impactful measures.”

Rafsanjani added: “There is also a general culture of the perceived right of those in power to use state institutions for power preservation and personal enrichment. Until this is changed, no law or policy will dramatically improve the chances to fight corruption. We are more worried by the implication of political pardon to convicted persons in the anti-corruption fight, which forms the major agenda and commitment of the administration. This constitutes a serious setback to the EFCC’s commitment and effort against corruption in the country.

“Moreover, the EFCC’s inability, and of course, the delay in bringing to justice some high-profile personalities alleged of criminal misappropriation, money laundering and other forms of fraud have been linked to the underfunding of the commission. The level of funding for the Commission has continued to render it incapacitated to prosecute high profile cases. Despite these challenges, we observed that EFCC has been standing up against some of the administration’s high-profile personalities, who have been arrested and taken to court for financial crimes, though many of such related cases are still lingering or left unattended.”

Tax Evasion

In his views, the Head of Transparency International Nigeria, argued that as part of the efforts to benefit from and facilitate effective exchange of information on tax matters, the Nigerian government signed the Convention on Mutual Administrative Assistance in Tax Matters in 2013 and ratified it in April 2015.

He further noted that the convention was an initiative of the Organisation for Economic Cooperation and Development (OECD), which provides a significant step in the administration of taxes in Nigeria, as it stands to give the Federal Inland Revenue Service (FIRS) and relevant anti-corruption agencies new lines of enquiry about the tax affairs of multinational companies (MNC) operating in Nigeria.

He said: “Unfortunately, Nigeria government has opted out of the OECD Agreement, which would have helped in preventing the recurring monumental revenue loss to IFFs through tax evasion by IOCs and other international companies. The incoming administration must do a thorough technical scrutiny in collaboration with independent experts and Civil Society to weight the cost and benefits of withdrawal from the Agreement to enable us ascertain and take well-informed decision on the way forward.

“First, the incoming administration must revisit the OECD Agreement and option through technical approach for constructive decision that would maximally benefit the economy. The Agreement is paramount to identifying and blocking the enablers and mechanisms of IFFs.

“The administration must strengthen various anti-corruption agencies through enabling policy environment, technical and financial capacity to effectively prevent IFFs. Also, full implementation of relevant anti-corruption laws has become imperative for the incoming administration to demonstrate sincerity and commitment in the fight against IFFs at all levels. Another important thing the incoming administration must do differently is to guarantee operational independence of the anti-corruption. This must be demonstrated by action, commitment and policy. Political interference in anti-corruption activities and operations must be avoided by the incoming administration.”