Illicit Financial Flows: Africa is the world’s main creditor

In its latest report on Illicit Financial Flows (IFF) in Africa, UNCTAD (United Nations Conference on Trade and Development) discloses that US$88.6 billion from the continent go up in smoke every year. Not only must we ask questions about the size of these amounts, we must also wonder how this is at all possible.

1. Colossal losses

According to the report, “Illicit Financial Flows (IFFs) are movements of money and assets across borders which are illegal in source, transfer or use”. There are four main categories: firstly, “Tax and commercial IFFs”, which mostly consists of fraudulent issuing of invoices for products to be imported or exported, amounting to approximately US$40 billion per year; second, “illegal markets”, which are principally human trafficking and toxic waste; third, “Theft-type activities and financing of crime and terrorism”; and finally, IFFs linked to “corruption”.

For Africa, these are colossal losses, US$89 billion per year according to the lowest estimates. This amounts to 3.7% of the continent’s GDP, and 25% of Egypt’s GDP, which is one of the three largest African economies alongside South African and Nigeria. It is also, almost equivalent to the total Official Development Aid, US$48 billion, and Foreign Direct Investment, US$54 billion, received by African countries per year.

Contrary to the dominant discourse, it is actually the case that the 54 African states finance developed countries and not the other way round. Similarly to the CADTM, the UNCTAD report also supports this claim. With IFFs rising to 836 billion dollars from 2010 to 2015, and an external debt of 770 billion dollars in 2018, “the continent [is] being labelled a ‘net creditor to the world’”.

Figure 1: Comparing external debt stock (public and total – left axis), external debt servicing (public and total), and IFFs (right axis) – in billions of US$⁽¹⁾

Although only 13 African countries are on the IMF’s list of countries overburdened with debt, and only about ten have suspended their payments,⁽²⁾ the comparison is striking. Between 2011 and 2018, see Figure 1, IFFs have always been largely superior to the servicing of public and total external debt. In sum, if these countries could get a hold of these IFFs, they could entirely free themselves of external debts. Moreover, without IFFs, African peoples wouldn’t be subjected to different mechanisms of domination and hierarchy which are integral to the Debt System. So, who is responsible here?

2. Shared Responsibilities?

Whenever you speak of Africa and the reasons why countries are facing underdevelopment, internal corruption is immediately singled out as the main factor. It is inevitable: it costs US$148 billion per year according to the African Development Bank. However, we must distinguish between “minor” and “major” corruption.

In an environment where the capitalist ruling classes are perceived as corrupt, minor corruption is all the more present. Since official obligations are transgressed by senior representatives in upper spheres of the State and organizations (both public and private), it is suggested that it becomes normal, rational, and even necessary that such transgressions occur at lower echelons of the administration, especially amongst low-level state officials who are underpaid or not paid for months on end. “Minor” corruption is thus seen as an outgrowth of “major” corruption. The middle classes thus start to exchange administrative authorizations, procedural shortcuts, tax rebates, land and building permits, amongst other monetized “favours”. In this way, “minor corrupters” purchase what they need, although they should have had access to these services perfectly normally had state officials and public services been properly funded by the State. State employees benefitting from this “minor corruption” thus access additional subsistence income which they often need since their official salary is either very small or sometimes goes unpaid. All of this occurs in a dysfunctional structure which is rotten at the top and known to all. As an unfortunate consequence, these criminal but understandable acts doubly impact the poorest in society. In relation to their income, they are the ones who have to pay the highest share in order to access public and private services, knowing full well that the State, and these services in particular which are meant to be accessible to all, will continue to be run to the ground. As far as fighting corruption goes, fighting “minor corruption” is indispensable, yet it must first and foremost be seen as the product of a crumbling State apparatus caused by decades of external neocolonial meddling, in which local capitalist and ruling classes have indulged.

Thus, “20 to 30 per cent of private wealth in many African countries is held in tax havens” and there were “almost 5,000 individuals from 41 African countries with assets of about $6.5 billion” in offshore bank accounts in 2015. In both cases, this type of major corruption is enabled by the (lack of) action of major powers. The OECD (Organization for Economic Co-operation and Development), which has its headquarters in Paris, is meant to fight offshore tax havens, yet none of its 38 members is African.⁽³⁾ Regarding offshore bank accounts, the Tax Justice Network has shown that 10 of the most financially secretive countries fighting to defend bank secrecy practices are all major powers. Amongst them we can find the Cayman Islands, the USA, Switzerland, Hong-Kong and even Luxembourg, Japan and the Netherlands.⁽⁴⁾ Numerous scandals these past few years–including Offshore Leaks, Luxembourg Leaks, Swiss Leaks, Mauritius Leaks,⁽⁵⁾ and Luanda Leaks (implicating Isabel dos Santos, the daughter of ex-President of Angola from 1979 to 2017)⁽⁶⁾–have provided evidence that IFFs and “major corruption” are organized “at the top” and have their headquarters in cities in the richest countries, such as New York, London, Paris, Berlin, and Tokyo.

International Financial Institutions (IFIs) and imperial powers also self-interestedly encourage major corruption. Despite the Blumental Report’s revelations regarding the real destination of most of the funds lent to Mobutu in then Zaire (today’s Democratic Republic of Congo), the World Bank and the IMF pursued their financial support in the interest of geopolitical aims. The recent World Bank #Papergate affair in February 2020⁽⁷⁾ only goes to further confirm these quasi-generalized practices.⁽⁸⁾ In terms of bilateral meddling, we can cite just one example involving France, where Loïk Le Floch-Prigent, Elf’s former Director General (a parastatal company that was taken over by Total), recently claimed: “petrol money enabled the personal financing of African presidents, namely in Gabon and Congo-Brazzaville, and the perpetuation of this system until today, although in different forms.”⁽⁹⁾ In order to thank them for their unwavering support, several French political parties, including the Socialist Party and right-wing parties, have taken advantage of shadowy payments to fund their presidential campaigns.⁽¹⁰⁾ This type of prejudicial operation against the interest of the people isn’t limited to ‘Françafrique’, not even to Africa itself.

Large corporations and multinationals are also key players in IFFs and they keep the African continent in the position of supplying raw materials in order to extract maximum profit. As stated in the report, “It has been estimated that as much as 50 per cent of illicit outflows from Africa are generated via trade mispricing and more than half of trade-related IFFs stem from the extractive sector”. Thus, 40 billion dollars in IFFs come from the activities of destructive extractive industries (gold accounts for 77%, diamond 12%, and platinum 6%). The report goes on to say, “In the case of mining, MNEs [Multi-National Enterprises] increasingly centralize their trading operations, which raises the risk of trade mispricing. Singapore and Switzerland are among the most attractive places for centralizing trade operations due to tax incentives for multinational trading companies”. Who are the main beneficiaries? All the main extractive industry multinationals on the African continent are in the hands of major investors in the Global North, including Canada, France, the USA, Switzerland, etc. (Anglo American, De Beers, Glencore, BHP, Rio Tinto, Umicore (formerly Union minière du Haut Katanga), Vieille-Montagne, etc.).

Further the report specifies that, “The main mechanisms for tax avoidance and evasion include trade mispricing, abusive transfer pricing, profit shifting and tax arbitraging.” In order to paint a full picture we must also take into account the actions of the “Big Four” (KPMG, Ernst & Young, Deloitte, and PwC). These audit firms–notorious for the numerous lay-offs, so called “social programmes” in neoliberal jargon–have specialized in providing advice to companies seeking to “avoid” taxation. In this porous architecture, it is easier to understand that “It is estimated that between 30 and 50 per cent of global FDI is channeled through networks of offshore shell companies”, with direct consequences in terms of accrued volatility of invested stock capital, a growing share of benefits declared in tax havens, and a chronic instability holding back the countries’ development.

3. A Question of Social Justice

In light of this UNCTAD report, the United Nations (UN) should reconsider its systematic promotion of private finances for the realization of its Sustainable Development Goals (SDGs)⁽¹¹⁾ and rather, challenge FFIs’ “tax and commercial practices”. This should enable African countries to recover half of the money needed for the realization of SDGs, which are to be achieved by 2030. This breath of fresh air would be significant for African countries’ public finances. Even more so in a time of debt crisis coupled with increasing pressures on public finances as a result of the COVID-19 pandemic’s healthcare and economic consequences.

Other measures need to be taken as well, including a better tax collection system. If “tax revenue” are progressing and they “represent 16% of Africa’s GDP [today]”, they are nonetheless well below their potential and suffer in comparison to tax-levels in other countries of the Global North and Global South. Nonetheless it must be highlighted that, “Although the recent trend is upward, this increase largely reverses a decline that took place in the 1980s and 1990s, as structural adjustment reforms significantly reduced tax revenue from international trade.” In other words, by insisting on the liberalization of the economy, the imposition of VAT, the removal of import/export restrictions, the control of exchange rates and the movement of capital, the World Bank and IMF have participated in maintaining a majority of the countries’ populations in poverty. Capitalist and ruling classes on the continent and abroad have greatly profited from this situation.

In order to fight IFFs, UNCTAD offers a series of conclusions and qualified recommendations at the end of its report.

Certainly we share the claim that “IFFs are a shared responsibility between developed and developing countries,” but we regret that there is no nuance in terms of degrees of responsibility. If people in the Global North are victims of austerity as a result of IFFs in the same sense as people in the Global South, we cannot make an equivalent comparison at the level of States. The interests of capital are very largely situated in Global North countries. They are the ones who directly influence international architecture and international, multilateral, and national regulatory frameworks to be adopted. Stock markets, banks, and dominant multinationals are located in countries who themselves dominate major decision making bodies (G7, G20, OECD, World Bank, IMF, IIF, Paris Club, EBI, IDB, WTO, etc.) and in China, which is starting to take a share in the imperialist neocolonial cake. Without denying that the interests of Aliko Dangote, the richest African entrepreneur, are the same as his colleagues’ on other continents, there is a vast imbalance of power between the two. With 8.3 billion US$ in his accounts, he ranks 162^nd on a list of largest fortunes of which, among the first 20, we find 14 U.S. citizens, 2 Chinese, 2 French, 1 Spanish and 1 Mexican.⁽¹²⁾ At the national level, Nigeria is the leading African nation in terms of GDP and ranks “only” 29^th globally. Moreover, Nigeria ranks 133^rd when GDP per capita is taken into consideration.⁽¹³⁾ If we turn to the institutional, political, economic or even military strength of African countries in relation to major powers, we can see that they are not in a position to oppose the latter’s diktats (except for South Africa which has a certain autonomy and plays the role of hand-maiden to imperialism in southern Africa). In this context, UNCTAD might do all it can to “Strengthen African engagement in international taxation reform”, or to “Intensify the fight against corruption and money-laundering”, we very much doubt that Africa would really benefit from this multilateral collaboration, especially as it would be in partnership with “the IMF, the World Bank and the OECD.” That UNCTAD positively welcomes the establishment of the African Continental Free Trade Area can only strengthen our doubts. Indeed, Free Trade Agreements lead to a weakening of States in the face of multinational corporate interests and precipitate a downgrading of national regulations. We can certainly hope for a strong union between African leaders to build a space of economic solidarity between African peoples, but as we have previously indicated, these leaders do not seem equipped with the necessary power nor will.

Finally, in order to fight against IFFs, only one recommendation seems redeemable and effective. It aims to “protect and support civil society organizations, whistle-blowers and investigative journalists”. Organizations such as Open Ownership, Financial Transparency Coalition, Tax Justice Network and even Action Aid, have all shown that only groundwork and international campaigns led by locals with the support of international solidarity have obtained significant advances in fights for transparency, taxation, etc. by exerting constant pressure on leaders. African peoples continue to act collectively for their rights and liberties, as we cannot expect the “natural progress” of institutions and ruling classes. From Balai Citoyen in Burkina Faso (the overthrow of Blaise Compaoré) to La Lucha in DRC (the defence of human rights and politicization of the people), not forgetting Front Anti-FCA (by playing on the name of Franc CFA) and so many other struggles, these campaigns, through popular mobilization, have successfully obtained advances, albeit fragile, in the hope of building an authentic Pan-African struggle.

In order to move towards solutions that attack problems at their roots, many measures need to be taken in Global North countries where most of the primary corruptors and facilitators of illegal financial flows are based.

Thus, governments of the Global North must, without pursuing any further forms of meddling abroad, commit to:

Cancel odious and illegitimate debt claimed by countries of the North and thus promote forms of sovereign and self-centred development resting on solidarity in countries of the South,
Heavily punish companies guilty of any form of corruption by public officials of the countries of the South.
Sanction senior officials and political personnel who in European countries have favored or are favoring the spoliation in various forms of the peoples of the South.
Heavily sanction banks (including withdrawal of banking licences) that launder dirty money and are complicit in tax evasion, capital flight, and spoliation of the populations of the South.
Launch a vast audit program with citizen participation to highlight all forms of spoliation and exploitation of the peoples of the South.
Impose heavy fines on companies that have plundered the peoples of the South in various forms in order to contribute financially to a special aid and compensation fund;
Expropriate “ill-gotten goods” by the rulers and ruling classes of the South and return them to the populations concerned and under their control.
Finance the countries of the South, excluding official development assistance, by means of zero-interest loans, repayable in whole or in part in the currency desired by the debtor.
Make available to the populations of the countries of the South through their associations/autonomous organizations, all documents, including those classified as “defence secret”, that can shed light on the origin of the debts claimed by various creditors.
Regularly make public all claims against third parties in an easily accessible and comprehensible form.
Strictly respect the primacy of human rights over all other rights.
Oppose the systematic promotion of the private sector to finance the development of countries of the South, and in particular oppose the promotion of Public/Private Partnerships (PPPs).
Put an end to neo-liberal policies and the privatization of public services.
Repeal a series of international, multilateral and/or bilateral treaties (economic, commercial, political, military, etc.) that are contrary to the exercise of the full sovereignty of the States of the South and to the interests of the peoples of the South and, more broadly, to the general interest of humanity.
Join other countries of the South to create alternative multilateral international institutions that are democratic (on the principle of one country = one vote), equitable and under popular control. This means contributing to the creation of new international institutions that respect human rights and nature and to the in-depth reform of the United Nations Organization, in particular by putting an end to the right of veto in the Security Council. The in-depth reform must also concern certain specialized UN agencies that have become captive to the “partnership” with private foundations that promote PPPs, microcredit, the market at large, free trade, and other dubious initiatives.
Support the implementation of citizen audits on their territory in order to cancel debts claimed from third countries that have been identified as illegal, unsustainable, illegitimate and/or odious.
Put an end to official development assistance in its current form as it is essentially an instrument of domination for the almost exclusive benefit of the countries of the North and to replace it with an unconditional “Contribution of reparation and solidarity” in the form of grants, excluding in its calculation debt cancellations and amounts that do not serve the interests of the populations of the South. This contribution must correspond to at least 1% of the gross national income of the most industrialized countries.
Issue an official public apology for all the wrongdoings committed by European powers towards the populations of the South, entitling them to reparations.
Affirm the right to reparations and/or compensation to peoples who were victims of colonial plunder and spoliation through the debt mechanism
Acknowledge the ecological debt of industrialized countries to the countries of the South and make reparations and/or compensation by recovering the cost of these expenses through a tax or fines levied on the large companies responsible for pollution.
Prohibit companies from speculating on the resources and production of the countries of the South.
Subject all bilateral and multilateral investment and trade treaties to a citizen participation audit and suspend their application for the duration of the audit. Repeal all treaties that will be deemed illegitimate and/or abusive.
Disobey WTO provisions and terminate all free trade, partnership and investment agreements with the countries of the South.
Encourage the exercise of popular sovereignty in the countries of the South to develop fair trade that respects social and environmental justice and to set up real cooperation mechanisms that put an end to looting and promote the emergence of their economies.
Support measures for food sovereignty and for an ecological and socially fair production in the countries of the South.
Exit the WTO and call for an international campaign against this institution and its two counterparts, the WB and IMF, and for their replacement by democratic institutions of solidarity.
End dispute settlement mechanisms that allow large corporations to claim huge sums of money from states if the latter take measures in the general interest that reduce the profits of private capitalist interests. The government will then institute a procedure to leave the ICSID (= World Bank body) and the Dispute Settlement Body of the WTO.
Institutionalize an accepted and legitimate arbitration procedure that consists of prosecuting transnational corporations within its national jurisdiction and increasing their financial penalties according to the gravity of their violation of the sovereignty of peoples, and / or of social and environmental standards.
Heavily sanction companies that do not respect human rights and environmental standards.
Support the initiative for a legally binding treaty compelling transnational corporations to respect human rights in all their aspects: civil, political, economic, social and cultural.
Unveil secrecy surrounding trade and investment agreements that allow companies to increasingly take the place of peoples and States in order to protect their freedom of action and investment.
Denounce and cut ties with despotic regimes and governments in the South that sign these agreements because they take advantage of them at all levels to enrich themselves and divert fortunes abroad.

All the necessary measures mentioned above are taken from: ReCommons Europe-Impact of European policies on the Global South and possible alternatives

The author would like to thank Jean Nanga, Claude Quémar, Eric Toussaint for their proof-reading and suggestions.

Translated from French by Dimitri Cautain, Revised by Christine Pagnoulle

Footnotes

Sources: For debt stock and servicing, World Bank. For IFFs, present report.
Read Éric Toussaint and Milan Rivié, «Les pays en développement pris dans l’étau de la dette» [Developing Countries Caught in a Debt Trap], 6^th October 2020. Available in French online: cadtm.org
Member states are: Australia, Austria, Belgium, Canada, the Czech Republic, Chile, Colombia, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Ireland, Iceland, Israel, Italy, Japan, Latvia, Lithuania, Luxembourg, Mexico, Norway, New Zealand, the Netherlands, Poland, Portugal, Slovakia, Slovenia, South Korea, Spain, Switzerland, Sweden, Turkey, the United Kingdom, the United States of America.
See the Tax Justice Network’s website: fsi.taxjustice.net
Fergus Shiel and Will Fitzgibbon, “About the Mauritius Leaks Investigation”, ICIJ, 23^rd July 2019. www.icij.org
See the ICIJ’s research: www.icij.org and Marlène Panar, “Luanda Leaks, ou l’effondrement de l’empire dos Santos” [Luanda Leaks and the unravelling of the dos Santos Empire], 21^st January 2020, Le Point Afrique. www.lepoint.fr (in French)
Renaud Vivien, “#Papergate : vers un nouveau scandale de corruption classé sans suite ?” [#Papergate: A new corruption scandal closed without further action], Le Soir, 27^th January 2020. plus.lesoir.be (in French)
Éric Toussaint, “World Bank and IMF support to dictatorships”, 9^th April 2020. www.cadtm.org
In Fabrice Afri, «Corruption: le testament judiciaire d’un ancien patron d’Elf» [Corruption: A former Elf boss’ testimony in court], 30^th September 2020, Mediapart. www.mediapart.fr (in French)
See Antoin Dulin and Jean Merckaert, «Biens mal acquis, A qui profite le crime?», CCFD, june 2009. Available in French online: ccfd-terresolidaire.org and «Chirac, Villepin et Le Pen accusés de financement occultes», Le Monde, 12^th September 2011. Available in French online: www.lemonde.fr
See: sdgs.un.org
www.journaldunet.com
Data from the World Bank.