Event: Africa Europe Foundation - Combatting Illicit Financial Flows

By Hector Enoc Ulloa Chinchilla

Event: Africa Europe Foundation - Combatting Illicit Financial Flows
Photo: Shutterstock

A Special Dialogue on Combatting Illicit Financial Flows took place the 9th of June 2023 as part of the Africa-Europe Tracker mechanism. The AU-EU Tracker provides up-to-date information and data, reflecting the latest developments within the Africa-Europe partnership. Matthew Collin, Senior Economist at the EU Tax Observatory and member of Skatteforsk – Centre for Tax Research, attended as panelist.

At the event, Illicit Financial Flows (IFFs) were recognized as a major problem which has usually been swept under the carpet in policy discussions. The online event sought to discuss the progress that has been made on different commitments made by European and African states to combat IFFs. Even though it is hard to measure how much money Africa is losing due to IFFs today, estimates made by the OECD in 2021 state that more than USD 80billion escape the African continent and UNCTAD estimates the losses to be of around USD 88.6billion – equivalent to 3.7% of the continent’s GDP.

A big chunk of the total volume of IFFs comes from commercial activities and not criminal or corrupt enterprises. Within this area, profit shifting and tax avoidance by multinational corporations has been identified as one of the biggest factors enabling IFFs. African states have made repeated calls multilateral cooperation because they cannot tackle this issue without the support of destination countries – many of them EU member states. Historically, it has been precisely developed countries that have legal frameworks which enable the accumulation of hidden wealth, the panelists argued.

Adeyemi Dipeolou, former Head of the Secretariat of the High-Level Panel on IFFs, highlighted the important role that researchers have in providing tax administrations and policy makers with better understandings of how and where IFFs take place, as well as the factors that enable this to happen and the impact it has on society.  Matthew Collin, from Skatteforsk, discussed the need for the world to focus more on the role that richer countries – including European countries – play in enabling the flight of illicit capital from Africa. This includes the need to push forward on public beneficial ownership regulation and the need to re-align anti-money laundering risk assessments to focus on the jurisdictions that do the most to enable illicit flows around the world.

The required changes to combat IFFs are usually of political nature, highlighted Alex Cobham, Chief Executive of the Tax Justice Network. Alex made emphasis on how corporate tax abuse is a central component of IFFs and the urgent need to change outdated global tax policies. Something which is now part of the global multilateral agenda through SDG 16.4 and gives solid political grounds to promising initiatives such as the UN Tax Convention.

The event concluded with a call to shift the public’s understanding that it is developing countries that have the burden of combatting IFFs alone, since it is their duty to stop those resources from leaving their borders. Instead, developed countries, which serve as hosts and conduits for those resources, should take actions to stop enabling IFFs and tighten their regulations in order for such actions to not be profitable or attractive to anyone.

Published - Updated