Bridging borders by combatting illicit financial flows and corruption for global financial integrity

Bridging borders by combatting illicit financial flows and corruption for global financial integrity

Thu 16 May 2024

Africa’s economic potential is hindered by the pervasive presence of illicit financial flows (IFFs), fraud, and corruption, which not only strip the continent of vital resources but also obstruct its path towards sustainable development. The staggering annual loss of $88.6 billion to IFFs, as reported by the United Nations Conference on Trade and Development (UNCTAD), underscores the urgency of addressing this pressing issue. In this article, we delve into the intricate web of illicit finance, unravelling its complexities and proposing strategies for comprehensive solutions to highlight how the way should be paved to achieve a more transparent, resilient, and equitable financial landscape throughout the African continent.

The outflow of illicit funds from Africa not only deprives the continent of essential resources but also has wider-reaching impacts by undermining the integrity of the global financial system. These funds often find refuge in offshore accounts, shell companies, and complex financial instruments, obscuring the lines between legitimate and illegitimate wealth. This phenomenon directly impacts financial institutions worldwide, exposing them to the risks of tainted funds and regulatory scrutiny. Moreover, living in an interconnected world in the modern age directly translates to the global financial markets being interconnected too. Therefore, illicit activities in one region can reverberate across borders, influencing investor confidence and financial stability on a global scale.

Indeed, the transnational nature of illicit financial flows emphasises the necessity for a coordinated response that transcends borders. Criminal networks operate seamlessly across continents, exploiting regulatory gaps and jurisdictional variations to perpetrate their illicit activities. This underscores the importance of international cooperation and information-sharing mechanisms in disrupting illicit financial networks and holding wrongdoers accountable. Further, the rise of digital currencies and online platforms has facilitated the cross-border transfer of illicit funds, presenting new challenges for law enforcement agencies and financial regulators worldwide.

The presence of illicit finance poses significant risks to global financial institutions and markets. Financial institutions risk unwittingly participating in money laundering schemes or facilitating illicit transactions, thereby exposing themselves to regulatory scrutiny and reputational harm. Additionally, the perception of weak governance and widespread corruption in certain regions can deter foreign investment and impede economic growth, impacting financial markets and investor confidence worldwide. Hence, there is a growing urgency for banks and financial service providers to fortify their due diligence processes, bolster transaction monitoring capabilities, and invest in technology-driven solutions to mitigate the risks associated with illicit finance.

“Africa needs to take bold and tangible actions to consolidate its tax base. Some of the measures include strengthening capacities for raising domestic taxes and significantly reducing illicit financial flows from the continent. These, among others, are critical to achieving the targets and aspirations of the African Union Agenda 2063 as well as the United Nations Sustainable Development Goals. In this respect, the Africa Initiative on tax transparency is a step in the right direction in reducing tax evasion or avoidance as well as all other forms of illicit financial flows from Africa.”[1]

Albert M. Muchanga, Commissioner for Economic Development, Trade, Industry and Mining, African Union Commission

To tackle these challenges effectively, efforts to harmonise regulations must be intensified, both regionally and internationally. Streamlined anti-money laundering (AML) and counter-terrorism financing (CFT) frameworks can simplify compliance requirements for financial institutions operating across borders, reducing regulatory arbitrage, and enhancing the efficacy of AML/CFT endeavours. Moreover, greater transparency in beneficial ownership information and corporate structures can aid in identifying and deterring illicit activities, which in turn reinforces the integrity of the global financial system.

In addressing the global menace of illicit financial flows, fraud, and corruption, Africa and its international partners must collaborate closely to develop and implement comprehensive strategies. This collaboration should encompass capacity-building initiatives, technical assistance programs, and information-sharing agreements aimed at fortifying regulatory frameworks, enhancing investigative capabilities, and promoting financial integrity.

“Governments should design law with practical enforcement measures and fight selective enforcement. Promoting transparency on national and subnational budget information, processes and procedures for budget development and auditing is also key.”

Zineb Marfoq, Senior Manager, Mazars

The ramifications of illicit financial flows from Africa extend far beyond the continent’s borders, affecting global financial stability and investor confidence. The interconnected nature of financial markets implies that illicit activities in one region can have far-reaching repercussions, undermining efforts to uphold a level playing field and promote ethical business practices.

Financial institutions operating internationally face heightened scrutiny and regulatory pressure to ensure compliance with anti-money laundering (AML) and counter-terrorism financing (CFT) regulations. Failure to detect and prevent illicit financial flows can result in severe penalties, reputational damage, and loss of stakeholder trust. Therefore, there is an increasingly urgent need for banks and financial service providers to enhance their due diligence processes, bolster transaction monitoring capabilities, and invest in technology-driven solutions to mitigate the risks associated with illicit finance.

Moreover, the perception of weak governance and corruption in certain African countries can deter foreign investment and hinder economic growth in the region. Investors are becoming increasingly cautious about allocating capital to markets perceived as high-risk, preferring instead to invest in safer destinations with robust regulatory frameworks and transparent business practices. Indeed, this reluctance to invest in Africa exacerbates development challenges and perpetuates cycles of poverty and inequality, emphasising the importance of concerted efforts to combat illicit finance and create an environment conducive to sustainable investment and growth.

“The struggle is real and is partly due to a non-robust regulatory environment such as complex layers of legislation in trade, with the particular dominance of bilateral treaties easing mispricing and tax evasion.”

Zineb Marfoq, Senior Manager, Mazars

In addition to its impact on financial markets, illicit financial flows from Africa contribute to broader geopolitical dynamics, fuelling instability and undermining democratic institutions in the region. Corrupt practices and illicit transactions empower autocratic regimes and criminal networks, perpetuating cycles of oppression and undermining efforts to promote democracy and human rights. Therefore, addressing the root causes of illicit finance in Africa is not only of economic significance but also a critical imperative for promoting peace, stability, and democracy on the continent and beyond.

Addressing illicit financial flows, fraud, and corruption in Africa requires a multifaceted approach that engages stakeholders at the local, regional, and global levels. By strengthening regulatory frameworks, enhancing international cooperation, and promoting transparency and accountability, Africa and its global partners can mitigate the risks associated with illicit finance and foster a more resilient, equitable, and sustainable financial ecosystem. It is through collective action, shared commitment, and sustained effort that we can bridge borders, promote financial integrity, and build a brighter future for generations to come, both in Africa and worldwide.


[1] The Yaoundé Declaration – Fighting illicit financial flows in Africa – OECD