Dods EUM: High-Level Panel on Illicit Financial Flows from Africa

The Committee on Development and the Committee on Foreign Affairs organised a joint exchange of views with Mr Thabo Mbeki, former South Africa President and Chair of the high-level panel on illicit financial flows from Africa. A summary of the exchange of views can be found beneath

By Dods EU monitoring

25 Feb 2014

The joint chairmen, Nirj Deva (ECR, UK) and Elmar Brok (EPP, DE) introduced the former South African President Mr Thabo Mbeki to the European Parliament, noting his achievements in office and his role in peace initiatives post-Presidency. Brok also welcomed the discussion on illicit financial flows in Africa which amount to more than double the investment aid the continent receives from external aid givers.

Mr Mbeki said that the investigative panel was made up of African Economic and Finance Ministers to look at matters of investment and development across the continent. He said that it was clear from these discussions that Africa was losing €50bn per year through illegitimate channels.

He explained that the panel will discuss recommendations about what Africa does and what the rest of the world can do about this phenomenon. He acknowledged that there must be recipient countries benefitting from the illegitimate financial flows, and that they should also form part of the solution effort.

An advisory panel member explained that the illicit financial flows (IFF) represent a significant block to African development. The size of these illicit funds, she said, has grown enormously from 2000 compared to earlier decades. This loss of resources, as well as the impact on existing programmes, is furthering the problem.

On average, each African country is losing about $1 billion each year, and these are the countries that need to utilise this money most. She added that it is important to raise awareness and introduce concrete measures to stop this.

The advisor said that IFF funds are the priority for the panel, noting that they typically happen in the cross border context. She explained that the panel has also looked at the interests of post-conflict African countries to get a comprehensive range of facts and a range of possible solutions, choosing to not focus on any particular group of countries.

She acknowledged that support from the international community is needed to reduce IFF and that meetings have been held with governments around the world which, it is hoped, will promote the efforts of the panel.

The advisor noted that the IFF “source countries” in Africa are important within these illicit flows, but that recipient countries – such as tax haven countries - are a major player in the IFF problem.

Theft and bribery facilitate the IFF problem she explained, as well as illegal practices like drug trafficking. She said that trade mispricing, tax evasion and over invoicing account for over 65% of IFF rather than direct government corruption.

The advisor said that the panel has been made aware that citizens were not aware of the severity of IFF, as it was often technical to understand and overly political in nature.

She also covered the consequences of IFF, saying that the phenomenon undermines development to such an extent that government growth targets are rarely met. This drain on resources also has a negative impact on national and international responsibilities and undermines the institutions of the state, she explained. She said that infrastructure projects, health projects as well as basic tax collection rates all fall when IFF takes place; as well as softer repercussions like boosting wealth inequality and extending poverty.

The advisor asked for European Parliament support to help the implementation of anti-IFF measures by putting in place awareness measures and boosting transparency.

Barbara Lochbihler (Greens/EFA, DE) acknowledged the good that could be done on the African continent if the IFF money could be traced, and the practice stopped. She asked if there was to be a strengthening of civil actors and agencies, especially in resource rich countries where IFF is especially problematic.

Sir Robert Atkins (ECR, UK) asked if disclosure was a viable option, particularly for tracing these funds. He also asked how the money moves around under IFF and the size of the transactions. He asked what powers the panel have in terms of influencing African governments, and what relationship the panel envisages developing with the European Union.

Anna Gomes (S&D, PT) said that linking up the European legislation and proposals already in place could prove useful to tackle IFF. She asked what the panel was to do about African Union members, who she described as guilty or complicit of crimes within the natural resource sector. She mentioned a recent case of persecuted Angolans; and Equatorial Guinean practices of trying to gain footholds in Portuguese banks to help facilitate money laundering.

Sabine Lösing (GUE/NGL, DE) took issue with European industries who were directly and indirectly partaking in IFF. She said that more pressure was needed to trace and recover the money to benefit African citizens, who the money belongs to. She also requested the figures for IFF which ended up in European businesses.

Véronique De Keyser (S&D, BE) said that IFF must have deep ethical and financial roots in Europe and pledged her support for the panel’s cause. She spoke of South Sudan, a young state, which suffered from corruption but has been helped by the EU. She asked what safeguards need to be put in place when state building to prevent corruption developing from the outset.

Nirj Deva (ECR, UK) said that money must be traced, and this can be done, as had been done in the past. He asked what was being done to locate the money which was deposited in European and North African banks.

Judith Sargentini (Greens/EFA, NL) said that there was popular support for greater transparency, particularly in development programmes and within certain industries that form the backbone of money laundering operations. She noted the British government’s support for a public register for sensitive companies, but expressed regret that the German government was slow to match this pledge.

Answering the submissions, Thabo Mbeki said that the panel has been partnering their efforts with wider civil society objectives. He said that grassroots pressure was crucial to ensure governments act on IFF.

Speaking on the panel’s powers, he said that finding an action plan first requires a thorough investigation of how IFF impacts in countries; what is being done, if anything, to prevent the practice and how prosecutions are dealt with. Mbeki also acknowledged that some countries were not aware of their export levels, instead relying on international companies to declare what is being mined or fished from their territory. Self-monitoring and regulation was therefore highlighted as an issue for future attention.

Mbeki said that the fundamental challenge in setting up new states was finding who is best placed to cement leadership and good governance. He added that determining who has the legitimacy to enforce that should be taken into account in future cases.

Mr Baker, an advisor, said that the €50 billion figure was an overly conservative estimate, as it excluded smuggling and price fixing. He said that the main beneficiaries from IFF were North America and Europe, and that disclosure was a significant problem. With regard to tracing funds, he explained that the outflow data from Africa was better than inflow data into Western countries.

He added that trade mispricing is the bulk culprit for illicit flows, rather than simple money transfers. He thanked Judith Sargentini for her work on the transparency register which he said would be a good measure if introduced.

The two chairmen both concluded that the problem was serious, with Nirj Deva adding that a large amount of foreign investment into London property was likely to come from these illicit flows from Africa, adding weight to his belief that IFF money could be traced.

Read the most recent articles written by Dods EU monitoring - EU Top Jobs: Class of 2019 biographies


Industry & Finance
Share this page