Vulnerability and Exposure to Illicit Financial Flows risk in Africa

It is well established that illicit financial flows affect the economies, societies, public finances and governance of African countries – as they do all other countries. A key challenge to addressing illicit financial flows has been the difficulty of identifying the relative importance, in a given country context, of the many channels within which illicit financial flows may occur, and the multiple economic partner jurisdictions in each channel.

The “Vulnerability and Exposure to Illicit Financial Flows risk in Africa” report published today by the Tax Justice Network addresses the gap by elaborating on an approach pioneered in the African Union and Economic Commission for Africa’s Report of the High Level Panel on Illicit Financial Flows out of Africa.

We present risk profiles for individual African countries, based on a range of relative and absolute proxy measures of illicit financial flow vulnerability. This allows granular comparison of illicit financial flow risks across countries and by channel, in turn highlighting the most dangerous partner jurisdictions. The risk profiles and our analysis of patterns across the profiles provide policymakers with guidance for their next steps in countering illicit financial flows: where and how to start tackling the issues.

An important finding is that Africa is importing the overwhelming majority of its risks in illicit financial flows from outside the continent. This is hardly surprising given the relative importance of economic relationships African countries have with countries outside the African continent compared to intra-African intensity of economic relationships. Yet there are some noticeable differences in each of the economic channels. For example, the risks in trade appear to be concentrated with Europe and Asia, whereas the risks in direct investment are more concentrated in Asia. Portfolio investments stem largely from the Americas, while banking risks emanate mostly from the European Union. Across all the channels, the disproportionate role of the European Union dependent jurisdictions, and especially those of the United Kingdom, is striking.

The report makes three key recommendations:

1. Enhance data availability on economic relationships between countries, which is necessary for both in depth and comprehensive analyses and meaningful regulation of economic actors engaged in cross-border transactions.
2. Consider pan-African coordination on countering illicit financial flows risks, such as developing joint negotiation positions at the level of the African Union Commission and the African Tax Administration Forum when engaging in multilateral negotiations around trade, investment or tax matters.
3. Embed illicit financial flows risk analyses across administrative departments and arms of government to support the targeting of audits and investigations at an operational level as well as the negotiation of bilateral and multilateral treaties on information exchange at a policy-making level.

The report and country risk profiles are available to download below. You can also download the presentation slides that were used to present early findings from the research in 2018 at the African Tax Research Network Congress in Morocco and the 7th International Workshop on Domestic Revenue Mobilization at the German Development Institute.

Download the report.

Download complete list of Country Risk Profiles for all countries.

Download individual Country Risk Profiles for select countries.

Download the presentation slides.