Tax specialists are urging for a broader definition of illicit financial flows (IFFs) as Africa continues to lose billions annually through undeclared and unlawful financial activities. The current narrow interpretation, they argue, enables looters to siphon funds out of the continent, stunting economic progress.
Experts are advocating for IFFs to include tax avoidance, benefits from transnational crime, corruption, and embezzlement, which they believe would facilitate stronger policies, international cooperation, and transparency. “A wider definition would ensure we capture unethical practices, which may not technically be illegal but still cause significant damage to local economies,” said Chenai Mukumba, Executive Director of the Tax Justice Network Africa (TJNA).
Mukumba stressed that the existing definition, primarily focused on overtly illegal activities, fails to address the more subtle financial practices that have serious consequences for domestic resource mobilization. This, she said, limits the ability to fully address Africa’s financial losses, which amount to an estimated $90 billion a year due to illicit outflows.
Without a universally accepted definition of IFFs, different organizations interpret the term differently. Illicit financial flows are generally understood to refer to illegal cross-border money transfers, including tax evasion, money laundering, and terrorist financing, posing a particular threat to developing economies.
A significant factor fueling IFFs in Africa is corruption, organized crime, and tax avoidance, which undermines government resources needed for sustainable development, exacerbates poverty, and erodes public trust. International bodies like the G20, World Bank, and African Union Commission (AUC) have been focusing on this issue, but critics argue their efforts are limited by a narrow scope that excludes broader financial abuses.
“A holistic approach to defining illicit financial flows is crucial to tackling both illegal and ethically questionable activities that drain Africa’s economy,” added Mukumba.
Financial Leaks
One proposed solution is for the European Commission to adopt a “development-focused” definition of IFFs, which would include aggressive tax avoidance that crosses ethical boundaries, even if not explicitly illegal.
This wider approach would help address financial leakages that harm Africa’s capacity to fund its own development. Currently, tax avoidance and incentives offered to multinational companies cost Africa an additional $220 billion annually, on top of the $90 billion lost to other illicit flows.
These losses are staggering when compared to the $500 billion needed each year to fund development on the continent. “Illicit financial flows rob Africa of roughly $390 billion every year, a significant portion of the resources required to sustain growth,” stated Dr. Patrick Ndzana Olomo, an official at the AUC.
The Fight for Africa’s Resources
The fight against illicit financial flows has gained prominence, with former South African President Thabo Mbeki leading efforts through the African Union’s High-Level Panel on IFFs. According to Mbeki’s panel, the continent loses at least $50 billion annually due to illegal financial activities, with some estimates suggesting that Africa has lost up to $1 trillion over the past five decades.
Multinational corporations, drug cartels, and corrupt officials are frequently cited as key players in the illicit outflows, diverting much-needed funds from key sectors like agriculture, industry, and public services.
