Show me the money: Illicit Financial Flows

Sustainable development- especially reducing poverty - takes funds. Lots of them. Funds for infrastructure, medication, health clinics, and, crucially, for education. And while it looks like many donor countries are going to aim to keep their 0.7% targets for aid - long a goal,  almost never a reality - sustainable development could use a lot more. And there's a big pile of money out there, ready for the taking. No, not banker's bonuses - though given that the financial crises has  destroyed much of the gains made in the MDGs over the past several years, those bonuses might well be considered fair game for many a poor African mother looking for funds after her informal sector work dried up due to the Crisis. Illicit financial flows from Africa.  Between 1970 and 2008, Africa lost a staggering $854 billion in illicit financial outflows - a figure that could rise to U$ 1.8 trillion or even higher if adjusted to missing data, according to a recently released report by Global Financial Integrity.

According to this report, sub-Saharan African countries have experienced the bulk of illicit financial outflows with the West and Central Africa region posting the largest outflow numbers. The financial outflows from the entire region outpaced official development assistance going into the region at a ratio of at least 2 to 1. llicit financial outflows from Africa  continue to grow at an average rate of 11.9 percent per year

These financial flows, which are mainly from Africa to Western countries, are in the forms of mispricing, money laundering, smuggling, and bribery among others but most is tax evasion by corporations. Much of it passes through the global shadow financial system specifically designed to facilitate transactions that shift illicit, unrecorded money across borders.  There has been hundreds of billions of dollars flowing out of Africa decade after decade - far in excess of the official development assistance going into African countries.

Why is there all this illicit flow out of Africa? The study suggests two factors. One: decolonisation. Two: the continued spread of multinational corporations across the world and other infrastructures which facilitate financial flows across borders.It continues primarily because Western countries have done little to address the problem. There are now more than 60 tax heavens.  Compared that to the 1960s when they were about four in the world.

What to do? Laws are needed that require financial institutions to demand transparency on actual ('beneficial') ownership. We need country- by- country reporting by companies showing their financial transactions. There needs to be automatic information exchange among tax authorities and harmonisation of anti-money-laundering laws. Raymond Baker, author of the study, said that "All countries should have a common stand on what constitutes accountable money or not, and the proceeds of tax evasion should be declared illegal."

If tax payers in the UK or the US want to bring more funds to sustainable development, lobbying for these simple changes would make a significant difference.