In order to significantly improve its domestic resource mobilization efforts, African leaders agreed that the continent had to urgently address the critical challenge of Illicit Financial Flows (IFFs) from Africa. These illicit outflows derive from proceeds of tax evasion and laundered commercial transactions; proceeds of criminal activities; and proceeds of theft of public resources, bribery and other forms of corruption. IFFs are a huge drain on Africa’s resources, including tax revenues, and hinder the level of savings required to address key development issues.
Some of the effects of illicit financial outflows are the drainage of foreign exchange reserves which limit a country’s ability to import, negatively affect domestic resource mobilization by reducing the tax collection base, cancelling out of investment inflows and a worsening of poverty. Such outflows also undermine the rule of law, stifle trade and worsen countries’ macroeconomic conditions. They are facilitated by some 60 international tax havens and secrecy jurisdictions that enable the creation and operation of millions of disguised corporations, shell companies, anonymous trust accounts, and fake charitable foundations. Other techniques used include money laundering and transfer pricing.
It was in this context that a discussion to sensitize policymakers about the matter was organized at the 3rd Joint Annual Meetings of the AU/ECA Conference of Ministers of Finance, Planning and Economic Development in March 2011. After examining the issues at stake, participants called upon Economic Commission for Africa (ECA) and the African Union Commission (AUC) to lead the effort to combat illicit financial flows from Africa. Consequently, the 4th Joint Annual Meetings of the AU/ECA Conference of Ministers of Finance, Planning and Economic Development adopted Resolution L8 mandating the establishment of a High Level Panel (HLP) on illicit financial flows from Africa. It was inaugurated on 5 February 2012 in Johannesburg, South Africa.
Following the Resolution of the Ministers, the HLP had the primary role of further exploring and gaining a better understanding of the nature of illicit financial flows out of Africa and assessing its impact on continental development. In addition, it was envisaged that the HLP would work to increase collaboration and cooperation amongst African countries, their Regional Economic Communities and external development partners to promote better global understanding of the scale of the problem for African economies and encourage the adoption of relevant national, regional and global policies, including safeguards and agreements to redress the situation.
The specific objectives of the HLP as derived from the Resolution were as follows:
- Determine the nature and patterns of illicit financial outflows;
- Establish the level of illicit financial outflows from Africa;
- Assess the complex and long-term implications of illicit financial flows on development;
- Sensitize African governments, citizens and international development partners on the scale, and effect of financial outflows on development; and
- Mobilize support for putting rules and regulations in place at all levels to tackle illicit financial outflows from Africa.
The Panel brought together eminent personalities from within and outside Africa who shared a common concern and expertise in the financial aspects of Africa’s development. It was chaired by H.E. Mr. Thabo Mbeki, former President of South Africa while its Technical Committee was chaired by Dr. Abdalla Hamdok, the Deputy Executive Secretary of ECA. Following the Resolution of the Ministers, the HLP worked tirelessly with the support of its Technical Committee and through its Secretariat which was housed within the ECA in Addis Ababa, Ethiopia and now resides at the AUC. Its primary role of further exploring and gaining a better understanding of the nature of illicit financial flows out of Africa and assessing its impact on continental development was duly achieved and this was clear upon the release of the High Level Panel Report.