Adopting FACTI Recommendations as a Tool to Strengthen Efforts to Address Illicit Financial Flows from Africa

In the middle of Covid-19 pandemic, Africa is facing a debt crisis which has further been worsened by Illicit Financial Flows (IFFs). IFFs continues to weaken domestic resources mobilisation and leave governments with borrowing as the main alternative to raise finances required to fund social protection. Since the onset of the High Level Panel report in 2015 which highlighted that annually about $50 billion is lost through IFFs, the problem persists given their ever-increasing figures as the 2020 UNCTAD report unraveled that Africa is now losing $88.6 billion annually through IFFs, which is equivalent to 3.7% of Africa’s GDP. Building on from the HLP, in February 2021, the FACTI Panel released its report cautioning that IFFs are draining resources needed for development. The report which values Integrity, Accountability, Transparency, Legitimacy and Fairness, laid out a series of recommendations for dealing with the IFFs problem. AFRODAD took advantage of the report to organise engagement meetings with the African Union, CSOs and Parliamentarians for a Fact-Finding mission to raise awareness and understanding of the FACTI Panel recommendations. The Fact-Finding mission was built up on the already set political conversation by AFRODAD from the 2021 AFRODAD Regional Dialogue on IFFs held in March 2021.

The FACTI report comes at a time when countries are suffering from pre-Covid-19 vulnerabilities such as corruption, money laundering, tax evasion and tax avoidance that cost governments considerable amounts of resources needed to provide basic services to reduce poverty and combat widening inequality. The pandemic has exposed the extent to which it is important for African countries to mobilise resources domestically through stemming IFFs. According to the FACTI Panel report, the ecosystem of IFFs is so large that it involves several systems and channels, and this means that an integrated approach to dealing with the problem is key. However, various gaps persist in terms of inclusion, implementation and enforcement of laws to curtail IFFs. There is still lack of global coordinated efforts to stem IFFs and if this persists, it could undermine the achievement of SDGs.

Discussions from the Fact-Finding mission sessions held by AFRODAD highlighted the importance of CSOs in building the support for financial transparency and accountability. Active participation of CSOs in both country and international policy making forums is vital to reinforce the urgent message to policy holders and other duty bearers in trying to combat IFFs. For example, as submitted by Lyla Latiff during the CSOs session, the FACTI panel proposes a principle-based approach to taxation to inhibit IFFs. It speaks of setting up a data monitoring body and an international tax body through which international tax decisions are made and norms defined. However, with respect to professional service providers, this data monitoring body and UN tax body cannot do much to regulate them. It is left to domestic states to issue directives to the professionals to apply these principles…but who will monitor? This then calls for active participation of CSOs to promote advocacy. Parliamentarians also play a crucial role in curbing IFFs through their representative, oversight, and legislative roles. Making contributions during the parliamentarians’ session, Hon Fatuma from the East Africa Legislative Assembly who moved a motion on stemming IFFs in the East African region posited that there is need to raise awareness of the Facti panel recommendations and that key steps and actions should be taken to ensure that recommendations are implemented. Furthermore, she highlighted that given the systemic nature of IFFs, there is need for institutionalised dialogue between various stakeholders to work towards regional laws which will help in curbing IFFs.

In a nutshell, engagement meetings with various stakeholders on how countries and institutions can learn from and utilise the Facti panel recommendations are crucial in complementing and strengthening systems of accountability, transparency and integrity for improved domestic resources mobilisation. Additionally, stimulating political will, monitoring and promoting transparency as enshrined in AFRODAD’s Borrowing Charter, remains key in curbing IFFs for improved domestic resource mobilisation!

Author: Michael Zuze, AFRODAD’s Policy Consultant. You can reach him via [email protected]