Martina Magi (Laureata presso Università di Torino)


The global market is built upon transactions, these being carried out through money, assets or goods. Financial flows can be considered the main pillars of global economy. However, when we refer to global economy, we do not solely refer to legal and licit markets. The global market is also composed of grey areas, such as the so-called underground economy and criminal economy, where illicit activities and trades take place. The latter produce financial flows just like licit activities and trades do. When these flows cross state borders and, consequently, influence global economy they are renamed Illicit Financial Flows (IFFs), while similar flows at the national level would not be named “illicit” but “illegal”. In fact, while illegal financial flows are linked to activities which are classified as illegal by a national court or law, IFFs refer to activities which go against international rules and principles. Stating that a cross-border financial flow is illegal instead of illicit would be problematic as the definition of illegal depends on national laws and on the national perception of the phenomenon.  

A financial flow can be classified as illicit for three main reasons: origin, transfer or use. An IFF by origin is the consequence of an illicit activity or of an illicit trade. For example, all the flows produced inside the criminal economy, such as drug or weapon trafficking, are IFFs by origin.
An IFF by transfer involves money or assets legally earned or produced which is transferred through illicit channels. The benefit of IFFs by transfer is that the actor can hide the transferred amount from the authorities, gaining a profit in terms of lower taxation. For this reason, a good example of IFFs by transfer is tax evasion.  
Despite of the origin of the money or of the assets and of the channels through which these are moved, every time a cross-border financial flow’s main goal is to fuel illicit activities and/or illicit trades the latter is considered an IFF by use. The most common IFFs by use are those used to finance terrorist groups, organized crimes or corruption.   




IFFs are harmful for both developing and developed countries and can be considered a global challenge. This article focuses on the situation of the African continent in dealing with IFFs, their causes and consequences. Studies conducted by UNCTAD show that over the period 2000-2015, Africa lost around $55 billion a year due to illicit financial flows. That makes a total of $836 billion, which could have covered the total external debt of the continent - $770 billion in December 2018 – and potentially leave almost $100 billion to invest in development and growth (UNCTAD, 2020). The impact of IFFs in Africa has two main channels:

  • The loss of government revenues: IFFs generated by commercial practices to avoid taxes lead to an unequal distribution of wealth and to higher levels of poverty. The loss of revenues causes lower levels of expenditures in fields such as education, health and infrastructures, which are fundamental for a country’s growth and development.
  • The weakening of institutions: in order to carry out their business without interferences, the actors involved in illicit practices often use dirty money to corrupt public officials. Episodes of corruption and bribery are very common, leading to weak governance, lack of transparency and low accountability of the institutions.

IFFs by origin

The most prominent category of IFFs in Africa is IFFs by origin. The lack of controls made Africa the perfect environment for illegal trade and illegal markets to flourish.
Illegal trade in Africa focuses on natural resources, such as minerals, fisheries, timber, wildlife and oil. It can be defined as an “internally supplied, globally networked” market (Shaw, 2017). Individuals from around the world are interested in buying the unique African natural products and, due to the scarcity of the latter, they are willing to pay higher and higher prices.      

Illicit natural resources trade is strictly connected to weak institutions. In order to carry out illegal trade, poachers and criminals have to take possession of the natural resources in the first place. The inadequate monitoring and enforcement capacities, along with the high levels of corruption, create perfect conditions for this. Markets like the wildlife market, the timber market and the oil market, need complex infrastructures and means of transportation. It would be impossible to hide them completely from the authorities. For example, illicit activities related to timber include the harvest, the transportation and the sale of the products. A higher level of law enforcement could easily intercept activities in one of these steps and contribute to dropping the impact of illicit natural resources trade on African economy.

Considering both the direct revenue losses and the indirect losses (such as loss of jobs), the impact of illicit natural resources trade is estimated at $120 billion per year, which is equivalent to 5% of Africa’s GDP, 150,6% of the continent’s FDI and 120.5% of the ODA (African Natural Resources Center African Development Bank, 2016). But the negative consequences of illicit trade are not only economic. The activity of poachers and criminals is directly affecting the environment and the biodiversity of African ecosystems with deforestation and environmental degradation, but also the social and human rights of African people. In fact, many activities involved in illicit trade, like the harvesting of timber or mining activities are labour intensive activities, often involving child labour and workers exploitation.   

Another massive problem is the exposure to foreign criminal groups. The weakness of the institutions allows Africa-located criminal groups to act unbothered. This marks a huge advantage for the criminal value chains on African territories and it is the reason why many criminal groups located outside Africa started moving there their activities. This strategy is particularly efficient if the criminal groups which move to Africa are involved in illegal trade of products and services which African criminals cannot provide. For example, the local production of weapons and drugs is not sufficient to cover the demand of the continent. In these sectors, Africa can be defined as a “externally supplied but locally engaged” market (Shaw, 2017)..
A good example of this phenomenon is the African drug market. The local production of drug is focused only on cannabis. To meet the demand of other drugs, such as heroin, opium, methamphetamine and cocaine, African criminal groups cooperate with criminals based in Europe, Asia and the Americas (UNODC, 2011). This can lead to two main scenarios: African-based groups take care of the import and distribution of the foreign drugs or foreign criminal groups move their criminal supply chain in Africa, paying for the protection of local criminal groups. This means that the IFFs produced by the illicit drug market in Africa go beyond the drug commerce itself and include “protection money” paid by foreign criminal groups to African criminals.
The second scenario has another consequence; moving part of their activity in Africa, foreign criminal groups can use African territories as a hub of distribution to the rest of the world, as it happens with cocaine coming from South America. In fact, about a quarter to two-thirds of the cocaine that is sold in Europe comes from the South American distribution hub in Brazil and passes through African countries, especially the western ones like Cape Verde, Mali, Togo and Nigeria (Africa Economic Development Institute).

IFFs by transfer

The main actors involved in IFFs by transfer are multinational enterprises (MNEs) or Africa-located firms which have commercial relations with foreign countries. Their goals are mainly tax evasion, tax avoidance and illegal export. The latter is strictly connected with the illegal natural resources trade as it is one of the main channels through which the natural resources leave the continent.
The main strategies used by the enterprises involved in illicit tax and commercial practices are abusive transfer pricing and trade mispricing.

  • Abusive transfer pricing: Abusive transfer pricing occurs when an MNE shifts profit across different jurisdictions in order to benefit lower tax rates. It is not illicit for an MNE to engage in trade between its different branches but this must respect the arm’s length principle in order to be legal. If the arm’s length principle is violated, the transaction causes abusive transfer pricing and IFFs. The volume of the IFFs generated by such practice in Africa has reached critical levels. As reported by the High Level Panel on Illicit Financial Flows from Africa, only three African countries have national transfer pricing units which monitor the problem (High Level Panel on Illicit Financial Flows in Africa, 2011). The lack of controls allowed several MNEs, including well-known companies, to increase their profits (after taxes) at the expense of African developing countries. An infamous case of abusive transfer pricing is the SABMiller case. SABMiller, the second-largest beer company in the world, was accused in 2010 by ActionAid of avoiding millions of dollars of tax in India and in Africa by routing profit to its subsidiaries located in tax havens.
  • Trade mispricing: Trade mispricing consists in misrepresenting the price of the good or service in order to transfer additional value between the importer and the exporter. Unlike abusive transfer pricing, trade mispricing happens between two unrelated parties, which do not belong to the same MNE or to the same corporation. This strategy allows to reduce the amount of government revenues generated by taxes on the traded goods. The profits earned by private actors through trade mispricing are hidden from taxation; for this reason, they can be defined as illicit financial flows by transfer. Usually, trade mispricing also generates IFFs in the moment when the importer pays the difference in the price to the exporter through informal channels. This practice is very common in Africa, especially when it comes to natural resources trade. An example of this phenomenon can be found in Mozambican custom registers report cases of underinvoicing in various sectors, including the export of shrimp and timber. As for shrimp, the exported goods are often classified of a lower quality than they actually are in order to pay lower taxes. In the case of timber, the records for 2012 accounted for a total export of approximately 260.000 cubic meters of timber while China alone reported an import of around 450.000 cubic meters of Mozambican timber (High Level Panel on Illicit Financial Flows in Africa, 2011).

IFFs by use

The most common IFFs by use are IFFs generated by the funding of organized criminal groups or by episodes of corruption and bribery.

There is a recurring pattern of corruption which has characterised the categories of IFFs analysed so far. High levels of corruption have a double effect on illicit financial flows; beyond causing IFFs itself, corruption allows other illicit activities to flourish. In fact, without corruption, other illicit activities could not take place or would take place on a smaller scale. As reported by Transparency International in the “Corruption Perception Index 2020” (Transparency International, 2020), corruption is a problem shared by all the African countries. The index awards grades from 0 to 100, where 0 means highly corrupt and 100 very clean. The situation is Africa is shown in the map below.  





Financial flows are classified as illicit by use even when the people who take part in the transaction are not aware of financing illicit activities or do not participate voluntarily. Terrorist and organized criminal groups do no only rely on donations from their sympathisers or members. Most of their moneys is collected through extortion or ransom requests, which force the victims to contribute to the volume of IFFs by use. It is also very common for organized criminal groups to abuse of NGOs to collect money. For example, in 2013 an NGO located in Bamenda, Cameroon, started collecting donations from all over the world to support migrants in the Cameroon region. It was later found out that there were no migrants in the region and that the NGO was actually routing the money to the terrorist group Boko Haram (FATF et al., 2016).       

The impact of the digital economy

Digital platforms have a huge impact on IFFs. Their capability to connect people and to move big amounts of money in a few seconds has led to an increase in the volume of IFFs starting from the late 1990s. Not only were criminals and black markets operators interested in digital platforms but also legal activities, such as commerce, communication and show business started moving into the digital space. At the present, the digital economy, which accounts for all the goods and services traded on the internet, has a value estimated at 15.5% of global GDP but Africa’s contribution to this value is less than 1% (OCORIAN, 2019). While the citizens of the main leaders in the digital field, such as China, the United States of America and Europe, have direct access to the Internet, only a quarter of African population enjoys the benefits of internet access (OCORIAN 2019).    
The scarcity of connectivity services in the continent concerns both the people and the institutions. The lack of controls, especially in the poorest countries, has led to an unregulated use of the internet and to the spread of criminal activities in the digital space. For this reason, cybercrime is one of the main new challenges African economies (but also African institutions) are facing in this field. Due to the inexperience of African users to deal with the new technologies and their threats, African cyber systems are highly vulnerable to cyberattacks and data theft. Cybersecurity, which is the only effective defensive tool against cyberattacks, is not considered a priority by many African internet users who carry out their activities online.

It has been estimated that in 2017 Africa lost around $3.5 billions to cybercrime (Kshetri, 2019). This estimate includes not only cyberattacks but all the criminal activities carried out on the web. Even though most of African citizens have no access to the internet, this cannot be said for organized criminal groups. In the previous paragraphs it was explained how both foreign criminal organizations and African criminal groups exploit African weak institutions and unstable economic situation to carry out their business. The same happens on the internet, especially in those areas which are hidden from the authorities and require specific skills to navigate, such as the dark web.

Excluding the IFFs which are strictly related to the web, like the IFFs produced by cyberattacks and data theft, every category of IFFs existing in the traditional form has a digital counterpart. The main activity carried out by African criminals on the dark web is illegal trade. The high levels of privacy of the dark web allow criminals to set up their own site of e-commerce on which they can trade the illicit goods. As stated before, the three main illegal markets of the African continent are illegal natural resources trade, illicit drug trade and illicit weapons trade, but there are several more goods which can be exchanged in the darknet markets like pedo-pornographic material. Criminals can also provide services on the dark web, such as poisoning, murder or torture on commission, but also smuggling services. All the revenues generated by illicit goods or services sold online are IFFs related to cybercrime and can be considered IFFs by origin. Illegal markets online work in the same way as the traditional illegal markets but the advantage brought by digital platforms is that anyone, located in any part of the world, can buy African goods or hire African criminals in a few seconds. This makes business much faster and guarantees a higher level of anonymity for the subjects involved.

Criminal groups also use the Internet to make propaganda and to raise funds. The dark web is free from any kind of censorship and this allows criminals and terrorist groups to spread their message and ideology. For example, Internet is the main mean of propaganda for the Islamic extremist groups which are active in the continent. Another organized group which relies on the dark web to spread its mission is the Somali Pirates, who seek for people to finance their operations in return of a share of the profit.

Out of the 54 African countries only 24 are provided with specific legal provisions against cybercrime. The remaining 30 countries are a sort of haven for cybercriminals, who can manage their criminal operations from a country in which cybercrime is not a crime (UNCTAD). This makes cybercriminals hard to locate and prosecute as long as they remain in such countries. For example, criminal mastermind Paul Le Roux directed his cybercrime operations from Liberia, a state with no cybercrime legislation. Le Roux was arrested only because of his involvement in illicit drug trafficking in South America and he was located only through an FBI informer (CNA, 2019). As for the remaining 24 countries, even though they are provided with anti-cybercrime laws, the law enforcement operations rarely lead to the desired results. The backwardness of the African countries to face the challenge of cybercrime damages all the other countries of the international community which are interested in persecuting and punishing cybercriminals.

Digital platforms play a crucial role also in producing IFFs by transfer. The key role in digital IFFs by transfer has been played by the digitalization of the payment methods. It is true that digital transactions generate digital records which can be used by the authorities to trace the money involved, but traces are often hard to follow or to link to an illicit action. First of all, several billions of digital transactions are carried out every year, making the detection of illicit transactions difficult for the authorities, especially considering that the money moved by MNEs often end up in shell companies or is invoiced as a different kind of transaction. This makes the payment look legitimate and helps MNEs avoid controls. In addition, we have to consider the insufficient skills of the African authorities in digital matters, which is an aggravating factor.
The gradual digitalization of international markets has led to new forms of trade misinvoicing. While it is easy to apply the arm’s length principle to a traditional good or service, it is not easy to determine the market price for a digital service (such as telecommunications or the use of a software) due to the lack of comparative price information. MNEs started moving money across countries using this kind of stratagem, introducing new ways of avoiding or evading taxes.

Another innovation introduced by the digital economy is cryptocurrencies. Cryptocurrencies are spreading among African internet users because of the difficult economic situation many African countries are facing. The high inflation rates in countries such as South Sudan, Egypt, Nigeria and Ghana has pushed people towards the use of cryptocurrencies, whose value is not influenced by the exchange rate fluctuations of local currencies.
Despite the large use of cryptocurrencies by Africans, none of the countries involved has adopted policies to regulate or control the phenomenon. This has resulted in an unregulated use of cryptocurrencies, which are mostly transacted on the dark web and end up fuelling the criminal economy and IFFs.  

Measures taken at international level

African regional bodies and international organizations, over the last years, these actors undertook many initiatives with the intent to improve the overall situation. For example, the establishment, by the African Union Commission and the UN Economic Commission for Africa, of the High Level Panel (HLP) on Illicit Financial Flows, which is the author of the report “Track it! Stop it! Get it! Report of the High Level Panel on Illicit Financial Flows from Africa” (High Level Panel on Illicit Financial Flows in Africa, 2015) , has been one of the most efficient examples of regional cooperation in the IFFs sector.

United Nations Office on Drugs and Crime (UNODC) also plays an important role in the fight against illicit financial flows. UNOC has been providing technical training to its member states for over two decades and has now founded the Countering Illicit Financial Flows by Strengthening Law Enforcement for Asset Recovery Inter-Agency Network for Southern Africa (ARINSA) as an asset recovery network for 17 African countries. The project provided the countries with a safe space in which it is possible to exchange information, country laws and model legislation to fight money laundering, smuggled currency and organised crime (UNODC, 2020).

The main project against IFFs was developed by the African Union. The Multi Donor Action, co-founded by the African Union, the European Union and the German Federal Ministry of Economic Development and Cooperation aims to strengthen the African Union Commission and the pan-African networks (like African Tax Administration Forum, Collaborative Africa Budget Reform Initiative, African Organisation of Public Accounts Committees and the African Organisation of Supreme Audit Institutions) and to involve them in wider international initiatives against illicit financial flows. The Multi Donor Action is a very ambitious project and, as it was launched at the beginning of December 2020, it is too soon to assess the results it has achieved (African Union, 2020).

African governments and institutions are supported by various NGOs in the fight against IFFs.  
Global Financial Integrity (GFI) is a Washington D.C. based NGO, whose action focuses on the impact of IFFs on emerging economies. Inside its reports, GFI analyses both the characteristics and the volume of IFFs in a specific country and/or region of the world. Thanks to the global approach used by GFI, which considers factors like the role of shell companies, corruption, money laundering, tax havens and transnational crime, GFI established itself as a reference point for policymakers all over the world. The goal of GFI is to promote transparency in the global financial system, in order to develop new strategies to fight IFFs. GFI does not promote projects or workshops itself but it provides governments and international organizations with recommendations and with all the useful information about the phenomenon, so that they can develop effective policies against it. For example, in 2017 GFI presented a report titled “Accelerating the IFF Agenda for African Countries”, which highlights the fourteen steps African Leaders should follow to boost the fight against IFFs (Global Financial Integrity, 2017).

Another important NGO in the field is Transparency International (TI). TI is a Berlin based NGO with branches in more than a hundred countries and its activity primarily focuses on corruption, political integrity and dirty money. Thanks to the contribution of media and international organizations, TI developed a complex network to deeply investigate corruption, its causes and its consequences. Unlike GFI, Transparency International is actively involved in the fight against IFFs. One of the main projects promoted by TI is the “Global Anti-Corruption Consortium”. The latter uses the new digital tools to detect IFFs in the digital space. TI’s team, along with the bodies TI collaborates with, managed to track several traces left by illicit digital transactions and to expose guilty parties. The “Global Anti-Corruption Consortium” in Africa led to The Great Gambia Heist in 2019. The combined action of TI and of Organized Crime and Corruption Reporting (OCCRP) demonstrated the scale of corruption under Yahya Jammeh, ruler of The Gambia for 22 years (Transparency International).

Despite the high number of regional and international projects undertaken by African institutions and NGOs, IFFs are still a great challenge for African economies. In fact, the key actors involved in the fight against IFFs are public institutions and state authorities; the weakness of the latter and their involvement in corruption scandals reduces the impact and the effectiveness of the regional and international projects introduced above.

Lessons ad recommendations

IFFs involve many sectors of African economy. For this reason, it is impossible to find a common solution to the many shades of the phenomenon. However, it is possible to learn from the history of IFFs to adopt effective actions in the various fields.

The illicit natural resources trade is one of the key IFFs in Africa. Poaching and illegal fishing put at risk both African biodiversity and economy. In order to neutralize the action of poachers, African governments should promote the creation of wildlife sanctuaries on the whole continent, both on land and in the sea, and guarantee their protection. At the same time, it is necessary to hire highly trained individuals and rangers who could watch over the endangered flora and fauna and contrast every illegal activity that could eventually take place.

The main reasons African people are attracted to the criminal economy is the extreme poverty they suffer. The latter, along with the lack of legal alternatives to live a decent life, push the poorest individuals in criminals’ hands. People who live in rural areas are the ones who are exposed the most to illicit activities. In cases of extreme poverty, people rely on illicit activities to earn the money they need to sustain themselves and their families. African countries should encourage a shift towards legal activities, showing people that they can be more rewarding than illicit ones. The focus of this strategy is not on punishing people who end up in the net of criminality, but on fighting the root cause of criminality. Because of the weakness of African authorities, criminals are often left unpunished and punishment is not a suitable deterrent, while rewards and incentives might perform better. This approach can be applied to several IFFs. First of all, the illicit drug production. As shown by the policies of former President of Bolivia Evo Morales against illicit drug production and trafficking in Bolivia, the gradual legalization of drug farms can lead to astonishing results (Fornasieri and Cortese, 2021). The legalization of cultivations does not translate into the legalization of the market. The products of the farms can be used for legal purposes, in the case of cannabis for hemp fabrics or flour. This strategy would benefit both the rural workers and the authorities. While rural workers can rely on a safer and legal job, authorities can control the volume of the production and would snatch the production hubs by criminal groups. IFFs produced by illicit natural resources trade would be affected by such a strategy too, as it would target all the exploited workers involved in harvesting, mining and transportation. This strategy can also be effective against IFFs by use. Instead of financing terrorists and criminals, African citizens should be incentivised to invest in public and infrastructure work in return of fiscal incentives and/or benefits in term of education, healthcare or internet access.

This approach could also lead to a better control of the use of cryptocurrencies. African cryptocurrencies owners would stop investing digital assets on the digital illicit markets and would shift to a legal use of cryptocurrencies in return of benefits and incentives. Cybercrime is only one of the many uses of the Internet. Public authorities could learn how to use such a useful tool against criminals. In the past twenty years most of the countries of the international community established a national task force for digital matters and adopted anti-cybercrime laws. However, Africa is still struggling with digital divide and cannot rely on strong digital knowledge nor infrastructures. First of all, it is necessary to extend internet access to the remaining three quarters of the population. Once it is possible for them to access the digital space, African citizens should be educated to the use of the Internet and of digital platforms. A proper and wiser use of the latter would definitely reduce the volume of IFFs strictly related to cybercrime, preventing users to be victims of phishing, cyberattacks and data theft. But a deeper knowledge of the Internet by its users could also result in an increasing contribution of African entrepreneurs to the global digital economy. After gaining access to the Internet and learning how to properly use digital tools, they would recognize the potentiality of digital markets and they would want to participate, with job creation and poverty reduction effects.   

Most of the African countries need to provide themselves with anti-cybercrime task forces, composed by both highly-trained agents and digital experts. Despite having to deal with corruption and weak institutions, the establishment of an anti-cybercrime unit would allow African countries to participate in the Interpol Secure Network, whose main goal is to make the digital space a safe place for its users. To do so, Interpol has created a platform of shared knowledge for all the anti-cybercrime units worldwide, where they can share details of the on-going operations and the information about cybercriminals located in other territories. Interpol has already contributed to drop the rate of cybercrime and the related IFFs in some emerging economies. For example, the operation Goldfish conducted in 2019 with the ASEAN members helped reduce the rate of cryptojacking (the unauthorised use of private devices to mine cryptocurrencies) of 78% in the region (INTERPOL).



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