IFFs

South Africa was recently put on the Financial Action Task Force’s grey-list. The Financial Action Task Force (FATF) – an authoritative quasi-regulatory global body - relegates countries to ‘grey-list’ status when they fail to live up to global anti-money laundering, anti-terrorism, and anti-proliferation financing standards. Following an evaluation and extensive engagements with the African country, the FATF decided that a series of 8 strategic deficiencies needed to be addressed by South Africa before the end of 2025. It therefore placed South Africa under ‘increased monitoring’, a listing informally known as grey-listing. The FATF was created in 1989 to oversee the development and implementation of global anti-money laundering law. Through a series of developments – including the September 11, 2001 terrorism strikes in the United States – the FAFT’s mandate expanded to capture terrorist finance and proliferation financing. Drawn from the content of a series of international instruments attentive to the relationship between money and crime, the FATF compiled a set of 40 recommendations known as the global anti-money laundering, anti-terrorist finance, and anti-proliferation financing standards. The recommendations comprise matters such as specific money-laundering offences and confiscation regimes as well as measures designed to promote financial transparency (for instance, financial reporting requirements and beneficial ownership registries) and to facilitate international cooperation.

The International Asset Recovery Mechanism as it currently operates is highly unfair and disadvantageous to developing African countries. It is a system frost with power game, colonial vestige, and the undermining of the African sustainable development agenda. Indeed, African countries persistently suffer from the detrimental impact of outward illicit financial flows (IFFs), stemming from complex and multifaceted criminal and commercial activities. Latest IFFs estimates from the United Nations Conference on Trade and Development Organization for Economic Cooperation and Development and African Development Bank (AfDB) reveal an ugly illicit financial flight that continues to deprive the continent of huge domestic resources and economic prosperity.

In recent times, developing countries are faced with a challenging task of balancing their commitment under various international instruments such as the Paris Agreement to achieve a Just Energy Transition and their pertinent need for industr1ialization and development. At the center of this contention is the knowledge that resources are scarce and must be allocated judiciously towards desired goals. The existing scarce resources are further plundered through illicit financial flows because of ineffective systems in developing countries. This paper examines the idea of a Just Transition through the lens of developing countries like African countries whose contribution to global greenhouse gas emissions have been minimal. The paper highlights access to finance as a key component of an expedient Just Transition and highlights illicit financial flow as a threat to the realization of the Just Energy Transition among other pre-existing structural challenges. This paper calls on developing countries to tighten their ship in retaining capital and limiting the illicit exportation capital towards realizing the Just Energy Transition.

Over the past few decades, we have seen an emerging form of neoliberal discourses on Africa that focus on emergence, as the continent has moved from being framed as the world’s “problem case” to the exciting new frontier of “Africa Rising". This has pushed neoliberal capitalists to see Africa as a continent of the future that is about to achieve transformations and socio-economic progress if it follows the orthodox advice of opening its market and accepting negative integration into the world economy. However, fuelled heavily by GDP growth rates, the “rising” narrative has been adept at obscuring a reality of widening wealth inequality and persistent poverty among the majority sections of the continent’s population even while witnessing the emergence of mega shopping malls and cell phones in almost every hand. Additionally, the myth of an Africa that achieves growth has overshadowed the quality of this growth as it does not lead to an improvement in the living conditions of Africans but instead breeds illicit financial flows (IFFs).

This essay proposes an alternative to the contemporary theorization of the relationship between Illicit Financial Flows (IFFs) and Migrant Rights. Contemporary theorization of the relationship between IFFs and Migrant Rights solidified a linear correlation between human trafficking or smuggling and IFFs. It is common among existent literature to state that human trafficking and smuggling are some of the contributors to IFFs out of Africa. For instance, the High-Level Panel on IFFs from Africa noted that IFFs “typically originate from three sources: commercial tax evasion, trade mis-invoicing, and abusive transfer pricing; criminal activities, including the drug trade, human trafficking, illegal arms dealing and smuggling of contraband; and bribery and theft by corrupt government officials." Further notable is that analysis of the impact of IFFs on development usually tends to marginalize migrant (“a person outside of a State of which they are a citizen or national, or in the case of a stateless person or person of undetermined nationality, their State of birth or habitual residence”) communities in its theorization or empiricism. That is partly because contemporary development studies fail to recognize the relationship between IFFs and migrants’ right to development. Therefore, this essay is an early-stage critical theorization and a call to action for scholars to theorize the relationship between IFFs and migrant rights to development.

The exponentially growing discomfort around Illicit Financial Flows (IFFs) globally is an indicator of the undesirable effects that result from the IFFs, ranging from social, economic and even political consequences. There is a general concurrence that IFFs take away substantial amounts of finances from the developing countries, which finances could otherwise be utilised in domestic investments, provision of public services such as education, security, health etc., and offsetting foreign debts. It is on this basis that discussions about IFFs in developing countries should not be postponed.

This blog provides an alternative approach, described as a potential abusive tax avoidance (PATA), to evaluate incidences of illicit financial flows (IFFs) in Africa. By way of a working definition, PATA arises when there is a greater probability that a proposed tax legislation is susceptible to abusive tax avoidance. The abuse contemplated under the PATA is similar to Steve Dean’s argument of how considerable degree of taxpayer autonomy– under the guise of tax deregulation - can negatively impact a nation’s tax system. PATA provides a complimentary mechanism to examine how a proposed international tax framework can result into IFFs. The author undertakes this analysis using the global minimum tax proposed by the OECD to address the tax consequences of the digitalized economy.