Money laundering and tax evasion : Do international measures have a significant impact in sub-Saharan Africa?

Kohnert, Dirk (2024): Money laundering and tax evasion : Do international measures have a significant impact in sub-Saharan Africa?

Abstract

Sub-Saharan Africa (SSA) accounts for a third of the countries on the Financial Action Task Force (FATF) grey list. In the Money Laundering and Terrorist Financing (ML/TF) Ranking and Risk Assessment Tool, the region performed poorly in terms of resilience to ML/TF, with more than 60% of countries falling into the high-risk category. Although countries on the grey list are not subject to sanctions, inclusion on the list has a significant impact on their economies. This includes a significant reduction in capital inflows and foreign direct investment. The four main sources of illicit financial flows from SSA, South Africa, the Democratic Republic of Congo, Ethiopia and Nigeria, accounted for more than 50% of total illicit financial flows. While SSA received nearly $2 trillion in foreign direct investment (FDI) and official development assistance (ODA) between 1980 and 2018, it issued over $1 trillion in illicit financial flows. These illicitly acquired funds and diverted from the region continue to pose a development challenge. Illicit financial flows increased overall, but not concerning trade. In the 38 years from 1980 to 2018, they increased significantly in the 2000s, in parallel with the growth of African trade. Emerging and developing countries in Asia and the Middle East have become key targets. Previous initiatives to curb money laundering and improve the exchange of tax information between countries have largely failed, including the three most important: the Financial Action Task Force (founded in 1998), the Global Forum on Transparency and Exchange of Information for Tax Purposes (founded in 2009 ) and the Inclusive Framework on Base Erosion and Profit Shifting (founded in 2016). First, African countries lack the resources and capacity to address illicit financial flows. Second, many advanced economies are not sufficiently engaged in these initiatives. However, the repatriation of illegal funds is an important tool for strengthening the resource base of African countries. In 2020, for example, the United States and the self-governing British Crown Dependency of Jersey, one of the world's most notorious tax and money laundering havens, reached an agreement with Nigeria to repatriate more than $300 million stolen by Nigeria's former military dictator General Sani Abacha.

• Item Type: MPRA Paper
• Language: English
• Keywords: Money laundering; Money Laundering Control Act; Embezzlement; Corruption; tax evasion; Terrorism financing; Informal economy; Illegal drug trade; Human trafficking; Blood diamonds; Good governance; Sub-Saharan Africa; South Africa; Kenya; DR Congo; Ethiopia; Mozambique; Uganda; Rwanda, Nigeria; Ghana, Mali;, Cameroon
• Subjects: D - Microeconomics > D2 - Production and Organizations > D23 - Organizational Behavior ; Transaction Costs ; Property Rights; D - Microeconomics > D5 - General Equilibrium and Disequilibrium > D53 - Financial Markets; D - Microeconomics > D6 - Welfare Economics > D63 - Equity, Justice, Inequality, and Other Normative Criteria and Measurement; D - Microeconomics > D7 - Analysis of Collective Decision-Making > D74 - Conflict ; Conflict Resolution ; Alliances ; Revolutions; E - Macroeconomics and Monetary Economics > E2 - Consumption, Saving, Production, Investment, Labor Markets, and Informal Economy > E21 - Consumption ; Saving ; Wealth; E - Macroeconomics and Monetary Economics > E2 - Consumption, Saving, Production, Investment, Labor Markets, and Informal Economy > E26 - Informal Economy ; Underground Economy; E - Macroeconomics and Monetary Economics > E4 - Money and Interest Rates > E42 - Monetary Systems ; Standards ; Regimes ; Government and the Monetary System ; Payment Systems; F - International Economics > F3 - International Finance > F35 - Foreign Aid; F - International Economics > F3 - International Finance > F38 - International Financial Policy: Financial Transactions Tax; Capital Controls; F - International Economics > F5 - International Relations, National Security, and International Political Economy > F53 - International Agreements and Observance ; International Organizations; F - International Economics > F5 - International Relations, National Security, and International Political Economy > F54 - Colonialism ; Imperialism ; Postcolonialism; G - Financial Economics > G2 - Financial Institutions and Services > G28 - Government Policy and Regulation; H - Public Economics > H2 - Taxation, Subsidies, and Revenue > H26 - Tax Evasion and Avoidance; K - Law and Economics > K4 - Legal Procedure, the Legal System, and Illegal Behavior > K42 - Illegal Behavior and the Enforcement of Law; N - Economic History > N2 - Financial Markets and Institutions > N27 - Africa ; Oceania; N - Economic History > N4 - Government, War, Law, International Relations, and Regulation > N47 - Africa ; Oceania; O - Economic Development, Innovation, Technological Change, and Growth > O1 - Economic Development > O17 - Formal and Informal Sectors ; Shadow Economy ; Institutional Arrangements; Z - Other Special Topics > Z1 - Cultural Economics ; Economic Sociology ; Economic Anthropology > Z13 - Economic Sociology ; Economic Anthropology ; Social and Economic Stratification

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