intensifying_the_fight_against_corruption_and_money_laundering_0

Intensifying the fight
against corruption and

money laundering
in Africa
JANUARY 2022
Intensifying the fight against corruption and money laundering in Africa
This study is produced by the Office of the Special Adviser on Africa (OSAA) within
its mandate to support analytical work in improving coherence and coordination of the
UN System support to Africa and to facilitate intergovernmental deliberations on Africa.
For more information, please visit www.un.org/osaa or contact [email protected]
Designed by: ITC Global Translations
Authors: Consultant Lyla Latif & OSAA Knowledge Management and Monitoring team
Disclaimer: The views expressed in this policy brief do not necessarily reflect
the views of the United Nations or its officials or Member States.
The designations employed and the presentation of the material in this publication
do not imply the expression of any opinion whatsoever on the part of the Secretariat
of the United Nations concerning the legal status of any country, territory or city or
its authorities, or concerning the delimitation of its frontiers or boundaries.
Suggested Citation: Latif, Lyla A, (2022), Study: Intensifying the fight against corruption
and money laundering in Africa. United Nations, Office of the Special Adviser on Africa.
Table of Contents
Abbreviations........................................................................................................................4
1. SETTING THE SCENE........................................................................................ 5
2. RAMING THE GLOBAL AND LOCAL POLITICAL ECONOMY CONDUCIVE

F
TO IFFS THROUGH CORRUPTION AND MONEY LAUNDERING........................ 8
2.1. Corruption............................................................................................................8
2.2. Money laundering................................................................................................9
2.3. Strengthening the definition of IFFs: the political economy
of corruption/money laundering........................................................................9
3. ORRUPTION AND MONEY LAUNDERING CHALLENGES IN

C
THE AFRICAN CONTEXT................................................................................. 14
3.1. Enabling environment: legal and financial systems globally and in Africa...... 15
3.2. Enabling environment: political, economic, and social realities
conducive to IFFs..............................................................................................20
3.3. Implications of the enabling environment in undermining peace
and security, humanitarian work, development, and human rights...............22
3.4. Further insights into broadening the IFF definition: corruption
and money laundering......................................................................................28
4. I NTERNATIONAL AND AFRICA SPECIFIC STRATEGIES DESIGNED

TO COMBAT CORRUPTION AND MONEY LAUNDERING................................ 29
4.1. The international and Africa specific anti-corruption and anti-money
laundering related instruments........................................................................30
4.2. The Financial Action Task Force and Africa Styled FATF Regional Bodies.... 31
4.3. Evaluating the anti-corruption and anti-money laundering strategies..........32
5. CONCLUSION AND RECOMMENDATIONS...................................................... 37
References..........................................................................................................................41
INTENSIF YING THE FIGHT AGAINST CORRUPTION AND MONEY LAUNDERING 3

Abbreviations
AfDB Africa Development Bank UN United Nations

AML Anti-Money Laundering UNCAC United Nations Convention against
APRM African Peer Review Mechanism Corruption
AU UNCTAD United Nations Conference on Trade

Africa Union
and Development
BO Beneficial Ownership
UNODC United Nations Office on Drugs and
CAPAR Common African Position on Asset
Crime
Recovery
UNSG United Nations Secretary-General
CDD Customer Due Diligence
US United States
ECA Economic Commission for Africa
WB World Bank
ECOWAS Economic Community of West
WFP World Food Programme
African States
FAO WHO World Health Organization
Food and Agriculture Organization
FACTI Financial Accountability,
Transparency and Integrity
FATF Financial Action Task Force
FCAS Fragile and Conflict Affected States
FCPA Foreign Corrupt Practices Act
FIU Financial Intelligence Unit
FRC Financial Reporting Centre
HIPC Highly Indebted Poor Countries
IFAD International Fund for Agricultural
Development
IMF International Monetary Fund
INCSR International Narcotics Control
Strategy Report
KYC Know Your Customer
MER Mutual Evaluation Reports
SADC Southern Africa Development
Community
SAR Suspicious Activity Report
SDGs Sustainable Development Goals
StAR Stolen Assets Recovery Initiative
4 INTENSIF YING THE FIGHT AGAINST CORRUPTION AND MONEY LAUNDERING

1. Setting the scene
Illicit financial flows (IFFs) cost Africa around smuggling and tax evasion; these account
US$88.6 billion1 per year. They have hamstrung for 30% of IFFs from Africa; and 3) corruption
progress and created poverty, insecurity and involving government officials including bribery
financial challenges which today impede and abuse of public office, estimated at 5%
implementing the 2030 UN Agenda for of IFFs from Africa. Fighting IFFs requires
Sustainable Development and the AU Agenda understanding the political economy including
2063: The Africa We Want. IFFs have also driven vested interests and power dynamics that are
the African continent towards indebtedness.2 invested in it and benefit from it. This study will
The United Nations Economic Commission for focus on corruption and money laundering.
Africa (ECA) estimates that these losses are
equivalent to a proportion of three-quarters The panel on Financial Accountability,
of the amount required to make progress on Transparency and Integrity (FACTI) adopted the
Sustainable Development Goal 3 (SDG 3) (Health definition from the Mbeki panel as expanded
and Well-being); a quarter of the amount needed by UNODC/UNCTAD to define IFFs as ‘financial
for SDG 4 (Education); and a third of the additional flows that are illicit in origin, transfer or use, that
amount needed for SDG 9 (Infrastructure). 3 reflect an exchange of value4 and that cross
country borders’.5 Such illegality results out of
The High-Level Panel on Illicit Financial Flows commercial, corruption-related and criminal
from Africa (Mbeki Panel) report identifies three activities through which money is earned and
drivers/sources of IFFs: 1) commercial practices shifted using illegal practices. IFFs also cover
related to trade and tax abuse including tax some forms of transfer mispricing, profit shifting,
avoidance and BEPS practices by multinational and trade mis-invoicing. IFFs can result out of
corporations that are not necessarily illegal; ambiguities in taxation laws, poorly negotiated
the Mbeki panel found these account for 65% of bilateral agreements that enable tax base erosion,
IFFs from Africa and thus represent a significant offshore asset sales and through the falsification
driver of IFFs, particularly considering the global or exaggeration of intra-group transactions such
architecture relating to commercial IFFs is less as management fees and royalties. Examples
developed than the other two drivers; 2) criminal of corruption and criminal related IFFs include
practices such as money laundering, trafficking, activities such as gold smuggling, trafficking
1 UNCTAD, Tackling Illicit Financial Flows for Sustainable Development in Africa [2020] EDAR Report.
2 UNCTAD, Tackling Illicit Financial Flows for Sustainable Development in Africa [2020] EDAR Report; N L Kuditchar, Curbing
illicit financial out-flow from Africa: the phenomenology of institutions in Ghana (2020) Journal of Contemporary African Studies,
Vol. 39, Issue 1; C Abugre, Cobham A, R Etter-Phoya et al., Vulnerability and Exposure to Illicit Financial Flows risk in Africa (Tax
Justice Network, 2019); S Ibi Ajayo and L Ndikumana (eds), Capital Flight from Africa. Causes, Effects and Policy Issues (OUP 2015);
J D Nkurunziza, Illicit Financial Flows: A Constraint on Poverty Reduction in Africa (2012) Association of Concerned African Scholars,
Bulletin No. 87.
3 ECA Primer—Economic governance report, 2021.
4 not only funds.
5 UNCTAD, ‘Tackling Illicit Financial Flows for Sustainable Development in Africa’ (EDAR Report 2020); United Nations, Economic
Commission for Africa, ‘Illicit Financial Flows: Report of the High-Level Panel on Illicit Financial Flows from Africa’ (Addis Ababa 2015).

in weapons, drugs and humans, ransoms for Corruption and money laundering are further
kidnappings, hacking, sim-box fraud, and exacerbated by the policies and politics at the
the use of electronic zappers for tax evasion global level promoting a race to the bottom in
purposes. IFFs are a global problem due to their tax competition incentivized by the desire to
multidimensional and transnational nature. attract Foreign Direct Investment (FDI), and tax
abuse facilitated by professional intermediaries
IFFs have been nurtured and protected by leading such as accountants, bankers and lawyers, who
international systems, with advanced capital play a key role in tax structuring and potentially
and financial markets which have structured facilitating capital flight.10 The existence
the global economy to facilitate no/low tax, low of secrecy jurisdictions, tax havens, global
regulation, secrecy, and anonymity to enable accountancy firms and light regulations at the
footloose finance to move across the globe.6 global level have encouraged state and non‑state
International markets for diamonds, gold, and actors to engage in corruption and money-
ivory from Africa, for example, created patterns laundering activities.11 Illicit financial flows are
of licit and illicit trade for these resources. a global problem and a shared responsibility for
The opportunities for illicit trade have been developed and developing countries.
facilitated through corruption, trafficking, and
money laundering. In turn, corruption and money This study will focus on one form of IFF, namely
laundering has been partly fostered by external corruption and the resultant money laundering.
interference, degradation of regulations, and The central aim is to describe and analyse
political patronage on the continent. 7
Illicit the symbiotic relationship between corruption
trade in African resources at the global level is and money laundering and how they mutually
facilitated through the international economic reinforce an IFF ecosystem inclined towards
order, external institutions and market players draining resources needed for development.
who have imposed conditions on Africa
conducive to protecting their investments.8 Relatedly, the study examines the nature of
Hence the demand for deregulation of the the corruption/money laundering interface
private sector, trade and financial liberalization, and the various forms it can take. It proposes
and minimal state intervention in the economic measures to enhance the effectiveness of the
market and private sector.9 fight against corruption and money laundering.
6 O Okanga and L. A. Latif. ‘Tax Vulnerabilities in Africa: Revisiting Inclusivity in Global Tax Governance’ (2021) African Journal of
International Economic Law, Vulnerabilities in International Economic Law, 1 (2); G Zucman, The Hidden Wealth of Nations: The Scourge
of Tax Havens (The University of Chicago Press, 2015); L Ndikumana and J K Boyce, Africa’s Odious Debts: How foreign loans and capital
flight bled a continent (Zed Books Ltd, 2011); R Palan, The Offshore World: Sovereign Markets, Virtual Places and Nomad Millionaires
(Cornell University Press, 2003).
7 K J Ani, V Ojakorotu and K Bribena, Political Economy of Resource, Human Security and Environmental Conflicts in Africa (Palgrave
Macmillan, 2021); IDEA, The Integrity of Political Finance Systems in Africa: Tackling Political Corruption (2019) International IDEA
Policy Paper No. 20.
8 R Ajulu, Post-Colonial Kenya: The Rise of an Authoritarian and Predatory State (Taylor & Francis, 2021); L Latif, ‘The Lure of the Welfare
State following Decolonisation in Kenya’ in Gurminder K Bhambra and Julia McClure (eds) Imperial Inequalities: States, Empires,
Taxation. (Kilombo forthcoming); Ahmed Mohiddin, African Socialism in Two Countries (Croom Helm, 1981).
9 Mentan, Tatah. 2010. The State in Africa: An Analysis of Impacts of Historical Trajectories of Global Capitalist Expansion and Domination
in the Continent. African Books Collective; Ahmed Mohiddin, African Socialism in Two Countries (Croom Helm, 1981).
10 M Ros-Tonen, J Aggrey, D P Somuah et al., Human insecurities in gold mining: A systemic review of evidence from Ghana (2021)
The Extractives Industries and Society; M Ogbonnaya, Illegal mining drives Nigeria’s rural banditry and local conflicts, ENACT Observer,
28 May 2020; N J Lord, L Campbell and K van Wingerde, Other People’s Dirty Money: Professional Intermediaries, Market Dynamics
and the Finances of White Collar, Corporate and Organised Crimes (2019) BRIT. J. CRIMINOL 59, 1217–1236: FATF, Professional Money
Laundering (2018); A Marc, N Verjee and S Mogaka, The Challenge of Stability and Security in West Africa (World Bank, 2015).
11 S Ibi Ajayo and L Ndikumana (eds), Capital Flight from Africa. Causes, Effects and Policy Issues (OUP 2015); F Barry, Capital Flight, Safe
Havens and Secrecy Jurisdictions (African Economic Research Consortium, 2014).

This study suggests that the current strategies Evidence for the arguments advanced in
to deal with corruption and money laundering this study are drawn from a range of official
have fallen short of expectations at least in part documents and reports, academic writing,
because these problems have been considered and media coverage with a particular focus on
in isolation. By understanding intersections the corruption/money laundering interface in
across corruption and money laundering with the Africa region. To prevent the discussion
their potential to undermine peace and security, from being pulled in too many directions,
humanitarian work, development and achieving coverage is limited to instances of controlled
human rights, our knowledge on the money trail and uncontrolled corruption arising out of the
will be improved. political context, as well as the economic and
social context. The existence of organized crime
Consequently, the focus in the next section is to and illicit trade as enablers of money-laundering
begin by highlighting the enabling environment schemes are also examined.
that is conducive to IFFs in the form of corruption
and money laundering in Africa and later under
section 3 to map the implications of the enabling
environment in undermining peace and security,
humanitarian work, development, and progress
towards achieving human rights. An examination
of the operational challenges in existing
conventions, laws, and policies to fight against
corruption and money laundering, especially
in the way the measures are implemented in
practice will be considered under section 4.
And later in section 5, policy, and legal reforms
to target these disguised forms of illicit finance
more effectively will be recommended.

2. Framing the global and local
political economy conducive
to IFFs through corruption and
money laundering
Illicit financial flows result in a devastating of human rights. They both have the potential to
impact on African economies, peace and security, threaten peace, security and humanitarian work
human development, and the achievement of within a state and its neighbouring countries.
human rights. The Africa Union, United Nations, To what extent the two contribute towards
World Bank, and International Monetary Fund the conceptualization and definition of IFFs is
consider IFFs as one of the greatest obstacles discussed next after a brief description of what
to lifting millions of Africans out of poverty. these terms mean and how they are defined.
The Mbeki Panel report unanimously adopted
by the AU Summit, which formed the basis of
the AU Special Declaration on IFFs from Africa, 2.1. Corruption
states that 65% of IFFs are from commercial
Corruption is the abuse of entrusted authority
sources (often legal). In this context, the global
for private gain. It covers a wide range of
focus on crime and corruption while important,
behaviour, from petty to grand bribery, insider
distorts the narrative by ignoring two-thirds of
trading, embezzlement, trading in influence, and
the IFF problem.
illicit enrichment.13 Controlled corruption exists
The various forms of IFFs, corruption, money where the country’s ruling elite have a relatively
laundering and commercial are mutualistic. strict control of the processes and proceeds
Not only do ‘they tend to co-occur, but more of corruption. Uncontrolled corruption tends
importantly the presence of one tends to to be more common and unpredictable. It is a
reciprocally create and reinforce the incidence decentralized, disordered, and irregular pattern
of the other’.12 For example, the same channels of corruption, more harmful for economies and
used for illegality (tax evasion) are used for difficult to measure in terms of who gains what
“legal” IFFs. Therefore, it is important to break and from what. The controlled form of corruption
the false dichotomy between legal and illegal can be systemic (integrated within the economic,
IFFs. Corruption and money laundering are social, and political system) and the sporadic
closely interrelated and adversely affect a state’s (irregular) uncontrolled form. Do the current
progress towards development and achievement anti-corruption strategies propose different
12 D Chaikin and J C Sharman, Corruption and Money Laundering. A Symbiotic Relationship (Palgrave Macmillan 2009) p. 1.
13 UNCTAD, ‘Tackling Illicit Financial Flows for Sustainable Development in Africa’ (EDAR Report 2020).

strategic and programmatic approaches towards private bankers), financial institutions (formal
preventing these forms of corruption? Whether and informal, such as hawala/hundi system),
these strategies recommend targeted measures, shops, informal sector, and other businesses
or a one size fit all approach to combatting domestically and transnationally.17
corruption will be assessed later in this study.
Falsification of invoices or trade mis-invoicing
is a form of commercial/trade-based IFFs,
2.2. Money laundering utilized as a method to hide illicit funds
sourced out of criminal acts. By fraudulently
Money laundering can be described as the manipulating the price, quantity or quality of
process of obscuring the illegal origins of goods or services on an invoice submitted to
money derived from crime or illicit trade.14 The customs or revenue authorities, it is possible to
Financial Action Task Force (FATF) describes easily shift substantial sums of money across
money laundering as ‘the processing of criminal borders and into an economy. IFFs therefore
proceeds to disguise their illegal origin. This are interconnected. Usually, the different forms
process is of critical importance, as it enables of IFFs are facilitated by corruption and money-
the criminal to enjoy these profits without laundering schemes. For example, illegal
jeopardizing their source’.15 A money‑laundering mining and moving illegally sourced minerals
scheme, while the process may comprise a across borders require complicity of local and
single act, it is often a highly sophisticated and global actors along the supply chain. Usually,
complex transnational activity, especially when interlocutors involved are freight forwarders
corruption is involved. It frequently involves a and custom brokers, public officers/authorities,
three-stage process: placement, layering and legitimate markets that are infiltrated, illegal
integration. markets, third party intermediaries and
professional service providers. Money earned
Placement refers to placing the criminal funds
from the sale of illegally mined minerals requires
into the financial system directly or indirectly.
money laundering schemes through which the
Layering refers to the process of separating
illegal earnings are lawfully deposited into the
criminal proceeds from their source by using
source country and integrated within its financial
complex layers of financial transactions
system.
designed to hide the audit trail and provide
anonymity. If the layering process succeeds,
integration schemes place the laundered 2.3. Strengthening the definition
proceeds back into the legitimate economic
of IFFs: the political economy of
activity in such a way that they appear to be
normal business funds.16 Indeed, this is now an
corruption/money laundering
established trend involving both controlled and
Money laundering and corruption involve cross
uncontrolled corruption where illicit money is
border movements of money. However, some
disguised, then placed into circulation with the
money laundering and corruption are generated
help of professional service providers (lawyers,
and consumed locally. According to the 2020
14 This includes trade not only in drugs, humans, and arms but also in counterfeit pharmaceuticals, electronics, software piracy,
counterfeit and diverted cigarettes, environmentally protected species and natural resources.
15 FATF, ‘What is money laundering’. Available at: www.fatf-gafi.org/faq/moneylaundering/
16 D Hopton, Money Laundering. A Concise Guide for all Business (2nd edn., Routledge, 2009).
17 See: J Hatchard, Combatting Money Laundering in Africa. Dealing with the Problem of PEP (Edward Elgar 2020).

UNCTAD Economic Development in Africa Report problem and effective global strategies will be
while corruption facilitates money laundering, required to combat these IFFs. Further, country
the latter also makes corruption possible and by country statistics are available on how
profitable. They both pose the greatest threat
18
countries augur on the Corruption Perception
to economic development, political stability, Index and through the corruption scandals that
peace and security, humanitarian work and make public news. Money laundering is more
progress towards achieving human rights. Their complex and even the FATF has not provided
occurrence and magnitude, however, are difficult statistics.
to measure with any certainty. Yet, corruption
generates proceeds of crime to be laundered. Such illicit funds are increasingly laundered
UNCTAD estimates suggest that Africa annually through the domestic and international financial
loses $88.6 billion from the three drivers of IFFs: systems. Their interference with the legal
commercial, criminal and corruption-related. and financial systems can compromise the
These estimates are likely conservative due to working of anti-money laundering systems and
the hidden nature of all the practices that drive frustrate the enforcement of anticorruption
IFFs. For example, tax avoidance activities are measures. Considering this, the study delves
opaque. In 2018, during the International Anti- into examining the nature of the corruption/
Corruption Day, the United Nations Secretary- money laundering interface and the various
General Antonio Guterres estimated that forms it can take. It proposes measures to
corruption costs the global economy more enhance the effectiveness of the fight against
than $3.6 trillion annually.19 Estimates from corruption and money laundering. The study
the African Development Bank have suggested suggests that the current strategies to deal
that Africa annually loses about $148 billion with corruption and money laundering have
to corruption.20 In so far as money laundering fallen short of expectations at least in part
is concerned, by its very nature as an illegal because these problems have been considered
activity carried out by public and private actors in isolation. By understanding intersections
alongside aspects of underground economic across corruption and money laundering with
activity, it is not quite possible to offer precise their potential to undermine peace and security,
statistics or definite estimates. Rough estimates, humanitarian work, development and achieving
however, have been put forward by the UNODC human rights, our knowledge on the money trail
and IMF. The UNODC suggests that about will be improved.
3.6% of global GDP approximately $1.6 trillion
The failure to properly understand the
is laundered.21 The IMF has similarly reported
corruption/money laundering interface limits
that laundered proceeds could be anywhere
the full understanding of the two problems and
between 2 and 5 per cent of the global GDP.22
undermines the success of policy measures to
While these estimates confirm the prevalence of
tackle them. Therefore, looking at the two issues
corruption and money laundering, national and
through an integrated lens can bring in much-
global measures to aid in the recovery of these
needed clarity to the definition of IFFs and give
funds remain wanting. The data suggests that
the appropriate attention to the political and
corruption and money laundering are a global
18 UNCTAD (2020) supra, n 2, p. 90.

19 https://news.un.org/en/story/2018/12/1027971
20 UNCTAD (2020) supra, n 2, p. 22.
21 UNODC, Illicit money: how much is out there? (2011)
22 https://www.fatf-gafi.org/faq/moneylaundering/

economic environment. This approach could This definition identifies four categories of
help in constructing a comprehensive definition IFFs according to the activity generating them:
of IFFs because including the political economy tax and commercial practices, illegal markets,
environment associated with money laundering/ theft and terrorism financing and corruption. It
corruption will help in reconciling unregulated but is important to consider the political economy
lawful activities as part of the IFF taxonomy. This environment that permits, within the bounds
approach to understanding IFFs is important. of legality, disguised forms of illicit wealth. For
example, the Ease of Doing Business in African
countries makes it easy to register companies
for purposes of trading and layering their wealth
As currently defined by the World Bank,
across lawful enterprise. While illicit in origin, the
IFFs refer to cross border financial transfers
legal system is unable to detect, trace and deter
‘that have a clear connection with illegality.’23
Based on this definition, the financial activity funds deposited in the registered company’s bank
or transfer must be illegal for it to be deemed account that may, for example, be recorded as
as IFFs. This definition does not account intended for humanitarian work. This fault line
for financial activities that encompass explains in part why there is still no universally
unethical commercial acts that are deemed agreed intergovernmental definition of IFFs.
to be formally lawful if unregulated. It is
the broad definition of IFFs envisaged The 2020 UN FACTI Panel report adopts the
under the 2015 AU-ECA High Level Panel UNCTAD/UNODC definition and points to the
on Illicit Financial Flows from Africa report political economy environment that permits IFFs
that stretches the definition further by to thrive. In the report, the financial system is
including transactions that are deemed viewed as the culprit and recommendations are
unethical, even if not illegal in the assessed made by way of introducing FACTI principles to
jurisdiction.24 The definition included strengthen the financial system against enabling
aggressive tax avoidance and financial IFFs. The UN FACTI Panel report proposes
secrecy. The definition of IFFs constructed
to strengthen the financial system against
as part of the SDG Indicator 16.4.1 by the
IFFs through a methodological framework
Task Force on the Statistical Measurement
governed by principles. Financial Accountability,
of IFFs established by the United Nations
Transparency, and Integrity (FACTI) are the
Conference on Trade and Development
and the United Nations Office on Drugs and principles which will gradually wear down
Crime (UNODC) describes IFFs as: ‘financial IFFs when embedded in financial systems.
flows that are illicit in origin, transfer or use; Whether these principles complement the FATF
that reflect an exchange of value instead of recommendation on anticorruption and anti-
purely financial transactions; and that cross money laundering measures will be analysed
country borders’.25 under section 2. The UN FACTI Panel report
views IFFs ‘as a systemic problem that requires
a systemic solution.’26
23 World Bank, The World Bank Group’s Response to Illicit Financial Flows: A Stocktaking, Board Report No. 104568 (2016)
http://documents.worldbank.org/curated/en/502341468179035132/pdf/104568-BR-SecM2016-0112-IDASecM2016-0071-IFC-
SecM2016-00423-MIGA-SecM2016-0044-Box394878B-PUBLIC-disclosed-4-5-16.pdf
24 United Nations, Economic Commission for Africa, ‘Illicit Financial Flows: Report of the High-Level Panel on Illicit Financial Flows from
Africa’ (Addis Ababa 2015).
25 UNODC, Conceptual Framework for the Statistical Measurement of Illicit Financial Flows (2020).
26 UN FACTI Panel Report (2020) p. 8.

Among the systemic solutions to curb IFFs is to the legal and financial system itself. For example,
track, trace, recover and return funds that have governments of fragile and conflict-affected
been stolen due to corruption-related acts and states (FCAS)27 are less likely to be compliant with
laundered to offshore jurisdiction. The Stolen international anti-money laundering standards set
Assets Recovery Initiative (StAR) launched by the FATF. Their weak supervisory institutions
by the World Bank is one such systemic and low staff and technical capacity prevent
solution through which these stolen funds are the authorities from detecting and curbing IFFs
recovered and returned. However, its process resulting from corruption-related activities and
remains extremely burdensome and lengthy for money-laundering schemes. In such states, illicit
requesting countries who are also tasked with flows due to corruption and money laundering
demonstrating a difficult threshold to establish can lead to corrosive effects on their fiscal
the burden of proof. To resolve this, as part performance. In addition, power asymmetries
of its recommendation 5A, the FACTI panel influence low anti-corruption efforts. In this
proposes the creation of a multilateral mediation context, commercial diplomacy can also play a
mechanism to fairly assist countries in resolving role in undermining enforcement of national rules
difficulties on international asset recovery and over multinational enterprises.
return, and in 5B proposes the creation of an
escrow account to be managed by regional The fiscal consequences of corruption can also
development banks into which seized funds are impede implementing human rights standards
deposited pending return. The recommendations into the government’s development polices,
have the potential to improve asset recovery and protecting the functioning of its institutions,
return, and to reduce information asymmetries and providing its citizens with a peaceful and
in establishing the burden of proof, thus making secure environment within which to achieve and
the process transparent and accountable. These sustain their development needs. Embedding
recommendations should be aligned to the work the principles of the UN FACTI Panel report into
currently underway as part of the Common fragile and conflict-affected states may support
African Position on Asset Recovery (CAPAR); solving this systemic problem. Corruption and
a pan African-led initiative on developing money-laundering schemes cannot thrive where
better investigative and prosecutorial capacity institutions are transparent, accountable and of
across African states by supporting cross integrity.
border investigations, information sharing and
Dysfunctional or poor-quality institutions provide
collaboration between states for the speedy and
an enabling environment to corruption.28 In
unconditional return of stolen assets.
dealing with such systemic problems, public
Corruption and money laundering are both accountability and governance must form
systemic problems and the measures to combat part of the legal framework. The principles of
and prevent the two have also been systemic. the UN FACTI Panel report can be seen as a
The systemic solutions proposed under the subset of measures to strengthen such public
AU and UN conventions, domestic laws and accountability, transparency, and integrity. Any
FATF recommendations have been hindered by legal and financial system that excludes these
operational challenges. Some of these challenges principles from their governance and regulatory
have been as a direct result of the functioning of frameworks can be flagged as an enabler for IFFs.
27 https://www.worldbank.org/en/topic/fragilityconflictviolence/brief/harmonized-list-of-fragile-situations
28 Kleinfield P, ‘Congo aid scam triggers sector-wide alarm,’ The New Humanitarian 11 June 2020.

Therefore, in strengthening the definition of IFFs, This section has complemented the existing
this study suggests redefining the UNCTAD/ knowledge on IFFs from a corruption/money
UNODC definition to include the political laundering interface to provide further insights
economy as a risk indicator of IFFs. As such, into revising the UNCTAD/UNODC definition to
the proposed definition of IFFs takes the entire consider political economy risk indicators that
UNCTAD/UNODC approach and includes the allow an enabling environment conducive to IFFs
words that follow in bold: ‘Financial flows that to thrive. The proposed revision to the definition
are illicit in origin, transfer or use; that reflect is constructed around the principles outlined
an exchange of value instead of purely financial in UN FACTI Panel report. The next section
transactions; and that cross national borders, operationalizes the definition in the context of
facilitated by and through formal and informal corruption and money laundering to understand
institutions that overlook or have reduced their interlinkages with Africa’s institutions and
checks on financial accountability, transparency socio-economic realities.
and integrity, and also by those institutions that
acquiesce in reduced checks’.
The addition to the IFF definition formulated by

UNCTAD/UNODC allows for wilful blindness to
complicity in dubious and fraudulent activity
to form part of the IFF taxonomy resulting from
corruption and money laundering. It also allows
for liability on the part of professional service
providers, especially private bankers, lawyers,
and accountants who are enablers of IFF.

3. Corruption and money
laundering challenges in
the African context
Corruption is a global problem. In the African Sarabia et al. (2019) 32 and Becherair and Tahtane
context, institutions have been weakened due to (2017).33 Countries that ranked as ‘more corrupt’
several factors, including structural adjustment with low human development are also lagging
programs, political capture, and challenges towards SDG achievement with scores below
in identifying, assessing and repatriating 50%. A score of 100 indicates that all SDGs have
proceeds of corruption. Some of Africa’s legal been achieved.34
and judicial systems also lack the capacity
to effectively investigate and enforce anti- Ortega et al. (2016) also suggest that the
corruption measures. There is a correlation correlation between corruption and low
between corruption and money laundering and human development is because corruption is
low economic and development progress. Such a perverse incentive that distorts investment
correlation can be observed by comparing decisions, forces the use of resources into non-
the CPI scores of states with their Human productive rent seeking activities, misallocates
Development Index ranking. 29
The 2020 HDI capital and erodes government’s revenue base
Report lists 30 countries 30 with low HDI. These with which to finance basic services such as
countries also featured as corrupt on the 2020 health and education.35 In turn, the citizens are
CPI with scores ranging between 12 and 32. hard pressed with burdensome development
Ranking between these CPI scores represents loans, rising taxation and costs of living eroding
countries that are perceived as more corrupt and citizens tax morale.36 In the long run, high
with those closer towards 0 as highly corrupt. incidences of corruption reduce the availability
The nexus between low HDI and corruption has of revenue for the state to redistribute
also been established by Akinbode et al. (2020), 31 towards development needs. In this regard,
29 http://hdr.undp.org/en/content/latest-human-development-index-rank
30 In order of ranking from 157–189 Mauritania, Benin, Uganda, Rwanda, Nigeria, Cote d’Ivoire, Tanzania, Madagascar, Lesotho, Djibouti,
Togo, Senegal, Sudan, Gambia, Ethiopia, Malawi, DRC, Guinea-Bissau, Liberia, Guinea, Eritrea, Mozambique, Burkina Faso, Sierra
Leone, Mali, Burundi, South Sudan, Chad, Central African Republic and Niger. HDI for Somalia unavailable.
31 S Akinbode, J Olabisi, R Adegbite, T Aderemi and A Alawode, Corruption, Government Effectiveness and Human Development in Sub-
Saharan Africa (2020) Journal for the Advancement of Developing Economies, Vol 9, Issue 1.
32 M Sarabia, F Crecente, MT del Val and M Gimenez, The Human Development Index and the Corruption Perception Index 2013–2017:
analysis of social conflict and populism in Europe (2019) Economic Research, Vol 33, Issue 1.
33 A Becherair and M Tahtane, The Causality between Corruption and Human Development in MENA Countries: A Panel Data Analysis
(2017) Journal of Economics and Business, Vol XX, No. 2
34 https://dashboards.sdgindex.org/rankings
35 B Ortega, A Casquero and J Sanjuan, ‘Corruption and Convergence in Human Development: Evidence from 69 Countries During
1990–2012’ [2016] Social Indicators Research, 127, 691–719.
36 B Jahnke and R Weisser, How does petty corruption affect tax morale in Sub-Saharan Africa? (2019) European Journal of Political
Economy, Vol 60.

Transparency International has observed that towards understanding corruption and money
corruption not only lowers the tax-GDP ratio of laundering as part of the IFF taxonomy is
a country but also causes long-term damage to consider the enabling environment that
to the economy by detracting investment, provides the political and economic players
distorting tax structures and corroding the with institutionalized paths to legitimize their
tax morality of taxpayers.37 According to illicit gains. These are discussed next.
Keita and Laurila (2021), this in turn pushes
the government to increase the tax burden to
mitigate the negative effects of corruption on a 3.1. Enabling environment:
country’s economy.38 Due to this, a state may legal and financial systems
become prone to worsening fragility leading to globally and in Africa
state failure which can be detrimental to peace
and security, humanitarian work, development, Legal and financial systems and their institutions
and the implementation of human rights. The are needed to intervene against political and
contagion effect of corruption allows it to economic influences that threaten fundamental
spread to neighbouring states perpetuating values and process that sustain business
further insecurity and draining development transparency, financial accountability, integrity
across borders. A discussion on this follows within the free market and prevent economic
later in subsection 3.3. plunder. The critical issue per FACTI is that the
global financial system, as well as pillars of
As corruption increases, its proceeds are the global economic system is the underlying
used to penetrate state institutions and create problem influencing and shaping the IFFS. The
financial institutions conducive to money rules are defined by economic and political
laundering enabling illicit proceeds to reach the actors in the global north, namely rules for the
consumer market. Deliberate actions of political banking industry and regulation of the sector.
actors and professional service providers have The same is true for every major economic
been attributed to institutional and cultural sector/activity and profession—international
conditions that facilitate corruption. 39 The high trade and commerce, accounting, law,
incidence of corruption and money laundering tax, shipping.
on the continent raise questions about the
ways people pursue and exchange wealth and When such national and international legal
power, and about the ways societies and their and financial systems and their institutions
economies are governed. Social and state allow political and economic players with
institutional frameworks essential to curb these institutionalized paths to financial secrecy and
disguised forms of illicit finance are expected to carve out and manipulate access routes into
to attain levels of transparency and probity the economy to integrate their illicit gains, they
that many countries struggle to achieve while create an enabling environment for corruption
competing in world markets and undergoing and money laundering to filter into the economy
political transformation. Hence, a first step unchecked.
37 TI, Exploring the Relationships between Corruption and Tax Revenue (2010).
38 K Keita and H Laurila, Corruption and the Tax Burden: What is the Joint Effect on Total Factor Productivity? (2021) Economies 9: 26.
39 J Hatchard (2020) supra, n 6; L Koechlin, Corruption as an empty Signifier: Politics and Political Order in Africa (Brill 2013); J M Mbaku,
Corruption in Africa: Causes, Consequences and Cleanups (Rowman & Littlefield Publishers Inc 2010).

This problem can potentially be resolved by institutions and laws are necessary towards
adopting digital tools and technology as part of preventing IFFs. Thus far, only 23 African
the country’s financial sector (banking industry, countries have established the 5 institutions and
microfinance institutes and mobile money) to only one country has put in place all the 9 legal
support monitoring and tracing of financial frameworks.
transactions in real time. Digitalization has
provided a powerful opportunity for African Until these institutions and laws are put in place
governments to improve process efficiency by all African countries, there is a likelihood that
and service delivery, as well as to strengthen corruption and money laundering could continue
engagement with citizens.40 In addition, African to be a risk and filter through economies. In
countries are increasingly utilizing digital addition, studies have shown that the role of the
technologies in the prevention and detection global offshore system in driving and enabling
of corruption. Studies have shown that, for corruption and money laundering (tax havens
countries that start with a high level of corruption, and financial secrecy jurisdictions) are a crucial
digitalization is associated with better control part of the IFFs ecosystems. These are largely
of corruption as it reduces human interactions present in major financial centres or controlled
and, in general, can help promote transparency, by former colonial powers.
accountability and citizen participation and
The 2021 FATF Report also attempts to provide
facilitate advocacy and closer interaction of
quick solutions for states to implement as they
government and citizen. For example, adopting
set up and strengthen their institutions and legal
digital tools increased indirect tax collection at
framework.46 The FATF report suggests adoption
the border by up to 2 per cent of GDP per year.41
of digital technology to fight against money
The use of cash is one way to disguise criminal laundering. Among the recommendations it
sources of wealth. It prevents tracing back the proposes for financial institutions to set up
source of funds especially when transactions robotic process automation solutions which
are not documented, or where money mules 42 will help improve investigations of suspicious
are used. This therefore is a governance problem transactions, screening of names to identify
and can be resolved through putting in place PEPs, the KYC onboarding and recertification.
transparent and accountable institutions. A digital ID scheme will be necessary for this
Relatedly, the 2020 ECA Economic Governance solution to work effectively. Around the world,
Report identified 5 key institutions 43 and 9 legal 1 billion people still struggle to provide adequate
frameworks 44
that can collectively strengthen ID documents for opening bank accounts or
governance systems and prevent IFFs.45 These maintaining access to financial services. While
40 IMF Working Paper: Can Digitalization Help Deter Corruption in Africa? (2020), available at: https://www.elibrary.imf.org/view/
journals/001/2020/068/article-A001-en.xml
41 IMF Fiscal Monitor: Curbing Corruption (April 2019), available at: https://www.imf.org/en/Publications/FM/Issues/2019/03/18/
fiscal-monitor-april-2019
42 A money mule is someone who transfers or moves illegally acquired money on behalf of someone else. Available at: https://www.fbi.
gov/scams-and-safety/common-scams-and-crimes/money-mules
43 (1) Policy Environment, (2) Administration of Taxation, (3) Transfer Pricing, (4) Large Taxpayers, and (5) Supreme Audit Institutions.
44 (1) Membership in the forum for transparency and exchange of information for tax purposes, (2) Automatic exchange of information,
(3) Beneficial ownership law, (4) Common reporting standards, (5) Convention in mutual administrative assistance in tax matters,
(6) Country by country reporting, (7) Transfer pricing legislation, (8) Base erosion and profit shifting multilateral instrument and
(9) Multilateral Competent Authority Agreement.
45 ECA, Institutional Architecture to Address Illicit Financial Flows from Africa. A Primer on the Premier Economic Governance Report
(2020) Addis Ababa.
46 FATF, ‘Opportunities and Challenges of New Technology for AML.CFT’ (2021).

digital technology can prove useful to detect by licit corporations. This has established
IFFs, a wide scale digitalization of people’s patterns that were soon followed by lawbreakers,
identity must first be carried out by states. who began to use offshore financial centres
and bank secrecy havens to launder their illicit
The legal system and financial institutions proceeds.53 Deregulation of the financial sector,
can be prone to instances of corruption and therefore, results in jurisdictional arbitrage
money laundering to circulate within the and bureaucratic morass making it difficult for
economy.47 This can result from the following government authorities to trace through the
circumstances: either the civil society lacks institutionalized paths within which illicit money
capacity, thus demands for accountability and is filtered as licit.
transparency are subdued, 48 or patron-client
networks dominate politics and segments of the Against these legal challenges, it is the function
economy thereby reducing public accountability of Financial Intelligence Units (FIUs) to analyse
and transparency.49 Either legitimate markets are financial activity/transactions to determine
declining and illicit ones thrive, or the courts and
50
which activity/transaction constitutes evidence
security institutions are ineffective while private of potential illegal activity. Almost all African
groups hold extensive power and territory.51 countries have set up FIUs in compliance with
Either private interests seek influence within international standards dedicated to tackling
state bureaucracies, or powerful government economic crimes. These countries have also
officials seize portions of the economy with enacted Anti Money Laundering laws to allow
impunity. 52
for disclosure of information to the FIU and to
facilitate the passing of information to it by
Deregulation of the financial sector in Africa supervisory authorities in a timely manner.
following the implementation of structural Regional FATF styled African bodies have also
adjustment programs often presented as the been established for Eastern, Western and Central
means of achieving growth, and the financial Africa to conduct Mutual Evaluation Review
industry in Africa has the potential to channel (MER) of their government’s efforts in fighting
and provide refuge for IFFs and encouraged a money laundering. MERs generate pressure both
more permissive approach to capital, whatever within the country and internationally for reform
its source. This led to the growth of offshore measures to be adopted by African government
financial centres and their use for tax advantages to step up the fight against money laundering.
47 D van den Bersselaar and S Decker, “No longer at ease” Corruption as an institution in West Africa (2011) International Journal of
Public Administration; De Sardan, A Moral Economy of Corruption in Africa? (1999) The Journal of Modern African Studies, 37,1:25–52;
A Heidenheimer, M Johnson & V T LeVine, (eds.) Political Corruption: A Handbook (New Brunswick: Transaction Publishers, 1989);
S P Schatz, Crude Private Neo-Imperialism: A New Pattern in Africa (1969) The Journal of Modern African Studies, 7,4:677–688.
48 For example, in Egypt, Tunisia, Rwanda, Zambia, Malawi, Mozambique and Tanzania. See M Godfrey, ‘The Spread of
Anti‑NGO Measures in Africa’ (Freedom House, Special Report 2019) https://freedomhouse.org/report/special-report/2019/
spread-anti-ngo-measures-africa-freedoms-under-threat#footnote2_9hau0pp
49 As in Cameroon. See S Miscoiu and L M Kakdeu, ‘Authoritarian clientelism: the case of the president’s ‘creature’ in Cameroon’ (2021)
Acta Polit https://link.springer.com/article/10.1057/s41269-020-00188-y#citeas
50 For example, in the Sahel region. See UNODC,’ Contribution to the United Nations Integrated Regional Strategy for the Sahel’.
https://webcache.googleusercontent.com/search?q=cache:8mpFz67UkboJ:https://www.unodc.org/documents/
westandcentralafrica/UNODC_contribution_to_the_UN_Sahel_strategy_English.pdf+&cd=1&hl=en&ct=clnk&gl=uk
51 For example, in Libya, Sierra Leone, Central African Republic. See M Bayer, ‘Private military companies and African security governance:
Can the revival of a well-known actor change security arrangements in Africa?’ (Development and Peace Blog, 25 January 2021)
https://www.uni-due.de/inef/blog/private_military_companies_and_african_security_can_the_revival_of_a_well_known_actor_
change_security_arrangements_in_africa.php
52 For example, during Kenya’s post-independence period, in Nigeria and DRC.
53 P Williams, ‘Crime, Illicit Markets and Money Laundering,’ in Managing Global Issues: Lessons Learned, eds P.J. Simmons and C Jonge
Oudrat (Washington, DC: Carnegie Endowment, 2001).

While great strides have been made, for However, jurisdictions (for example, Cameroon,
example, by the Inter-Governmental Action Kenya, Nigeria, Tanzania, Rwanda) that restrict
Group against Money Laundering in West anonymous companies to be used for onshore
Africa (GIABA) to lead research on identifying trading activities do not necessarily prevent
vulnerabilities in the financial system that individuals using fronts to register ‘legal’ or
may be exploited for money laundering, MERs ‘regular’ companies or creating a network of
have revealed several problems. First, the companies based on family links as a front to
lack of political will and inadequate legislative launder illicit profits.55 This may be seen as a
frameworks. Second, the role of professionals form of systemic money laundering that thrives
as gatekeepers further complicating the fight based on a few actors with whom close trusting
against money laundering. Third, lack of bonds are established.56 Clearly, while the
access to and sharing of relevant information, company’s registry is a key regulatory machinery
lack of appropriate skills and resources for for combatting money laundering and other illicit
relevant officials to conceptualize the essential practices, it has its challenges. Weaknesses in
elements of money laundering, and fourth, low the enforcement of accountability, transparency
rates of investigation, prosecution, conviction, and integrity within the African legal and financial
and confiscation of assets obtained from the systems confer on corruption and money
commission of predicate offences. laundering a strong elusiveness. Both disguised
forms of illicit finance jeopardize institutional
Company formation also continues to be credibility, legitimacy, can adversely impact
exploited to mask ownership of assets or peace and security and undermine development.
transfer of these assets between persons. The The function of government should therefore be
registries check to ensure that the appropriate to impose strict regulatory checks that foster
fields of the company formation forms are financial accountability, transparency, and
completed, but neglect checks and verification integrity within their legal and financial systems.
with other institutions that can confirm the
identity of the parties forming the company. African countries have to some extent set
Despite this, most African countries are now up institutions dedicated to monitoring
implementing the beneficial ownership register and supervising financial flows, such as
that requires disclosure of all the natural persons Financial Intelligence Units (FIUs) as per FATF
who ultimately own or control a company so that Recommendations, anti-bribery measures,
there is transparency in the identity of parties implementing laws on beneficial ownership
forming the company.54 Hence, jurisdictions and automatic exchange of information. In this
that for example permit anyone from anywhere regard, 51 African states have set up FIUs,
in the world to form a company and become a 14 have implemented beneficial ownership
company director whilst hiding their identity will laws and 31 have signed up for automatic
be constrained. exchange of information.57 Twenty-nine African
54 See: M Harari, A Knobel, M Meinzer and M Palansky, ‘Ownership registration of different types of legal structures from an international
comparative perspective’, (2020) Tax Justice Network; K Rajuili, ‘Beneficial ownership reform in Africa: Analysing progress in Ghana,
Kenya and Nigeria’, (2020) Open Ownership; M Kariuki, K Rajuili and E W Warden, ‘Accelerating Beneficial Ownership Transparency in
Africa’, (2021) Open Government Partnership.
55 D della Porta and A Vannucci, The Hidden Order of Corruption: An Institutional Approach (Ashgate 2012); I Amundsen, ‘Political
Corruption: An Introduction to the Issues (1999) Chr. Michelsen Institute.
56 The Panama Papers, Angola Leaks, etc. revealed how a well-organized industry facilitates corruption and money laundering.
57 ECA, Economic Governance Report—Primer. Institutional Architecture to Address Illicit Financial Flows from Africa (2020) Addis Ababa.

countries 58 have also signed up to the EGMONT supervision function and conduct of business
Group, which provides a platform for the secure regulation for their financial services business.
exchange of expertise and financial intelligence The supervisor then shares the intelligence with
to FIUs to combat money laundering. The 2020 other financial sectors to check for any common
ECA Economic Governance Report also lists patterns or red flags as part of completing the
53 African states with audit institutions to supervision process.
track financial flows. However, such efforts are
hampered due to legal barriers in identifying Clearly, further steps need to be taken
beneficial owners and seeking automatic by African states to establish the ECA’s
exchange of information from foreign states, and recommended institutions and laws needed
administrative bureaucracies by which different to guard against IFFs. The regulation and
domestic bodies are responsible in enforcing supervision of professional service providers,
AML legislation, instituting a system for carrying who have been reported as enablers of IFFs is
out customers due diligence and investigating also necessary in the fight against corruption
suspicious transactions. and money laundering.59 This would require
developing global and national standards for
A need for harmonization is therefore financial, legal, accounting, and other relevant
critical across the institutions responsible professionals as per Recommendation 6 on
for monitoring IFF risks. While there is no Enablers by the UN FACTI Panel report. FACTI
harm in different institutional arrangements also raises the need for inclusive governance
supervising financial transactions to detect in global standard-setting bodies. In this case
money laundering schemes, these institutions of enablers, it means equal participation of
should leverage their synergies, expertise, and developing countries in the industry bodies
resources to enhance the effectiveness of their that set standards for professionals like
supervision of financial institutions. Banks accountants, lawyers, etc. and for national
applying the ‘tick box’ approach to conducting standards needed for government regulation
customer due diligence may not have expertise (not only industry standards but also legal
or experience in identifying money laundering standards with reporting obligations).
risks which can be complemented by another
agency. Hence, a move towards an integrated The 2021 World Economic Forum’s Gatekeeper
institutional approach for African FIUs may Taskforce Submission suggests setting
enhance quality of risk management allowing behavioural and ethical norms by imposing self-
better specialization and technical capacity regulation on these professionals, 60 but Prem
building on detecting and preventing money Sikka has argued that despite self-regulation,
laundering. An integrated institutional approach professional service providers for example,
is where the financial supervisor in each financial lawyers and auditors, have been complicit in
industry performs both safety and soundness enabling IFFs.
58 Algeria, Angola, Benin, Burkina Faso, Cameroon, Cabo Verde, Chad, Congo, Cote d’Ivoire, Egypt, Ethiopia, Gabon, Ghana, Malawi, Mali,
Mauritius, Morocco, Namibia, Niger, Nigeria, Senegal, Seychelles, South Africa, Sudan, Tanzania, Togo, Tunisia, Uganda and Zambia.
59 https://taxjustice.net/topics/enablers-and-intermediaries/
60 https://webcache.googleusercontent.com/search?q=cache:eNboWClBLU0J:https://ungass2021.unodc.org/uploads/ungass2021/
documents/session1/contributions/WEF-GFC_Gatekeeper_Taskforce_Contribution_for_UNGASS.pdf+&cd=8&hl=en&ct=clnk&gl=uk

BEST PRACTICES FOR REGULATING
systemic corruption. They forge alliances with
PROFESSIONAL SERVICES functionaries who will deliver state services
and goods and these political actors will be
The 2015 Mbeki Report called for bought to tailor rights and regulations that will
improvements in financial transparency as a benefit those who pay for it, and these actors will
firm way to tackle IFFs. Perhaps subjecting continue to be bribed or extorted as the state’s
all self-regulated professional bodies to mere survival may depend on political support
government oversight could be a potential by these groups. This allows the political actors
avenue for combatting money laundering. to establish institutions and regulations that
For example, the UK is proposing a creation place them as gatekeepers responsible for
of a new audit profession overseen by
ensuring that illicit proceeds go undetected
a new regulator; Audit, Reporting and
through legitimate channels.62 Consequently,
Governance Authority (ARGA), which will
as these political actors become powerful, they
improve transparency and scrutiny of
can organize and instruct criminal networks to
audit firms. Lessons from this initiative
can be used as a benchmark for improving threaten and undermine the state’s peace and
regulation of African based auditors. security. There are several examples in West
Africa where political leaders have instigated
internal conflicts and where corruption has
underpinned these conflicts.63
3.2. Enabling environment:
political, economic, and social Also, in countries where patronage politics
influence political relationships and interactions,
realities conducive to IFFs
these structures allow the proceeds of
Corruption and money laundering have a negative corruption and money laundering to flow
impact on development outcomes. They both through them. When such illicit proceeds flow
pose a strong threat to economic development, through these structures and their gatekeepers
political stability, good governance, and state during periods of political instability, and the
legitimacy eroding the trust and confidence illicit gains are not redistributed to cement
the public has in the state’s institutions. While political loyalties and relationships, it can
political, economic, and social development have disastrous consequences, potentially
can be undermined by corruption and money destabilizing peace, and security. 64
Controlled
laundering, political, economic, and social actors and uncontrolled corruption can also occur
can also serve as permissive enablers of these between officials and corporations seeking to
illicit proceeds. obtain benefits or procurement contracts. Such
corruption complements and reinforces high-
level corruption and undermines efforts towards
POLITICAL ACTORS
state building, peace, security, and development.
Corruption is defined as a transaction or action Corruption is also carried out by economic and
involving a public official. 61
Political actors can social actors.
challenge state authority through controlled,
61 I Amundsen, ‘Political Corruption: An Introduction to the Issues’, (1999) Chr. Michelsen Institute, pp. 2, 5.
62 I Amundsen (ed), Political Corruption in Africa: Extraction and Power Preservation (Edward Elgar 2020).
63 Transparency International, ‘The Missing Element: Addressing corruption through security sector reform in West Africa’ (2021)
https://ti-defence.org/publications/security-sector-reform-ssr-west-africa-corruption/
64 P L Billon, Corruption and Post-Conflict Peacebuilding (Routledge 2012).

ECONOMIC ACTORS definition on IFFs as suggested by the study to
With access to the supplier markets, local and consider the enabling environment and its risk
global organized economic actors, organized indicators.
criminals have the power to create illegal supply
chains that extend from local production lines SOCIAL ACTORS
to the consumer.65 Weak legal and financial
If people come to perceive their officials as
institutions; both domestic and global facilitates
generally corrupt, they lose faith in the justness
these economic players with institutionalized
of their institutions and can become hostile
paths to financial secrecy and to carve out and
to paying taxes, turning to tax avoidance
manipulate access routes into the economy to
schemes.69 Corruption and money laundering
integrate their illicit gains. The prevalence of
activities can also be facilitated by certain social
the informal sector, political instability provide
groups or local communities. Particular social
cover to their illegal supply chains. It is within
groups that become a haven for illicit activity
these supply chains that corruption proceeds
in turn become drivers of corruption and money
are used to further the development of illicit
laundering to spread to neighbouring states as
markets conducive to money laundering.66 In
organized criminal networks of gangs and drug
the long run, these economic manipulations
cartels use nomads to try and get their products
of the political institutions, legal and financial
to target markets in and out of the Sahel region.70
sectors can lead to potential state failure, where
the state is unable to provide any security or When these political, economic, and social
services to its people. Relatedly, its geography actors collaborate, they create networks in ways
is controlled by members of organized criminal that are often hard to untangle. These networks
groups or even terrorist networks eroding become part of the economic and political
the legitimacy of the state.67 Such economic system creating visible economic inequalities
environments are unable to distribute wealth with corruption permeating in law enforcement,
equally nor drive innovation, investment, and customs, border patrol and state regulatory
reinvestment towards development finance. agencies. Thus, the centrality of corruption
They lead to impoverished societies which at state levels and the intersection of crime
then become a breeding ground prone to illicit and corruption with the legitimate economy
activities, 68 which further erodes the state’s of African states, in particular FCAS create
capacity. These circumstances explain the a complex phenomenon of IFFs operating at
importance of developing the UNCTAD/UNODC
65 The illegal supply chain is to be understood through the processes and actors involved in sourcing, value addition and selling products
to end consumers. The illicit supply chain of gold for example starts with illegal mining or gold smuggling. Once mined or smuggled,
the gold is passed on or sold to local traders and then to intermediaries who organize larger shipments at the national or subregional
level. Typically, these shipments are facilitated by internationally connected individuals or groups (organized crime) to destinations in
the Persian Gulf, specifically the UAE, where wholesale and retail gold traders sell final products to end consumers. See: UN Industrial
Development Organisation, Curbing Illicit Mercury and Gold Flows in West Africa: Options for a Regional Approach (2018).
66 F Wiafe-Amoako, Africa (54th edn The World Today Series 2019); OECD, Illicit Financial Flows: The Economy of Illicit Trade in West
Africa (2018); P Reuter and E M Truman, Chasing Dirty Money: The Fight Against Money Laundering (Institute for International
Economics 2004).
67 W Lacher, ‘Organised Crime and Conflict in the Sahel-Sahara Region’, (2012) Carnegie Endowment for International Peace.
68 H S Kassab and J D Rosen, Corruption, Institutions, and Fragile States (Palgrave Macmillan 2019), p. 3.
69 V Gaspar, P Mauro and P Medas, ‘Tackling Corruption in Government’ (IMF Blog 4 April 2019) https://blogs.imf.org/2019/04/04/
tackling-corruption-in-government/; S H Akdede, ‘Corruption and Tax Evasion’ (2006) Dogus Universitesi Dergisi 7(2).
70 R Alcaro and N Pirozzi, Transatlantic Security from the Sahel to the Horn of Africa (IAI 2014); UNODC, ‘The Globalisation of Crime:
A Transnational Organised Crime Threat Assessment’ (2010).

the local, national, and global levels. In addition, of bad governance. Second, by describing the
we should also consider the global linkages of corruption/money laundering interface from the
money laundering including the following: integrated approach perspective.
• international banks in facilitating money

THE IFFS AND BAD GOVERNANCE
laundering. This was documented by
studies including the U.S. Financial Crimes To contextualize the discussion between the
Enforcement Center (FiNCEN) and Oxfam corruption and money laundering nexus, and
study on the role of the top 20 global banks in how it undermines peace, security, development,
money laundering; and human rights, it is important to set out a
vignette of the Sahel region to show how politics,
• international crime cartels that African governance systems and illicit activity are often
cartels may link to. interconnected, leading to opportunities for
corruption and money laundering.
• multinational corporations (MNCs) (such
as in the extractive sector and telecoms) Efficient states are usually able to control
corruption inducing activities; their territories and perform well according to
indicators like GDP per capita, the UNDP Human
• developed country governments promoting
Development Index, Transparency International’s
favourable policies including deregulatory
Corruption Perception Index and Freedom
clauses for their MNCs bilaterally via
House’s Freedom of the World Report. These
commercial diplomacy.
states offer high levels of security from political
and criminal violence, ensure political freedom
3.3. Implications of the and civil liberties, and create environments

conducive to the growth of economic opportunity.
enabling environment in
The rule of law prevails. Judges are independent.
undermining peace and Infrastructure is well maintained. Education
security, humanitarian work, systems flourish and the health sector serves
development, and human rights patients effectively. Efficient states can foster
an overall sense of peace and order.
This section maps the implications of the
political economy that fosters corruption and When states fail to achieve the above indicators
money laundering in undermining peace and due to internal antagonisms, harbouring ethnic,
security, humanitarian work, development, and religious, or other intercommunal tensions
progress towards achieving human rights. The that take a violent turn, such states become
logic of such an integrated approach towards an enabling ground for crime. When a state
understanding corruption and money laundering is unable to provide public goods or its ability
reveal how their intersection can have a to provide basic goods and services starts
devastating impact on national economies to diminish, when physical infrastructure is
and human development. Being symbiotic, deteriorated, schools and hospitals show sign
the presence of corruption tends to create of neglect, GDP per capita starts to fall and the
and reciprocally reinforce the incidence of levels of venal corruption start to escalate, the
money laundering. This section will present its legal system begins to lose legitimacy and the
argument in two parts. First, by explaining how affected citizens; the unemployed youth, the
these symbiotic crimes are often the products informal sector workers, etc. begin to resort to

organized crime to make ends meet. The 2021 in governance, lack of air and land surveillance,
Secretary-General Report on Promotion of state and military corruption, poverty, lack of
durable peace and sustainable development in economic opportunities, an increasing informal
Africa underlined that exclusion from services economy that does not distinguish between
or the lack of transparency in the delivery of the licit and illicit and the rampant financial
vital, everyday services such as water and exclusion alongside the existence of armed
sanitation, education, healthcare, and housing, groups and criminal entrepreneurs have enabled
amplifies disparities, and can exacerbate the an environment conducive to IFFs.73
sense of hopelessness generated by poverty
and marginalization, often aggravating In addition to Sahel specific conditions
grievances or fuelling conflict. The problem of that are conducive to IFFs, there also is
IFFs starts to strongly feature in states whose an international dimension. For example,
poor governance provides the opportunistic multinational enterprises are invested in
environment to illegal activities. The Sahel extractives and controlled by external financial
region best amplifies this situation. networks. Numerous systemic factors, related
to the region’s geography, political and socio-
The IFFs nuances out of the Sahel region economic conditions enable IFFs. These factors
are further exacerbated by weak governments
The Sahel region reflects that politics, and governance systems, including through
governance systems and illicit activity are often clientelism, elite resource capture, corruption,
interconnected. The extractives sector in the and impunity. The cycles of conflict in this
Sahel region can lead to exceptional profits. region have created displacement, fragility,
If well managed, such revenues could be a and insecurity. They have also opened
great opportunity for the economic and social space for insurgencies and ethnic conflict
development of the region. However, Sahel states to develop into violent extremism. It has led
suffer from low human development index, high to citizens’ disenfranchisement from the
levels of corruption, weak legal frameworks, state, as well as states’ inability to provide
and weak law enforcement.71 The revenues dividends on citizenship, it has given legitimacy
generated from their extractives sector rarely to local powerbrokers, armed groups, and
benefit the population, including indigenous fundamentalist ideologies.74 In turn, the paucity
people and local communities. Their exploitation of legitimate livelihoods has enhanced the role of
is often associated with IFFs since it is a sector illicit economies and the groups enabling them.
most prone to foreign bribery, false invoicing,
laundering and cross border smuggling.72 Sahel These illicit economies are seen as informal
specific conditions such as the vast unpoliced livelihoods. When a state fails to provide its
desert expanses, insecurity, violence, difficulties citizens with basic services, the citizens then
71 F Natale, Organised Crime in the Sahel, An Inextricable Puzzle (2020) Security Distillery; M Micallef, R Farrah and A Bish, After the Storm:
Organised crime across the Sahel-Sahara following upheaval in Libya and Mali (2019) Global Initiative Against Transnational Organised
Crime; J B Yahia. R Fabiani, M Gallien et al., ‘Transnational Organised Crime and Political Actors in the Maghreb and Sahel’ (2019)
Mediterranean Dialogue Series, NO. 17 KAS, UNODC, ‘Transnational Organised Crime in West Africa: A Threat Assessment’ (2013).
72 Mixed Migration Centre, ‘Navigating borderlands in the Sahel’ (2019) MMC Research Report.
73 M Micallef, R Farrah and A Bish, After the Storm: Organised crime across the Sahel-Sahara following upheaval in Libya and Mali (2019)
Global Initiative Against Transnational Organised Crime; J B Yahia. R Fabiani, M Gallien et al., ‘Transnational Organised Crime and
Political Actors in the Maghreb and Sahel’ (2019) Mediterranean Dialogue Series, NO. 17 KAS.
74 Oxford Analytica, ‘Sahel dynamics foster illicit economies’ (2015) Expert Briefings. Also see: https://www.crisisgroup.
org/africa/sahel/burkina-faso/282-reprendre-en-main-la-ruee-vers-lor-au-sahel-central; https://www.theafricareport.
com/58295/why-much-of-africas-illicit-gold-trade-transits-through-dubai/; https://www.courthousenews.com/
illegal-gold-mining-funding-armed-groups-in-sahel-interpol/

resort to any activity that will provide them longer-distance or cross-border payments.
with sufficient sources of revenue with which As a result, significant volumes of transactions
to pay for and acquire the services they need. are outside of government regulators’ reach
The insecurity in the region alongside poverty and cannot be measured for the purposes of
has resulted in a population vulnerable to illicit international trade or taxation.
activity. This has had the effect of blurring
the lines between licit and illicit due to the The consequences of so much economic
expansive nature of the informal economy activity falling outside of the formal system
generating livelihoods for most of the region’s are manifold. Majorly, the ubiquity of informal
citizens, where whole communities may depend cash-transfer systems increases the risks
on specific forms of illicit trade, for example of money laundering and terrorist financing.
commodity and fuel smuggling, dealing with This becomes a problem for state oversight as
contraband goods and illicit minerals. With money trails cannot be easily tracked. These
few legitimate livelihood opportunities within conditions in the Sahel region have enabled the
the formal economy, such forms of trade albeit emergence of opportunistic actors who are now
illicit, are subsistence level activities and are the drivers of IFFs. These actors rely heavily on
considered as informal economic enterprises by an interdependent interactive network. These
those involved. The profits from such trade flow actors can be state officials, armed groups, local
to local powerbrokers, instead of to the central communities and multinational corporations.
state, depriving the state of revenue. 75 Where certain executive government officers
are involved in IFFs, usually there is limited
Further, low levels of financial inclusion are also parliamentary or executive oversight and
a major contributor to the enabling environment civil society is repressed from demanding
for IFFs in the Sahel region. Access to the formal accountability.77
banking system is out of reach for the majority
of the population.76 Money transfer operators The differing access to resources by
are prohibitively expensive. This has created multinational corporations, finance by
a demand for alternative systems operating armed groups and use of discretion by some
outside government regulation, reducing the government officials enable the generation of a
efficacy of Financial Intelligence Units and variety of illicit revenue streams out of the Sahel
increasing the risks of money laundering and region. For example: gold is indigenous to the
terrorist financing. However, it is difficult to region. While it plays a pivotal role in the formal
point towards verifiable sources from where this economies of Mali and Burkina Faso, gold can
data can be obtained to confirm this claim and readily be diverted into the illicit economy at
gather estimates of how much money has flowed various points of the supply chain thereby
through these alternative systems. This is made generating IFFs. This happens when the gold
difficult due to the paradigm created in which the is sourced or mined illegally, its transit outside
majority of financial transactions are conducted the Sahel is facilitated by armed groups, it is
in cash and the hawala system is favoured for sold across borders for cash or arms to criminal
75 L Raineri, ‘Gold Mining in the Sahara-Sahel: The Political Geography of State making and Unmaking’ (2020), The International Spectator,
Vol. 55, No. 4, 100–117.
76 https://news.microsoft.com/en-xm/features/unbanked-africa-ripe-for-a-fintech-led-future/
77 https://www.crisisgroup.org/africa/sahel/burkina-faso/282-reprendre-en-main-la-ruee-vers-lor-au-sahel-central; https://www.
theafricareport.com/58295/why-much-of-africas-illicit-gold-trade-transits-through-dubai/; https://www.courthousenews.com/
illegal-gold-mining-funding-armed-groups-in-sahel-interpol/

entrepreneurs and its export is facilitated by censure. Key figures in business and government
some custom officers to markets in Dubai where can serve as pivotal nodes in the networks
artisanal gold is laundered.78 The earnings are that perpetuate illicit behaviour, initiating or
then remitted back to the Sahel region with organizing transactions domestically and with
which more arms, for example are purchased international markets, protecting flows from
or the illegal earnings are integrated into the seizure and network members from prosecution,
region’s informal economies making it difficult and laundering money through legitimate
for governments to keep track and control the business or international trade. In the higher
money in circulation. For this cycle to continue ranks, those engaged in the informal economies
unabated, insecurity is used as the method by are free to parlay their IFFs into political power
which to keep the state weak. or economic leverage. At the lower levels,
corruption may serve as a means of livelihood.
The Sahel extractive-industry supply chains The payment of a bribe is perceived as a right of
and related financial flows (both licit and illicit) office in a system where civil service salaries are
involve a complex web and diverse set of actors. low and often irregular. It is an expected cost of
Some of the major players in this illicit economy doing business for individuals engaged in both
also operate other legitimate businesses, which licit and illicit activity, and payments typically
they use to launder their ill-gotten gains. IFFs increase according to rank.
out of the extractives sector are difficult to
quantify—since the state seems to be co-opted In this manner, both governance systems and
into the illicit mining. There is also the lack of politics become invested in protecting illicit flows
consistent data on illicit mining. A problematic out of the region. National governments and the
consequence of gold smuggling is the loss of tax international community have tended to rely
revenues for the region’s governments. heavily on law enforcement, border control and
legal strategies as the predominant response to
The nature of the informal economies in the Sahel curb IFFs. A range of concerns undermine their
region reflects that politics, governance systems effectiveness. What needs to be done for a more
and illicit activity are often interconnected, and effective response is to promote sustainable
public officials often wear multiple hats—as livelihoods, financial inclusion, and strategies
public officials performing their public role, but to ensure integrity in the public service—which
also as private individuals connected to local, can complement and enhance the effectiveness
community or family networks, and sometimes of security and law-enforcement measures.
linked to illegal activity and cross-border trade. Strengthening parliament oversight functions
Loose lines and affiliations cause the licit and to make government officers more accountable
illicit to become blurred. At the same time, and to support an independent judiciary is
the size of the informal financial sector which emblematic of the fight against IFFs in the Sahel
is outside the ambit of regulation as well as region. Establishing a system for controlling and
the formal financial sector where regulation monitoring extractives resources should also
is weak, the fragile capacity of customs and be prioritized on Sahel’s political agenda. Sahel
borders authorities, and low levels of political countries are yet to make satisfactory progress
commitment to change the status quo enable towards meeting the Extractive Industries
these activities to persist without penalty or
78 L Raineri, ‘Gold Mining in the Sahara-Sahel: The Political Geography of State making and Unmaking’ (2020), The International Spectator,
Vol. 55, No. 4, 100–117.

Transparency Initiative (EITI) standards79— retain their dominance in political and economic
these are global standards that address good positions. They would stifle any checks and
governance of oil, gas and mineral resources balances that would threaten their dominance
subjecting them to a process of transparency and access to illicit funds. A vicious cycle of
and accountability. 80
inequality, instability, insecurity, and social
intolerance is thus created.
UNDERSTANDING CORRUPTION
Undermining humanitarian work
AND MONEY LAUNDERING
FROM THE LENS OF AN Humanitarian work can create fertile ground
INTEGRATED APPROACH for corruption and money laundering. This
The structural adjustment programs created nexus was previously underexplored because
the conditions leading to weakening of state of systemic corruption that fostered lack
capacities to drive development in developing of transparency and weak governance
countries including Sub-Saharan Africa. The and regulatory frameworks in the target
linkages between weak states and legal systems, countries. In FCAS and other highly aid-
lack of accountability and transparency, dependent countries, humanitarian work
insecurity, and the absence of the rule of law in is usually facilitated through donor aid
enabling IFFs are established. This, therefore, support. Humanitarian work releases the
means that an ecosystem for IFFs is shaped out state from its responsibilities, impeding state
of insecurity and under development which in turn building. This in turn can create an enabling
stunts humanitarian work and progress towards environment for the cycle of corruption to
achieving human rights. thrive resulting in slower growth and greater
poverty. In addition, aid can be used to open
Undermining peace and security up investment opportunities for multinational
enterprises (MNEs) from donor countries.
Due to the weakened state of peace and security, Commercial diplomacy is also sometimes
the Sahel and Sahara region can be more used for concessions for foreign investors.
vulnerable to organized crime, which in turn The pressure on developing countries to
creates fertile ground for corruption and money- re-regulate or to grant concessions to MNEs
laundering activities. can be side effects of aid.
Institutionalized corruption is heavily Recently, the World Bank has gathered empirical
dependent on political power, which over time evidence supporting the humanitarian work and
creates patronage politics. When proceeds of corruption nexus.81 In its 2020 report, the World
corruption or money laundering flow through Bank documented Tanzania as a case study
these networks, the funds are used to cement highlighting how high levels of corruption in aid
loyalties and relationships with state and non- disbursements coincided with sharp increases
state criminal actors who then would resort to in bank deposits of the aid money by ruling
perpetuating internal conflict and violence to
79 https://eiti.org/news/statement-from-eiti-board-chair-on-situation-in-mali
80 The EITI Standard requires the disclosure of information along the extractive industry value chain from the point of extraction, to how
revenues make their way through the government, and how they benefit the public. By doing so, the EITI seeks to strengthen public and
corporate governance, promote understanding of natural resource management, and provide the data to inform reforms for greater
transparency and accountability in the extractives sector. https://eiti.org/About
81 World Bank, ‘Elite Capture of Foreign Aid; Evidence from Offshore Bank Accounts’ (2020).

politicians and their cronies in offshore financial $5 trillion to $7 trillion per year between 2015
centres. Similar reports by the Global Fund and and 2030 is needed to achieve a set of SDGs
Associated Press have revealed instances where globally, with the estimates being $3.3 trillion
donor aid has been misused. 82
When donor aid to $4.5 trillion per year in developing countries,
is misappropriated or diverted from its intended mainly for basic infrastructure, food security,
purposes, pre-emptive risk reduction to post- climate change mitigation and adaptation,
disaster relief, famine and conflict are made health and education.88
vulnerable.
Undermining human rights
Undermining development
Money laundering is a criminal economic activity
Africa annually loses about $148 billion to whose essential economic function lies in giving
corruption. 83
This amount is not indicative of illicit funds the legitimacy with which to acquire
the clandestine and secretive forms of earning actual purchasing power usable for consumption,
corrupt proceeds which remain undocumented saving, investment or reinvestment. This illegal
and difficult to measure, and which could income is usually concentrated in the hands
amount to additional billions. This amount of a few, and in specific offshore markets
is sufficient to pay for Africa’s infrastructure with no commensurate redistributive effects.
needs that have been estimated at $93 billion Investments in money transmission businesses,
per year. 84
The UNODC estimates that annually casinos, jewellery and gold exchanges, car
between $800 billion to $2 trillion is laundered dealerships usually do not generate sufficient
globally.85 Taken together, these estimates taxes for governments with which to finance
show the corrosive effect on mobilizing the achievement of human rights. An integrated
development finance needed to implement approach to understanding the corruption/
SDGs. For example, the Food and Agriculture money laundering nexus from the perspective of
Organization (FAO), the International Fund for human rights reveals how these crimes stunt a
Agricultural Development (IFAD) and the World state towards meeting the development needs of
Food Programme (WFP) jointly estimate that its citizens.
an average of $265 billion per year is needed
during the period 2016–30 to implement The existence of controlled corruption that
SDG 2 to end hunger, achieve food security makes it possible for some officials to control
and improved nutrition. 86
The World Health the economies of their societies and set up
Organization (WHO) estimates the additional institutions to launder their illicit proceeds
annual investment needed to meet SDG 3 on restricts the ability of a state to then mobilize
health in low- and middle-income countries its own resources to pay for vital economic and
at about $370 billion.87 The UN estimates that social rights and to promote civil liberties.
82 M Jenkins, A Khaghaghordyan, K Rahman et al., ‘The costs of corruption during humanitarian crises and mitigation strategies for
development agencies’, (2020) Chr. Michelsen Institute.
83 UNCTAD (2020) supra, n 2, p. 22.
84 World Bank, ‘Understanding the Cost of Achieving the Sustainable Development Goals’ (2020) Policy Research Working Paper 9146.
85 https://www.unodc.org/unodc/en/money-laundering/overview.html
86 FAO, IFAD, and WFP, Achieving Zero Hunger: the Critical Role of Investments in Social Protection and Agriculture (Rome: Food and
Agriculture Organization 2015).
87 WHO, ‘WHO Estimates Costs of Reaching Global Health Targets by 2030’, (2017) WHO News Release. https://www.who.int/news-room/
detail/17-07-2017-who-estimates-cost-of-reaching-global-health-targets-by-2030
88 UNCTAD, World Investment Report. Investing in the SDGs: An Action Plan (New York: United Nations 2014).

3.4. Further insights into and security, humanitarian work, development
broadening the IFF definition: and human rights, the study has extracted the
risk factors that policy and law makers must
corruption and money laundering
be aware of in the fight against corruption
The discussion under subsections 3.1-3.3 and money laundering. While a number of
have highlighted the need to reconsider the international and national strategies that have
fundamental concepts of discretion and been put in place to combat corruption and
deregulation of the financial sector as part of money laundering, assessing their impact in
the definition of IFFs. Taken together, discretion, constraining corruption and money laundering
deregulation of the financial sector and the role will be examined next. Such assessment is
played by professional service providers can done with a focus on evaluating the extent to
foster an enabling environment within which which these strategies have successfully curbed
IFFs can thrive. As such, the proposed definition corruption and money laundering linkages
here of IFFs takes the entire UNCTAD/UNODC resulting in stronger institutions, sophisticated
approach and provides additional elements as regulatory frameworks promoting transparency
an explanation of the mechanisms and actors and accountability and a stronger fiscal state
involved in IFFs to the words that follow in bold: facilitating development.
‘Financial flows that are illicit in origin, transfer
or use; that reflect an exchange of value instead
of purely financial transactions; and that cross
country borders, facilitated by and through
formal and informal institutions that overlook or
have reduced checks on financial accountability,
transparency and integrity, and also by those
institutions that acquiesce in reduced checks’.
The complexity and extent of the network of

perpetrators of corruption and money laundering
required the study to adopt an integrated
approach. The discursive methodology informing
this approach required mapping corruption and
money laundering onto a connected landscape
of social experiences that enabled these two
sources of IFFs to thrive. As such, closely
connected constructs of peace and security,
development and human rights were considered
in unpacking the networks created to filter IFFs
when any of these constructs are threatened or
made vulnerable. Such an integrated approach
allowed the study to draw insights into the
supply value chains through which the proceeds
of corruption and money laundering are filtered.
In understanding the debilitating consequences
of corruption and money laundering on peace

4. International and Africa specific
strategies designed to combat
corruption and money laundering
An examination of the operational challenges money laundering schemes was among the
in existing conventions, laws, and policies to preventive measures outlined in the convention
fight against corruption and money laundering, to combat against corruption. Both the AU and
especially in the way the measures are UN conventions were concerned about the links
implemented in practice are considered under between corruption and money laundering and
this section. In the past few years leading to the their joint range of corrosive effects on societies,
2020 UNCTAD EDAR and UN FACTI Panel report, capacity to undermine development and human
the Africa Union, the World Bank, the United rights, and threaten peace and security.
Nations, and the Financial Action Task Force
(FATF) called for a more integrated approach to Such a corruption/money laundering nexus
corruption and money laundering. In 2003, the was emphasized again in the 2007 World Bank
African Union Convention on Preventing and Governance and Corruption strategy. The
Combating Corruption was adopted requiring strategy noted that: ‘Corruption and money
Member States to take legislative measures that laundering are a related and self-reinforcing
would be necessary to penalize laundering of the phenomenon’.91
proceeds of corruption. The Convention did not
Similarly, the United Nations stated: ‘There are
consider corruption as a financial or economic
important links between corruption and money
crime in isolation but crafted its response
laundering… A high degree of coordination is
to combatting corruption by sanctioning
thus required to combat both problems and to
laundering activities intended to conceal or
implement measures that impact on both areas’.92
disguise the corruption related proceeds.89 In the
same year, the United Nations General Assembly The joint UN-World Bank Stolen Assets
adopted the United Nations Convention Against Recovery Initiative (StAR) launched in 2007 also
Corruption making it the only legally binding emphasized the corruption/money laundering
universal anti-corruption instrument with interface.93 SDG 16 and particularly target 16.4
140 signatories. 90
Detecting and deterring
89 African Union, African Union Convention on Preventing and Combating Corruption, 11 July 2003, available at: https://www.refworld.org/
docid/493fe36a2.html
90 UN General Assembly, United Nations Convention Against Corruption, 31 October 2003, A/58/422, available at: https://www.refworld.
org/docid/4374b9524.html
91 World Bank, ‘Strengthening World Bank Group Engagement on Governance and Anticorruption’ (2007).
92 Mentioned in D Chaikin and J C Sharman, Corruption and Money Laundering (Palgrave 2009).
93 https://star.worldbank.org/

to ‘significantly reduce illicit financial and arms increased global attention on corrupt activities.
flows, strengthen recovery and return of stolen In 1990 the UN published a manual explaining
assets, and combat all forms of organized how Member States could develop national
crime’ refers to closing the regulatory gaps anti-corruption programmes.95 This followed
that allow the corrupt to hide and launder their recommendations made by the UN General
illicit proceeds. SDG 16 also recognizes the Assembly on international co-operation on
nexus between corruption, money laundering investigating and prosecuting corruption,
and anti-money laundering efforts to combat addressing corrupt practices by enterprises,
the two. However, despite the envisaged nexus, developing non-criminal measures to combat
African states observe an artificial separation and training law enforcers.96 During this
between the two whereby agencies tend to focus time, Africa’s participation in developing and
too narrowly on their mandate: anticorruption negotiating instruments to combat corruption
agencies deal with corruption, but not money was restricted to its role within the UN. African
laundering; anti-money laundering bodies deal initiatives against corruption began with the
with money laundering, but not corruption. adoption of the Southern Africa Development
This artificial separation breaks the chains Community (SADC) Protocol against Corruption
in following the money trail of illicit proceeds in 2001. This was followed by the Economic
sourced out of corruption-related activities and Community of West African States (ECOWAS)
money laundering. It is against this background Protocol on the Fight against Corruption. In
that a discussion of the legal instruments and 2003, the AU Convention on Preventing and
policy initiatives to combat corruption and Combatting Corruption was adopted.
money laundering in Africa follows next.
The continued legal permissibility in allowing
discretion with political actors continues to
4.1. The international and cultivate an opaque network of patronage
Africa specific anti-corruption across the state influencing IFFs to filter
through legitimate institutions. The governance
and anti-money laundering
gap that discretion and deregulation create
related instruments within institutions undermines the effective
An international wave of anti-corruption implementation of these conventions. Currently,
initiatives was inspired by the U.S. Foreign the FATF dominates political decision-making for
Corrupt Practices Act (FCPA) in 1977. This national implementation of anti-corruption and
followed the Watergate scandal, a classic anti-money laundering (AML) guidelines, whether
case of money laundering and the use of this institution and the Recommendations that it
campaign funds to bribe foreign officials. 94 proposes have had a more positive impact when
The waves of democratization that followed compared with the conventions on curtailing
in Africa in the 1990s and the establishment corruption and money laundering in Africa is
of Transparency International in 1993 also addressed next.
94 A Goldberg, ‘The Foreign Corrupt Practices Act and Structural Corruption’ (2000) 18 Boston University International Law Journal 273.
95 Manual Prepared by the Secretariat: Practical Measures against Corruption, Eighth United Nations Congress on the Prevention of Crime
and the Treatment of Offenders, UN Doc A/CONF144/8 (1990)
96 GA Res 45/107, UN GAOR, 45th Sess, Agenda Item 100, UN Doc A/RES/45/107.

4.2. The Financial Action confiscating the proceeds of drug crime, which
Task Force and Africa Styled in turn necessitated procedures for tracing and
freezing these assets, provided for incremental
FATF Regional Bodies
improvements in mutual legal assistance
Policy proposals and legal instruments adopted procedures including the international
by African governments have independently collection of evidence and extradition.
addressed strategies to combat corruption and Technical assistance to developing countries
money laundering. Donor aid organizations on translating the general obligations of the
have also been permitted to adopt their own AML régime under the Convention into national
anti-corruption strategies which may or may laws was provided by the UNODC. This was later
not take into account the money laundering followed by the creation of FATF in 1990 that
nexus. As part of combatting money laundering, expanded the coverage of money laundering
corruption is viewed as a predicate crime from the Convention’s narrow focus on drugs to
and its instances are confined to controlled all other profit-driven crimes.
systemic corruption at the political level.
A comprehensive take towards focusing on The FATF is the first international institution
the enabling environment that fosters the founded specifically to counter money
corruption and money laundering interface laundering. While it grew out of a concern
creating networks across instability and with the war on drugs, echoing the Vienna
informal sectors, aided by professional service Convention, the FATF Recommendations also
providers, disguised through the application of dealt with corruption recognizing that corruption
discretion, and protected by the deregulated and money laundering were intrinsically linked.97
private economic markets have posed However, the AML regulation is not specific to
considerable challenges in implementing anti- corruption. It is aimed at stopping a broad class
corruption and AML strategies in most African of crime that involves moving large amounts of
states. This will be discussed shortly after a money. This may well cover grand corruption
brief historical glimpse of the FATF and its by political leaders, but it does not factor in
institutional capacity in leading reform within uncontrolled and sporadic corruption which may
political and economic markets strengthening take place on a much smaller scale. This study
them against corruption and money claims that the AML rules are skewed against the
laundering. detection of the corrupter.
The first primary international agreement to The AU as part of its Agenda 2063 also
counter money laundering was the 1988 UN assumes the responsibility to fight against
Vienna Convention Against Illicit Trade in corruption and money laundering. However,
Narcotic Drugs and Psychotropic Substances. it does not create a FATF style continental
Though limited in scope as its name suggests, body. The existence of the Eastern and
this Convention set down many of the main Southern African Anti Money Laundering Group
elements of the current FATF AML régime. (ESAAMLG), the Intergovernmental Action
It created the criminal offence of money Group Against Money Laundering (GIABA) 98
laundering, established the principle of and the Task Force on Money Laundering in
97 FATF, ‘Corruption: A Reference Guide and Information Note on the Use of the FATF Recommendations to Support the Fight Against
Corruption (2010).
98 GIABA is made up of the Economic Community of West African States (ECOWAS).

Central Africa (GABAC) provides member states 4.3. Evaluating the anti-
with the opportunity for essential interests to corruption and anti-money
be pursued and for cooperative mechanisms
laundering strategies
to be developed regionally. The UN FACTI
Recommendation 12A which proposes to African countries regulation of money
update the UN Convention against Corruption laundering is not without challenges.99 This
by way of an implementation review mechanism results from the advancement of technology and
to improve comprehensiveness, inclusiveness, digital business models which can be abused
impartiality, transparency and especially by money launderers, while law enforcement
monitoring would benefit from such regional lags in formulating risk assessment and
FATF style bodies. Such a review mechanism detection tools. Self‑regulation of professional
could result in a database of information service providers sometimes results in their
specific on the extent to which discretion complacency in facilitating corruption and
is exercised in political institutions and the money laundering by providing false accounting
corruption and money laundering instances to mask the criminal proceeds. Similarly, legal
that result. Political will to support the creation service providers who facilitate clients seeking
of this database is therefore needed and can be anonymity when buying property through
developed under the Common African Position complex corporate structures, engage in
on Asset Recovery (CAPAR). This can facilitate conveyance transactions that involve multiple
the development of cooperative solutions legal service providers or exploit client accounts
to be applied regionally and later monitored to move illicit funds to third parties create these
against the extent to which the resulting illicit regulatory challenges. In turn, all this impedes
problems have been mitigated. However, limited the successful implementation of the anti-
resources and limitations around a state’s corruption and AML strategies on the continent.
technical capacity are usually the debilitating The problem is that the regulatory process is
factors inhibiting the success of these regional spread across numerous bodies, many of which
bodies. Further, their focus remains on curbing lack public accountability (especially those that
laundering of illicit proceeds. Their mandate are self-regulated). There is enormous scope for
does not extend into observing the enabling inertia, duplication, waste, and buck-passing.100
environment that fosters IFFs. Enablers such The AML bodies do not have a consistent
as professional service providers are also not organizational structure and there is no central
brought under the FATF scope, instead their place for investigation or prosecution.
regulation is left to the independent body that
regulates these professionals. Since there is no In this fragmented system, it is difficult to develop
requirement to exchange information between in house capacity to learn and use the knowledge
the FATF body and professional regulators, that enables the fight against corruption and
the latter’s efforts to curb money laundering AML. No single regulator has an overview
are hindered. These are some of the problems of the entire system or comprehensiveness
observed; others are discussed next. of the issues. Intelligence sharing from the
Financial Intelligence Unit (FIU) has historically
99 N V Azinge-Egbiri, Regulating and Combatting Money Laundering and Terrorist Financing: The Law in Emerging Economies (Taylor &
Francis 2021).
100 J Hatchard (2020), supra, n 6.

been limited to the banking sector and others fashion.101 Consequently, some countries
are neglected. Too many lines of communication rushed through legislation to avoid these
inevitably add to bureaucracy, political influence, pressures and threats and thereafter retreated
delays, and costs. Many of the regulators in in implementing the Recommendations due
African countries are also poorly resourced. to lack of political will, funds and technical
Hence, they are less likely to be compliant with know-how.
the FATF AML standards. Many African states
2. AML strategies are largely domestic in nature
have also not signed up to the OECD Multilateral
and cover depository institutions. In other
Convention to Implement Tax Treaty Related
African countries, AML strategies are part of
Measures to Prevent BEPS (MLI) that can be
the highly structured international régime set
used by their authorities to exchange information
out as part of the FATF Recommendations
useful for tracking down IFFs. In addition to their
that regulate a wide variety of institutions. Of
taxation duties, revenue authorities also have
the institutions set out, the informal sector
AML duties. Whether their budget and staffing
is not viewed as part of the financial system.
are adequate is the subject of further empirical
Uncontrolled and sporadic corruption is
research. These factors impede against the
most likely to occur, foster and be facilitated
successful implementation of AML strategies.
through the informal sector. Leaving out
Too many regulatory bodies are too close to the the informal sector as a risk indicator of
interests that are to be regulated and thus have corruption and money laundering that can be
no independence. African countries also have a addressed through AML strategies explains
poor record in prosecuting money laundering. As why the strategies set out under FATF remain
a result, they have not been able to successfully partially enforced.
recover from the StAR initiative those laundered
3. Informal and unofficially conducted cash
proceeds caused by theft.
transfers through the local hawala102
Are there other reasons that can explain why networks are impediments to AML controls.
some of the anti-corruption and anti-money Such transfers are usually not fully reported,
laundering strategies are unsuccessful? The officially recorded, measured, or taxed. Where
study assumes so. government regulatory capacity is constrained
due to lack of funds, technical personnel, weak
1. Anti-corruption and anti-money laundering governance, corruption and instability, its
strategies have developed as separate financial sector is pushed towards informality
international policy priorities and there just operating almost outside of government
did not seem to be much in common between oversight, either through the black market,
fighting money launderers, eradicating hawala networks or unsupervised remitters.
poverty and promoting peace and security. This situation provides perfect conditions for
Some of these FATF AML Recommendations money-laundering schemes to go undetected.
were applied as a result of escalation of Illegitimate and legitimate economies then
pressure and perhaps the threat of sanctions begin to intersect and multiple types of
for those who did not comply in a timely IFFs begin to find harbour in such countries.
101 R F Pol, ‘Anti-money laundering: The world’s least effective policy experiment? Together, we can fix it, (2018) Policy Design and
Practice, Vol 3, Issue 1.
102 An Arabic word for a particular international underground banking system.

Consequently, even with the FATF standards, to be laundered. In line with this, the UN FACTI
compliance becomes difficult. Hence, Africa’s Panel’s approach to a principle-based financial
cash-based societies remain a challenge to system which seeks to preserve the integrity of
fully implementing AML strategies. the core financial system introduces a different
type of AML goal, it justifies holding professional
4. Most African countries have laws targeting
service providers accountable towards
predicate crimes that make it necessary to
reducing activities that facilitate corruption and
launder proceeds. These predicate crimes
consequently generate money to be laundered.
cover drug trafficking-, blue- and white-collar
This input may contribute to strengthening AML
crimes, bribery and corruption, and terrorism.
strategies as the key enablers are brought under
These crimes differ in terms of their reliance
the FATF jurisdiction.
on cash, the quantities of money involved, the
severity of their negative impact on peace Not all money laundering transactions involve all
and security, development, humanitarian three distinct phases (placement, layering and
work and human rights. The FATF AML integration), some may indeed involve more. The
recommendations provide general standards diversity of forms that money laundering can
relating to customer due diligence, reporting, take, the participants involved, and the settings
regulation and supervision, investigation, determine the suitable method(s) to be used.
prosecution, and sanctions. While these may
aid preventing these predicate crimes, they FATF requires financial institutions to follow
are not strategic towards their enforcement. a series of Customer Due Diligence (CDD) and
For example, the standards on regulation sometimes an Enhanced Due Diligence (EDD)
should be tailor-made to suit the different checks. These Know Your Customer (KYC) rules
contexts within which these predicate crimes aid banks to identify who their customer is with
can occur. evidence and to file a suspicious activity report
(SAR) where specific red flags are identified.
Since no credible estimates are available as to the Banks are only obligated to file a report not to
volume of money laundering, the vagueness of prevent transactions or close accounts. The
available estimates cannot be used as a measure SAR is then followed up by law enforcement,
to judge the effectiveness of the global AML leading to asset freezes, arrests and potentially
strategies. The vagueness of current estimates even jail time. But can all banks meet the
provided has to do with disagreements over how compliance costs for KYC, CDD and EDD? This
to conceptualize money laundering and around is a potential regulatory weakness in the FATF
weaknesses in techniques used to quantify it. 103 Recommendations. Perhaps the integrated
Thus, the strategies aim to reduce the activities institutional approach proposed under
that generate corrupt proceeds and the money section 3.1 could partly resolve this problem.
103 This is because money laundering practices change over time. Digital technology also adds layers of disguise to illicit finance.
FinTech platforms can be used for money laundering purposes, crowdfunding platforms and the use of virtual currencies have
also been identified as facilitating ML. Therefore, it is not quite possible to have a comprehensive estimate of how much in money
laundering flows through formal and informal financial institutions. Conceptualising ML is also context specific. The definition of
money laundering has not been harmonized. Individual countries place their own particular focus on predicate offences which other
countries may not consider as part of their law on predicate offences, esp. if those states are not members of the FATF (e.g., Burundi,
Eritrea, Mauritania, Sao Tome and Principle and South Sudan). Nevertheless, in estimating ML, the Walker and Unger models are
usually applied in EU countries and I would assume African states too. However, these models have been criticized for lacking in
empirical foundation and their inability to distinguish between domestic and international ML. Read more here: J Walker and B Unger,
‘Measuring global money laundering: The walker gravity model’, [2009] Rev. Law Econ 5, 821–853.

MONEY LAUNDERING THROUGH CASH INTENSIVE, LEGAL BUSINESSES
The anti-corruption and AML strategies are also weak towards countenancing the following social
experiences. Illicit money can be added to the cash revenues of a legitimate business enterprise,
particularly those that are already cash intensive, such as restaurants and bars in most African countries.
The extra money is added to the till. The cost for this laundering method is the tax paid on the income.
With companies whose transactions are better documented, invoices can be manipulated to stimulate
legitimacy.
For example, a used car dealership may offer walk-in customers a discount for paying cash, then report
the original sale price on the invoice, thus justifying the existence of the extra illicit cash. In Kenya, a risk
assessment study conducted by the Financial Reporting Centre (FRC) revealed that second-hand car
ventures cut deals worth millions of shillings in cash without questioning the buyer’s source of income.104
The findings highlighted that drug dealers and fraudsters relied on this industry to launder their illicit
proceeds. The used car industry is currently unregulated and does not fall within the Kenyan Proceeds of
Crime and Anti-Money Laundering Act that requires financial and designated non-financial institutions
and professions to report any suspicious or unusual transactions to the FRC. This gap in regulation is
currently under review by the FRC. Benin serves as another good case illustration. Benin is West Africa’s
centre of regional re-export hub across various industries and is therefore vulnerable to money laundering.
A 2015 International Narcotics Control Strategy Report (INCSR) by the U.S. Department of State revealed
that particular money laundering cases linked to Benin included the proceeds of narcotics trafficking being
commingled with the sale of imported used cars primarily in neighbouring countries.105
Finally, functional specialization has resulted whether the African markets can incorporate
in the failure of agencies to appreciate the more opportunistic modes of converting the illicit
corruption/money laundering interface. Financial proceeds into forms that cannot be traced. Anti-
Intelligence Units (FIUs) see corruption outside corruption measures should specifically respond
their area of responsibility and anti-corruption to the different categories of corruption106 and
bodies regard money laundering in the same way. patterns of corruption107 as each of these will
In going forward, African governments should require different strategic and programmatic
create a continent-wide database of existing approaches. Most of the national anti-corruption
cases that provide detailed description of the measures do not outline different strategic and
amount, methods and predicate crimes involved programmatic approaches to respond to the
that represent the existence and mechanics of different types of corruption. The capacity of the
the market for corruption and money laundering FIUs to create this database will depend on the
services. Policy and law makers need this nature of the intelligence that can be availed to
database as a first step towards understanding the public and the financial costs involved.
104 https://www.businessdailyafrica.com/bd/economy/state-to-seek-identity-income-of-used-car-buyers-3318736
105 https://2009-2017.state.gov/j/inl/rls/nrcrpt/2015/supplemental/239144.htm
106 Bribery, embezzlement/misappropriation/facilitation payment, fraud, patronage/clientelism/nepotism, rent seeking, conflict of interest,
absenteeism, abuse of power/influence (See Pearsall (2002), McLean and McMillan (2003) and Transparency International (2009)).
107 Political versus bureaucratic/administrative; grand versus petty; controlled versus uncontrolled; systemic/endemic versus sporadic.
(See Pearsall (2002), McLean and McMillan (2003) and Transparency International (2009)).

Such capacity and move towards creating the importance of the fight against corruption
the database are hampered due to the lack of and identified not only knowledge, technical and
political will at the highest levels of government. financial capacity constraints within national
This lack of political will has also been flagged institutions responsible for investigating and
by the African Peer Review Mechanism (APRM). prosecuting corruption but also the lack of
The APRM produces country review reports political will to enforce measures against curbing
addressing issues across different dimensions corruption.108 Sixteen APRM reports also caution
of governance and individual countries with against the lack of independence of most state
a particular focus on how anti-corruption, institutions charged with fighting corruption.109
transparency and accountability measures As a measure to counter this weakness, the
are addressed across national governance APRM recommends strengthening civil society
mechanisms and institutions. In its country to advocate for vertical accountability.
review reports, the APRM has acknowledged
108 R Lekalake, Bridging the gap between commitment and capacity. Corruption, transparency and accountability in the African Peer
Review Mechanism (APRM), EISA Occasional Paper AP6 (2016).
109 Various African Peer Review Mechanism Country Review Reports from 2005 to 2013 available on its website.

5. Conclusion and
recommendations
Corruption and money laundering cause serious While the UN FACTI Panel report proposes
systemic economic, institutional, and social the formation of legitimate financial rules and
costs, and when they hit financial markets, affect standards in conducting financial activities, it
financial supervision, accountability, transparency does not set out what these rules and standards
and integrity. These two forms of IFFs seriously ought to be. It instead speaks of a Global Pact for
distort the competitive modern regulated financial integrity for sustainable development.110
markets which in turn creates and crystallize Such financial integrity is to be achieved by states
asymmetric political and business environments. agreeing to take comprehensive action to foster
An integrated approach to understanding the and strengthen financial integrity for sustainable
corruption and money laundering interface development. This study proposes the removal
explains how the two erode democratic of discretion by public officials on one hand, and
institutions, create social inequality, and threaten on the other, controlling professional service
security and fundamental human rights. These providers and regulating all financial activities
disguised forms of illicit finance are grounded on and transactions. Along this, the following
the size of the government’s role in the economy recommendations are also made.
and on the discretion of public officials within the
state’s regulatory framework. To resolve these 1. To designate the Economic Commission for
risk indicators that permit IFFs to thrive, African Africa (ECA) to recommend and support a
governments must replace discretion of public common African position on strengthening
officials and control deregulation of the financial the anti-corruption and AML regulatory
sector with UN FACTI principles. system established under the FATF. ECA
efforts to be complemented by the African
Removing discretion and controlling Peer Review Mechanism (APRM) under
deregulation of the financial sector in so far as whose auspices Member States will suggest
financial activities are concerned will foster measures to be taken to reduce fragmentation
greater transparency, stronger institutions, and sector-specific concentration in
enhanced accountability, and more cooperation combatting corruption and money
at the national, regional and global level with laundering. Based on the suggestions, ECA
people contributing towards financial integrity to support technical assistance to the FATF
in all aspects of their lives. This is because style regional bodies in Africa (ESAAMLG,
decision-making around financial activities and GIABA and GABAC) on sharing intelligence,
transactions will be subject to standards and not resources, and cross-border co-operation
discretion. from across the public and private sectors
110 UN FACTI, executive summary v2.

to tackle money laundering. This will result group can also support strengthening StAR
in removing information asymmetries that initiatives to support the recovery of stolen
present obstacles to locating IFFs earned African funds.
out of bribes and corrupt activities. This
3. Strengthening the capacity of the national
recommendation resonates with UN FACTI
anti-corruption bodies to do research on
Panel Recommendation 11C: Designate an
the prevalent national forms of corruption,
entity to collect and disseminate data on
including in collaboration with other
enforcement of money laundering standards.
international organizations, with the strategic
2. The political economy conducive to IFFs aim of improving the effectiveness of
often has global links. The measures capacity building and technical assistance
undertaken in African countries have not towards investigating the diverse forms of
been conducive to combatting corruption corruption and money-laundering schemes.
and money laundering in so far as high- Since corruption is transnational where the
ranking officials are concerned. All too often, illicit proceeds can be gained in one state
the tendency is to bury illicit practices and and transferred to another, setting up a
shield selected economic and political elites continental anti-corruption and anti-money
from scrutiny and protect their economic laundering judicial institution where enablers
interests. This would require strengthening and recipients of these forms of IFF can be
coordination between national, regional, prosecuted is one way of countering the
continental, and global agencies that deal lack of political will at national levels to curb
with combatting corruption and money corruption and money laundering. Such a
laundering, which in turn will support the judicial institution resonates with the FACTI
recovery process of the illicit funds. Such Panel Recommendation 10C. The UN FACTI
coordination can be achieved by African Recommendation 1B proposes that the
States aligning their national efforts towards international community should develop and
the recovery and return of the money stolen agree on common international standards for
due to corruption-related activities and settlements in cross-border corruption cases.
money laundering with the Common African The African position on this recommendation
Position on Asset Recovery (CAPAR) so that should advocate for the involvement of
such shielding practices can be identified, APRM to guide on the development of these
and illicit proceeds seized. However, this standards and practices that will also be
may not entirely undo the problem of political relied on by national anti-corruption bodies
interference or vested interests. As such an to do research and investigate corruption
African led investigative group comprising and money-laundering schemes. Involving
of CSOs, investigative journalists, forensic the APRM in this process may contribute to
accountants, lawyers, academics, and the political will towards creating the legal
state officers working to combat corruption foundation for an inclusive intergovernmental
at national levels should be formed body on corruption and money laundering,
to investigate, and support CAPAR on which is also recommended under UN FACTI
recovering stolen funds from the continent. Recommendation 14C.
Since StAR does not investigate cases
4. The ease of doing business that facilitates
but only serves as an intermediary to help
company formation may encourage formation
return assets, the African led investigative
of companies for illicit purposes. The ease

with which a company can be established Based on FACTI Panel’s Recommendation 6B,
is frequently exploited to set apparently the recommendation made here is to redesign
legitimate companies both within Africa and and supervise the regulatory architecture of
offshore, but which are primarily a mechanism professional service providers. The FACTI
for laundering illicit funds. Further research Panel report claims that self-regulation does
is required in order to suggest protective not work, therefore, there should be one well-
checks and oversight in company formation. resourced national supervisory body that
Creating a centralized registry for holding regulates these professionals and formulates
beneficial ownership information on all professional standards guiding these
legal vehicles may not suffice. Introducing professionals on how to co-operate with
a legal requirement of identity verification financial intelligence units without breaching
to be issued by a government authority their duty of confidentiality to their clients.
confirming the individual(s) incorporating This body should have its own investigative
the company has no previous criminal capacity. All regulatory bodies are susceptible
records, is tax compliant, has an authentic to ‘capture’ by the very interests that are to
taxpayer’s identification number, and has be regulated. This often happens in the guise
not been flagged for suspicious transactions of claims that ‘we need people with technical
is one way to safeguard against the risk of knowledge’ and before long their worldviews
forming companies for illicit purposes. While become naturalized within the regulatory
this may delay company formation when bodies. To be effective, the supervisory body
such verification is sought, implementing proposed can appoint a team of compliance
technology solutions such as machine auditors to oversee the regulator of the
learning and data analytics can help to swiftly professional service providers by asking
provide this data. questions about policies and practices and
requiring professionals to keep a database of
5. Virtually all high-end money laundering
their clients’ origins and sources of resources
schemes, and several cash-based ones,
over a specified threshold and share the data
are facilitated by the abuse of legitimate
with the FIU.
processes and services. Accounting,
legal professionals, and estate agents, 6. Under the auspices of APRM, African
could be criminally exploited where their governments should conduct a national
complicity and negligence are established risk assessment of corruption and money
in facilitating IFFs. This small minority of laundering to build on their understanding
people can pose a very significant threat. of these threats arising internally as well
They can act as intermediaries and use as being facilitated through international
their skills, knowledge, and abilities to draft institutions. Such risk assessment will
documentation, disseminate funds, and allow provide the foundation for the government
highly complex structures to be created that and private sector to tackle corruption and the
move and store large amounts of criminal resultant ML. It will lead to discovery of which
money and conceal ownership effectively. financial actors remain outside the purview
Hence, applying punitive sanctions against of regulation, such as crypto asset exchange
professional service providers, especially providers and custodian wallet providers
private bankers, lawyers, and accountants emerging out of the digitized economy. It will
who facilitate IFFs is an important step. reveal what the governments need to do to

enhance their domestic response to economic • Coordinate and enable a more strategic
crimes and address the international African response at the global level, including
dimensions to money laundering which can via the FATF and UN FACTI Panel as part of its
be restricted by domestic reforms. recommendation 10A.
7. African governments should create a • Influence policy and technical knowledge

continent-wide database of existing cases exchange with host governments and wider
that provide detailed description of the stakeholders to tackle corruption and money
amount, methods and predicate crimes laundering.
involved that represent the existence and
mechanics of the market for corruption and • Build an effective African network to tackle
money laundering services. Policy and law corruption and money laundering impacting
makers need this database as a first step on African interests, and on poverty in African
towards understanding whether the African countries (by harmonizing at the regional level
markets can incorporate more opportunistic policy and legal approaches to combatting
modes of converting the illicit proceeds into corruption and money laundering). African
forms that cannot be traced. Anti-corruption regional economic blocs should create
measures should specifically respond to robust and coordinated national oversight
the different categories of corruption and mechanisms that efficiently reinforce
patterns of corruption as each of these will financial integrity as part of national financial
require different strategic and programmatic institutions requiring these institutions to
approaches. Most of the national anti- publish reviews evaluating their performances
corruption measures do not outline different in detecting suspicious transactions and
strategic and programmatic approaches to listing transaction/financial flows of specific
respond to the different types of corruption. thresholds across the regional blocs. The
The capacity of the FIUs to create this groundwork for the preparation of such
database will depend on the nature of the mechanism should be facilitated through the
intelligence that can be availed to the public Africa Peer Review Mechanism.
and the financial costs involved.
• Raise global standards and norms to tackle
8. Finally, the AU can support the setting up of corruption and money laundering both
a Continental Anti-Corruption and Money bilaterally and multilaterally.
Laundering Coordination Centre, hosted in
Addis Ababa where specialist African law
enforcement officers are brought together
from their multiple domestic agencies to
tackle allegations of grand corruption and
money laundering. Through this centre, the
AU could:
• Improve shared understanding of the nature,

drivers and challenges of tackling domestic,
regional and offshore corruption and money-
laundering schemes that flow through and
into African countries.

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Intensifying the fight

against corruption and

For more information, please visit www.un.org/osaa or contact [email protected]

Designed by: ITC Global Translations

1. SETTING THE SCENE........................................................................................ 5

2.  RAMING THE GLOBAL AND LOCAL POLITICAL ECONOMY CONDUCIVE

3.  ORRUPTION AND MONEY LAUNDERING CHALLENGES IN

4. I NTERNATIONAL AND AFRICA SPECIFIC STRATEGIES DESIGNED

5. CONCLUSION AND RECOMMENDATIONS...................................................... 37

INTENSIF YING THE FIGHT AGAINST CORRUPTION AND MONEY LAUNDERING 3

AfDB Africa Development Bank UN United Nations

AU UNCTAD United Nations Conference on Trade

4 INTENSIF YING THE FIGHT AGAINST CORRUPTION AND MONEY LAUNDERING

INTENSIF YING THE FIGHT AGAINST CORRUPTION AND MONEY LAUNDERING 5

6 INTENSIF YING THE FIGHT AGAINST CORRUPTION AND MONEY LAUNDERING

INTENSIF YING THE FIGHT AGAINST CORRUPTION AND MONEY LAUNDERING 7

8 INTENSIF YING THE FIGHT AGAINST CORRUPTION AND MONEY LAUNDERING

INTENSIF YING THE FIGHT AGAINST CORRUPTION AND MONEY LAUNDERING 9

18 UNCTAD (2020) supra, n 2, p. 90.

10 INTENSIF YING THE FIGHT AGAINST CORRUPTION AND MONEY LAUNDERING

INTENSIF YING THE FIGHT AGAINST CORRUPTION AND MONEY LAUNDERING 11

12 INTENSIF YING THE FIGHT AGAINST CORRUPTION AND MONEY LAUNDERING

The addition to the IFF definition formulated by

INTENSIF YING THE FIGHT AGAINST CORRUPTION AND MONEY LAUNDERING 13

14 INTENSIF YING THE FIGHT AGAINST CORRUPTION AND MONEY LAUNDERING

INTENSIF YING THE FIGHT AGAINST CORRUPTION AND MONEY LAUNDERING 15

16 INTENSIF YING THE FIGHT AGAINST CORRUPTION AND MONEY LAUNDERING

INTENSIF YING THE FIGHT AGAINST CORRUPTION AND MONEY LAUNDERING 17

18 INTENSIF YING THE FIGHT AGAINST CORRUPTION AND MONEY LAUNDERING

INTENSIF YING THE FIGHT AGAINST CORRUPTION AND MONEY LAUNDERING 19

20 INTENSIF YING THE FIGHT AGAINST CORRUPTION AND MONEY LAUNDERING

INTENSIF YING THE FIGHT AGAINST CORRUPTION AND MONEY LAUNDERING 21

• international banks in facilitating money

3.3. Implications of the and civil liberties, and create environments

22 INTENSIF YING THE FIGHT AGAINST CORRUPTION AND MONEY LAUNDERING

INTENSIF YING THE FIGHT AGAINST CORRUPTION AND MONEY LAUNDERING 23

24 INTENSIF YING THE FIGHT AGAINST CORRUPTION AND MONEY LAUNDERING

INTENSIF YING THE FIGHT AGAINST CORRUPTION AND MONEY LAUNDERING 25

26 INTENSIF YING THE FIGHT AGAINST CORRUPTION AND MONEY LAUNDERING

INTENSIF YING THE FIGHT AGAINST CORRUPTION AND MONEY LAUNDERING 27

The complexity and extent of the network of

28 INTENSIF YING THE FIGHT AGAINST CORRUPTION AND MONEY LAUNDERING

INTENSIF YING THE FIGHT AGAINST CORRUPTION AND MONEY LAUNDERING 29

30 INTENSIF YING THE FIGHT AGAINST CORRUPTION AND MONEY LAUNDERING

INTENSIF YING THE FIGHT AGAINST CORRUPTION AND MONEY LAUNDERING 31

32 INTENSIF YING THE FIGHT AGAINST CORRUPTION AND MONEY LAUNDERING

INTENSIF YING THE FIGHT AGAINST CORRUPTION AND MONEY LAUNDERING 33

34 INTENSIF YING THE FIGHT AGAINST CORRUPTION AND MONEY LAUNDERING

INTENSIF YING THE FIGHT AGAINST CORRUPTION AND MONEY LAUNDERING 35

36 INTENSIF YING THE FIGHT AGAINST CORRUPTION AND MONEY LAUNDERING

110 UN FACTI, executive summary v2.

INTENSIF YING THE FIGHT AGAINST CORRUPTION AND MONEY LAUNDERING 37

38 INTENSIF YING THE FIGHT AGAINST CORRUPTION AND MONEY LAUNDERING

INTENSIF YING THE FIGHT AGAINST CORRUPTION AND MONEY LAUNDERING 39

7. African governments should create a • Influence policy and technical knowledge

• Improve shared understanding of the nature,

40 INTENSIF YING THE FIGHT AGAINST CORRUPTION AND MONEY LAUNDERING

Abugre C, Cobham A, Etter-Phoya R et al., Bayer M, ‘Private military companies and

Akdede S H, ‘Corruption and Tax Evasion’ Billon P L, Corruption and Post-Conflict

Akinbode S, Olabisi J, Adegbite R, et al., Chaikin D and Sharman JC, Corruption

2. RAMING THE GLOBAL AND LOCAL POLITICAL ECONOMY CONDUCIVE

3. ORRUPTION AND MONEY LAUNDERING CHALLENGES IN

4. I NTERNATIONAL AND AFRICA SPECIFIC STRATEGIES DESIGNED