Illicit financial flows (IFFs) are illegal movements of money or capital from one country to another. GFI classifies this movement as an illicit flow when the funds are illegally earned, transferred, and/or utilized. Some examples of illicit financial flows might include:
- A drug cartel using trade-based money laundering techniques to mix legal money from the sale of used cars with illegal money from drug sales;
- An importer using trade misinvoicing to evade customs duties, VAT, or income taxes;
- A corrupt public official using an anonymous shell company to transfer dirty money to a bank account in the United States;
- An human trafficker carrying a briefcase of cash across the border and depositing it in a foreign bank; or
- A terrorist wiring money from the Middle East to an operative in Europe.
Africa is currently losing over $50 billion a year in illicit financial flows.
Gordhan says this reduces the amount of resources available to Africa to invest in order to generate jobs and provide critical social services to citizens.
He was speaking at a high level conference on illicit financial flows and good tax governance in Africa at the University of Pretoria.
“Good tax governance and strong corporation between law enforcement agencies and tax authorities are essential in countering corruption and illicit flows. But this requires that each society must nurture and sustain strong and capable institutions led and operated by public officials who are ethical, public service orientated and allowed to act without fear or favour.”
Gordhan added that those benefiting from illicit flows of money are trying to make African governments and institutions dysfunctional.
“Those who are benefiting from these criminal activities don’t want government to become effective, don’t want effective institutions and don’t want people of integrity who operate in these institutions and each of our countries, societies are faced with difficult choices. Those who have the intentions of undermining these institutions must be controlled in some way,” says Gordhan.