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

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

Suggested Citation

  • Kohnert, Dirk, 2024. "Money laundering and tax evasion : Do international measures have a significant impact in sub-Saharan Africa?," EconStor Preprints 300868, ZBW - Leibniz Information Centre for Economics.
    • Handle: RePEc:zbw:esprep:300868
    DOI: 10.5281/zenodo.12570406
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    References listed on IDEAS

    as
    1. Kohnert, Dirk, 2022. "Outside sources of terrorist threats in West Africa," MPRA Paper 115338, University Library of Munich, Germany.
    2. Kohnert, Dirk, 2022. "French domination of markets in Francophone Africa: Post-colonialism at its finest?," MPRA Paper 112024, University Library of Munich, Germany.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Money laundering; Embezzlement; Corruption; tax evasion; Terrorism financing; Informal economy; Sub-Saharan Africa;
    All these keywords.

    JEL classification:

    • D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights
    • D25 - Microeconomics - - Production and Organizations - - - Intertemporal Firm Choice: Investment, Capacity, and Financing
    • D53 - Microeconomics - - General Equilibrium and Disequilibrium - - - Financial Markets
    • D63 - Microeconomics - - Welfare Economics - - - Equity, Justice, Inequality, and Other Normative Criteria and Measurement
    • D74 - Microeconomics - - Analysis of Collective Decision-Making - - - Conflict; Conflict Resolution; Alliances; Revolutions
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • F35 - International Economics - - International Finance - - - Foreign Aid
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • O17 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Formal and Informal Sectors; Shadow Economy; Institutional Arrangements
    • Z13 - Other Special Topics - - Cultural Economics - - - Economic Sociology; Economic Anthropology; Language; Social and Economic Stratification

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