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For more information, please contact the project leader, Tuesday Reitano: tuesday.reitano@globalinitiative.net

The negative impact of illicit financial flows (IFFs) on progress towards development goals increasingly features on international political agendas.

The Global Initiative was commissioned by the OECD to develop a report, to be published in September 2016, “Illicit Financial Flows: The Economy of Illicit Trade in West Africa, to examine the threats for citizens and states. It focusses on the West Africa because – given the region’s open borders, natural resources and high levels of fragility – this region is particularly susceptible to criminal economies. It proposes a framework that offers an opportunity for policymakers (national governments, regional actors and international partners) to prioritise their policy interventions, address the enabling environment and mitigate the impact on the most vulnerable.

The report goes beyond traditional efforts to measure illicit financial flows (focusing solely on financial losses) towards a qualitative understanding of how these activities affect governance, the economy, development and human security. The analysis shows that criminal and illicit economies and resulting financial flows can have a potent negative impact, eroding the capacity of states and individuals to achieve basic social and economic development objectives over the long-term.

Drawing on collaboration between the OECD, the African Development Bank (AfDB), the Inter-Governmental Action Group against money laundering in West Africa (GIABA), the New Partnership for Africa’s Development (NEPAD) and the World Bank, the report focuses on five in-depth case studies: human smuggling from West Africa to Europe, drug trafficking in and through West Africa, counterfeit goods in Ghana, artisanal small-scale gold mining in Liberia and Ghana, and financing of terrorism in the Sahel.

Why is this report important?

  • Most illicit activities represent a net loss for the region: countries and companies lose revenue, investment, markets and legitimacy; and citizens are disenfranchised, exposed to violence and health risks, and deprived of financial gains.
  • Illicit activities and flows feed a vicious cycle of corruption, allowing groups or individuals in power to access resources that can be used to boost electoral campaigns, secure patronage and retain control.
  • There are spill-over effects from illicit activities, such as increased migration, violence or even terrorism.
  • Official development assistance (ODA) may be wasted, or, in extreme cases, diverted to illicit activities that cause harm (for example, funds to build the capacity of an institution may inadvertently prop up actors colluding with criminals).

What is needed to solve the problem?

Some of the illicit activities covered in this report do not originate in, or even have a market in West Africa. Nonetheless, the region suffers the stigma. The countries of origin, destination and transit each need to address their share of the problem.

At the same time, these issues have so far been addressed as security problems, while for West Africa they are primarily a development concern. The perspective of the most vulnerable – the ordinary West African citizen – should be the first point of view taken into account in elaborating policy in this area.

What is the developmental impact of illicit or criminal activities and related financial flows?

The international community needs to build responses based on evidence. This report proposes a comprehensive framework for assessing the harm resulting from criminal activities. It priorities responses based on an analysis that includes – but goes beyond – monetary loss, focusing on areas that are crucial for development:

A framework for assessing harm to development resulting from illicit and criminal activities, and the associated financial flows

The harm outlined in this framework can vary at the individual, community, national or international levels. There may also be differences based on demographics, gender and the vulnerability of specific groups. The following questions can guide the analysis of the impact of the activities presented in the report:

  1. Where is the good sourced?
  2. Is there a local market for the good?
  3. Where are the illicit financial flows generated by these activities earned and invested?

Using this analysis concluded that IFFs that remain in the region are mainly from labour-intensive informal economies, rather than criminal activities. The most significant net losses within the region – as a result of IFFs being directed outside of the region – are the result of criminal activities driven by natural resources. Within the region of transit for goods with little local market in West Africa, the impacts are most likely to be high level corruption and establishment of networks to protect the flow of goods, commensurate to their value. Criminal economies (whether locally or externally sourced) with a significant local market are most likely to play into local power hierarchies, and often contribute to corruption, conflict over resources, resource degradation and/or social instability (including terrorism).

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