23 October 2015: The UN General Assembly’s Second Committee (Economic and Financial Committee) held a joint meeting with the UN Economic and Social Council (ECOSOC) on ‘Illicit financial flows and development financing in Africa.’ The meeting aimed to provide a “starting point and example” for synergy and coordination between the two bodies on cross-cutting matters, said Oh Joon, ECOSOC President and moderator of the dialogue.

The meeting took place on 23 October 2015, and was co-organized by the UN Conference on Trade and Development (UNCTAD) and the UN Department of Economic and Social Affairs (DESA).

Oh said illicit financial flows (IFFs) from Africa total US$50 billion per year, representing an important loss of foreign exchange reserves, an erosion of the legal tax base, and missed investment opportunities from natural resources rents. With this in mind, he said efforts at domestic resource mobilization must be complemented with efforts to combat IFF.

James Zahn, UNCTAD, said IFFs in Africa, which reach about 5% of GDP, the highest of any region, are caused by: information asymmetries – of African governments relative to investors in the extractive sector, resulting in tax avoidance and trade mispricing; and unsuitable governance structures – leading to ineffective monitoring of the volume and use of natural resource sector revenues. He said that IFFs undermine institutions, reduce the development resource base, and may lead to higher domestic tax burdens to fill the gap between resources and revenues. More indirect consequences of IFFs – such as reduced investment and revenues for health, education, employment – are major constraints on Africa’s structural transformation, he added.

Zahn recommended that African governments should: promote transparency and accountability by strengthening civil society organizations and implementing open and transparent budgeting processes; promote institutional reforms to guaranteeing the independence of judicial systems, audit courts, customs authorities, and the central bank; and create anti-corruption and anti-IFF commissions. He urged international institutions such as UNCTAD or DESA to help African governments by: strengthening the capacity of African financial institutions, revenue authorities, and ministries administering natural resource extractive sector contracts to address IFFs; undertaking tax reform to widen the tax base and reform customs service procedures to curtail trade mispricing; and enhancing anti-money-laundering initiatives and enforcement.

Mothae Maruping, African Union Commissioner for Economic Affairs, said IFF is “a hydra, a labyrinth:” massive, growing, very complex, dynamic, multifaceted and tending to mutate. He attributed IFF to some commercial activities, criminal behavior and corrupt practices, the bulk of it being attributable to transnational corporations, he said, especially in the extractive industry. He urged the Second Committee to appoint a committee of experts on combating IFF, which could help develop an action plan on eliminating IFF by 2030 or earlier. He called for ECOSOC to activate the Vienna Commission on Crime Prevention and Convention on Corruption to work toward producing a global framework for dealing with IFF.

James Boyce, University of Massachusetts-Amherst, said debt management and addressing the systematic misuse of borrowed funds are essential in addressing capital flight, and in particular to repudiate “odious debts,” which are liabilities contracted by governments in the name of the people but without the consent of the people. As an effect of odius debt, loans that did not benefit the African people are being repaid with interest by the African people. He stressed the need to exchange information between countries to improve transparency and for innovative thinking on odious debt.

Shari Spiegel, DESA, said the lack of an agreed definition of IFF poses challenges to policymakers. Some definitions include trade invoicing issues, others include capital invoicing issues, taxation, or other issues. She also stressed the need to incentivize governments to use the funds recovered through tackling IFFs for development.

The Second Committee is convening until late November 2015, and its programme of work includes several side events and joint meetings. [IISD RS Sources] [Joint Meeting Details and Webcast] [James Boyce Statement] [UN Press Release] [Second Committee Side Event Schedule] [Second Committee Documents]