Illicit financial flows (IFFs) have long been a shadowy presence in the global economy, draining countries of vital resources and undermining sustainable development. Recent data from UNCTAD (the United Nations Conference on Trade and Development) show the sheer magnitude of this issue in Southern Africa.
In this blog post, we'll delve into the staggering figures and explore the far-reaching consequences of IFFs on South Africa (SA), Namibia, and Zambia.
(Breaking: Read all about it: Namibia greylisted by FATF)
The Alarming Figures
UNCTAD's pioneering research reveals the startling extent of trade misinvoicing in these three Southern African countries:
- Namibia: Between 2018 and 2020, Namibia faced an estimated $19.6 billion in inward IFFs and $4.7 billion in outward IFFs due to trade misinvoicing.
- South Africa: In 2017, South Africa grappled with trade misinvoicing amounting to approximately $21.9 billion in inward IFFs and a staggering $40.4 billion in outward IFFs. These discrepancies were particularly prevalent in precious metals and stones, as well as electrical machinery and equipment.
- Zambia: Over the span of 2012 to 2020, Zambia contended with trade misinvoicing on a massive scale, resulting in an estimated $44.9 billion in both inward and outward IFFs, based on transactions with seven major trading partners.
The Complex Nature of IFFs
IFFs are when people or companies manipulate financial transactions to hide the true value of what they're buying or selling. This might be done to avoid paying taxes or to move money secretly across borders, and the action often involves illegal activities like tax evasion, fraud, or corruption. However, the consequences of IFFs are too severe to ignore.
The Far-Reaching Consequences
IFFs pose a substantial threat to sustainable development. They strip countries of much-needed revenue, hindering investments in critical programs such as education, healthcare, gender inclusion, and poverty eradication. In essence, IFFs deprive nations of the means to uplift their citizens and improve their quality of life.
Furthermore, IFFs have the potential to fuel organized crime and corruption, eroding the rule of law and the functionality of institutions and justice systems. In Africa, countries with high IFFs allocate, on average, 25% less to healthcare and a staggering 58% less to education compared to their counterparts with lower IFF rates, according to a prior UNCTAD report.
And see why the SA Reserve Bank has fined Grindrod Bank R10m for non-compliance.
Understanding Trade Misinvoicing
Trade misinvoicing, in essence, involves the manipulation of trade invoices to either overstate or understate the value of goods or services in cross-border transactions. This deceptive practice can be exploited to minimize tax liabilities, evade duties, or illicitly move money across borders.
The Namibia Connection
At the recent South African Tyre Manufacturing Conference, concerns were raised about the practice of using Namibia as a conduit to import tyres, bypassing costs and regulations. This tactic is a testament to the ingenuity of those seeking to circumvent trade rules and highlights the urgent need for enhanced oversight and enforcement.
Also see how greylisting impacts the JSE in South Africa, learn about AML compliance for microlenders and the process for AML in microfinance.
Join the Fight Against Illicit Financial Flows
The startling figures of $131 billion lost to illicit financial flows (IFFs) in South Africa, Namibia, and Zambia should serve as a rallying cry for action. While this complex challenge may seem insurmountable, every individual and organization can play a pivotal role in curbing IFFs and promoting transparency in financial transactions.
Get AML Compliant and Implement Sanction List Screening
One crucial step in the battle against IFFs is ensuring Anti-Money Laundering (AML) compliance. By implementing robust AML measures, you can detect and deter suspicious financial activities that fuel IFFs. One effective tool in this fight is sanction list screening.
At ZenDetect, we provide a comprehensive sanction list screening service that empowers you to identify and prevent transactions involving sanctioned individuals, entities, and countries. By using our service, you not only protect your organization from legal and financial risks but also contribute to the broader effort to combat IFFs.
Take Action Today
Don't wait for the repercussions of IFFs to impact your business or community. Join us in the fight against illicit financial flows by getting AML compliant and implementing sanction list screening. Together, we can build a more transparent and equitable financial landscape.
Learn more about ZenDetect Sanction List Screening.
Also get an inside look at balancing cost vs AML compliance in Africa, learn how to get sanction screening in Africa, see how to save on sanction screening and see why we need microfinance AML.
Let's make a difference and work towards a world where resources are directed towards sustainable development, and financial integrity prevails.
