Money laundering contributing to Africa’s corruption

Lazarus Sauti

The International Monetary Fund estimates that between 2 percent to 5 percent of money in the global economy is laundered.

Gabriel Zuchman, assistant professor at the London School of Economics also believes that 5.8 trillion Euros is the amount of money held by the rich people in the world in tax havens in offshore accounts.

These monies are hidden in accounts and in places such as Singapore, Switzerland, Hong Kong, Cayman Islands, Bahamas, Monaco, among others.

This humanitarian crisis - money laundering - is therefore a substantial contributor to Africa’s corruption – or at least one of the most important enabling factors.

To start with, laundering is the process of washing something which is dirty for it to be clean.

Thus, money laundering involves the process of cleaning money from criminal proceeds, by moving it around from bank to bank to make it look legitimate and as genuine business, often associated with acquisition of real estates or investment in shares, bonds and blue chip assets.

Such monies, according to GhanaWeb columnist Kwesi Atta Sakyi, are sent into offshore accounts to evade taxes, and the recipient banks invoke the Bank Secrecy Act not to disclose the sources of these illegal proceeds or hot money, or high-powered monies.

These accounts, added Sakyi, are kept as anonymous depositors and they are only recognised by secret codes.

Although western powers accuse African leaders of corruption and other illicit behaviours, they are not saints when it comes to money laundering.

In a documentary “How to rob Africa”, Zimbabwean journalist, Stanley Kwenda, asks a daring question, “Why does the Western world feed Africa with one hand while taking from it with the other?”

Kwenda’s question was triggered by the fact that the world’s wealthy countries often criticise African nations for corruption, especially perpetrated by those among the continent’s government and business leaders who abuse their positions by looting tens of billions of dollars in national assets or the profits from state-owned enterprises that could otherwise be used to relieve the plight of some of the world’s poorest peoples.

Yet the West is to blame too in that it often looks the other way when that same dirty money is channelled into bank accounts in Europe and the United States.

Bothered by this hypocrisy, Kwenda says, “International money laundering regulations are supposed to stop the proceeds of corruption being moved around the world in this way, but it seems the developed world’s financial system is far more tempted by the prospect of large cash injections than it should be.”

He also says the West even provides the getaway vehicles for this theft, in the shape of anonymous off-shore companies and investment entities, whose disguised ownership makes it too easy for the corrupt and dishonest to squirrel away stolen funds in bank accounts overseas.

This makes the money near impossible for investigators to trace, let alone recover.

The impact of money laundering and other illicit financial flows is severely evident in resource-rich as well as commodity trading economies.

This alarming rate of illicit flows out of Africa has not only constrained Africa’s investment outgrowth, but it has also been counterproductive to the continent’s efforts toward poverty alleviation programs and economic transformation.

Africa is, therefore, suffering due to money laundering.

An African Financial Analyst, states: “Some estimates show that if Africa were to repatriate illicit funds, the capital stock would expand by more than 66 percent. Additionally, if the illicit outflow of funds did not take place, GDP per capita would have been 16 percent higher than what it is in the current environment.”

The alarming rate of hidden resource for Africa’s development signals a wakeup call for major stakeholders to holistically devised appropriate mechanisms through an effective governance structure to mitigate this problem.

Though illicit flow is extremely difficult to quantify, strengthening regulatory and institutional frameworks could boost efforts to tackle the problem.

This means countries within and across Africa must institute socio-economic reforms and develop regional groupings to effectively fight money laundering.

Humphrey P B Moshi, in a paper “Fighting money laundering: The challenges in Africa” says developing and intensifying such regional groupings can play a crucial role in the prevention of money laundering.

“Developing and strengthening regional groupings can be crucial in preventing money laundering,” notes Moshi.

Moshi also says, “Africa is different from other continents, so a one-size fits-all approach is bound to fail.”

This means each African country should take measures to ensure that persons or legal entities, including agents, that provide a service for the transmission of money or value, including transmission through an informal money or value transfer system or network, should be licensed or registered.

Furthermore, each African country should ensure that persons or legal entities that carry out this service illegally are subject to administrative, civil or criminal sanctions.