Africa is Becoming a Hotbed for Rampant Financial Crime
Africa has some of the poorest nations in the world, and with billions of dollars per year lost through financial crime, the poor are only getting poorer.
Rising financial crime in Africa has become a key element in hampered economic growth for the continent. According to a recent report by the Institute for Security Studies (ISS), financial crime has adversely affected development, and puts the continent at risk for being a haven for finance criminals.
How expensive of a problem is this?
Despite Africa being rich in largely unexploited resources, its inhabitants are among the poorest people on earth, which ISS attributes to the high rates of financial crime. According to the ISS, financial crime in Africa is not easily quantifiable due to the absence of a definitive checklist of what actually constitutes a financial crime.
Different countries have varying views and policies when it comes to financial crime; this inadvertently provides loopholes for crime, to the joy of political elites, multinational companies and transnational syndicates, who serve as the main perpetrators of these crimes.
The African Union (AU) estimates that about $148 billion is lost yearly due to corruption alone, which totals to about 25 percent of the total gross domestic product (GDP) of African countries. A report by PricewaterhouseCoopers in 2016 revealed Africa to be the most affected continent in money laundering. According to the report, 2 to 5 percent of the global GDP was lost to money laundering, which translates to approximately between $1 trillion and $2 trillion.
Another report published in February by the Organization for Economic Co-Operation and Development revealed that Africa lost almost $50 billion every year through illicit flows. The Wall Street Journal reported a higher figure of $60 billion where the money was spent in “dubious” ways, or was simply embezzled. The ISS notes that these figures on financial crime in Africa are only the tip of the iceberg, as most corruption and financial crimes go unreported and remain undetected.
The rise in financial crimes in Africa has been attributed to the vast advances in technology over the past few decades. The transition from the fiat currency to the use of credit cards and the entrance of the internet brought about what is referred to as the “digital era of a cashless economy.” These changes have in turn brought in a new wave of fraud, illicit money flow and corruption, which is often complex, sophisticated and with minimal rate of detection.
One of the main hindrances to fighting financial crime in Africa is the lack of a proper definition of the offenses involved. According to a report by ISS, Anglophone, Francophone and Lusophone countries in Africa often set different laws and respond differently to financial crimes. This, coupled with lethargic enforcement of financial regulations, provides a perfect circumstance for corrupt criminals to grow richer while the deserving citizens grow poorer.
Is there possibility for change?
To salvage the situation, African countries should first have a clear and standard definition of what constitutes a financial crime. This, coupled with internal cooperation, will flush out criminals as they will lose their hiding places, opposed to the current situation where a finance criminal can embezzle billions of tax payer money then run off to another country where he will continue to roam scot-free.
Another step toward recovery is additional investment toward detection, prevention and disruption of these financial crime processes.
Change will not happen unless there’s adequate political willingness, capacity building and effective monitoring and evaluation of financial processes, and change needs to happen.