John Paul Ongeso | Tackling illicit financial flows in Africa through corporate criminal liability

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A recent report of the Thabo Mbeki High Level Panel on Illicit Financial Flows (PDF) reveals that Africa is losing approximately $50 billion annually in illicit financial flows (IFFs). The true figure is probably much higher as estimates often exclude some forms of IFFs that elude detection, such as bribery and the trafficking of people, drugs and firearms. This is a staggering figure that eloquently reflects the inability of a majority of African states to encourage legitimate businesses and thus eradicate poverty, hunger and disease. Particularly worrying is the Panel’s observation that an increasing trend of IFFs in the last decade coincides with a period of relatively high economic growth in Africa. This observation underlines the need for effective action against the actors that contribute to IFFs.

The Panel broadly defines IFFs as “money illegally earned, transferred or used”. IFFs may occur as a result of the laundering of money obtained through criminal activity, corruption, tax abuse and market abuse. The private sector, led primarily by multinational corporations, has contributed significantly to IFFs in Africa through practices such as the bribery of public officials, trade mis-pricing, aggressive tax avoidance, abusive transfer pricing, mis-invoicing of services and intangibles and unequal contracts. Some of these practices are not strictly illegal, though, as the Panel noted, this “does not nullify [their] intent and purpose … to hide money even if legitimately earned.” The seriousness of the harm caused by IFFs also calls for the exploration of measures that can respond effectively to the phenomenon of IFFs. Oxfam’s reaction has been to call for the African Union “to close tax loopholes and incentives, shine a light on financial secrecy, and ensure that national tax laws are properly enforced”. However, more can be done to address the incidence of IFFs.

The prosecution of corporations that engage in, promote or support IFFs may be a more effective tool of regulation. Corporations are highly deterrable. Thus, at least the threat of criminal prosecution can be used as an efficient regulatory mechanism. Corporations will be more strongly incentivised to ensure that their operations are conducted with the least risk of criminal sanction. Notwithstanding, the successful prosecution of corporations will entail precise definitions of activity that constitutes crime. One way this can be done is through a multilateral treaty among African states specifically directed at corporations that criminalises the promotion of IFFs.

John Paul Ongeso

About John Paul Ongeso

John Paul is from Nairobi, Kenya and is the Director of Corporate Accountability for the African Legal Centre. He is a lecturer at Strathmore Law School, Strathmore University in Nairobi. He obtained his LLM in International Law in 2012 and his LLB with distinction from Wits University in 2011. He is currently pursuing his PhD in International Criminal Law at the same university. John Paul has worked as a Senior Research & Teaching Associate and has taught Customary law, Jurisprudence and Public International law as a Sessional Lecturer at Wits Law School. He also runs a university residence in Johannesburg which aims at promoting academic and professional excellence among its students. John Paul enjoys the outdoors and playing basketball.