NextBillion - An Initiative of the William Davidson Institute at the University of Michigan

Thursday, June 25, 2015

Illicit Financial Flows (IFF) are moving to the forefront of the international agenda, as governments worldwide join forces to combat money laundering, tax evasion, and international bribery, which make up the bulk of such flows.

These illicit flows have devastating effects on developing countries. Currently, Africa is estimated to be losing more than $50 billion annually in IFFs.

However, as countries come together to try to minimise the amount of money being lost through illicit outflows, the high pace at which African technological uptake and innovation is happening may be handicapping some of these efforts.

This was highlighted in the UN and African Union’s Illicit Financial Flows report, released in February—popularly called the “Mbeki Report” because former South African president Thabo Mbeki chairs the High Level Panel on IFF.

The report says that “the growth in information and communications technologies has made it possible to transfer huge sums of money at the click of a mouse while also enabling innovative forms of mis-invoicing.”

One African country was estimated to be losing up to $90 million every year from the theft of minutes in the telecommunications sector. This fraud involved masking international calls as local calls, with operators then making fake declarations of incoming international call minutes to reduce tax payable to the government.

Another similar scheme is SIM box fraud where individuals or organisations buy thousands of SIM cards offering free or low-cost calls to mobile numbers. The cards are then used to channel national or international calls away from mobile network operators and deliver them as local calls, costing the operators millions of dollars in revenue.