How the United States Makes Corruption in Africa Worse
By Toby Shepard
A year ago, the United States banded together with African governments to stop criminals and corrupt officials from evading taxes and stealing public funds. But already, that effort is floundering.
Since August 2014, when President Obama and African leaders from more than 40 countries announced the Partnership on Illicit Finance at the U.S.–Africa Leaders Summit in Washington, D.C., little has been done to improve financial transparency and address other forms of corruption.
By agreeing to join the partnership, countries committed to developing a plan of action to improve transparency, foster accountability, and stem corruption. So far only Burkina Faso, Mauritius, Liberia, Niger, and Senegal have joined and promised to develop such a plan by year’s end. Kenya also joined during President Obama’s trip there last month.
There have been a few encouraging signs. African presidents endorsed the report produced by the African Union High-Level Panel on Illicit Financial Flows and its recommendations in January. And the partnership countries met last month in Senegal to begin their work (though they may have merely used the meeting to “reaffirm their comitment to the issue,” as the U.S. ambassador put it).
Concrete progress on illicit financial flows is still lacking. Just days after Kenya joined the partnership, an audit revealed that only one percent of its national budget is spent effectively and legally. According to the African Union report and the United Nations Economic Commission for Africa, Africa loses more than $50 billion every year to illicit financial flows. All in all, over the past 50 years, the continent has lost more than $1 trillion to corruption—roughly the amount of development assistance Africa received during the same period.
A study by Global Financial Integrity, an organization that works to curtail illicit financial flows, found that today such losses outpace development assistance at a rate of at least two to one. In fact, after accounting for legitimate and illegitimate financial flows—including investment, remittances, debt forgiveness, and natural resource exports—Africa is a net creditor to the world.
The loss of these funds has had a tremendously detrimental effect on good governance, economic development, and the well-being of African citizens. Money that is illegally earned or transferred cultivates corruption, diverts funds from needed educational and development programs, and facilitates transnational organized crime such as drug trafficking, money laundering, and terrorism.
While in Ethiopia, Obama said that corruption “is not just a problem of Africa, it is a problem of those who do business with Africa.” Indeed, many of the funds illicitly and illegally earned in Africa end up in the United States, where criminals create anonymous shell companies to hide their money and avoid prosecution.
That’s partly because it is easier to create an anonymous shell company to launder illicit funds in the United States [PDF] than in almost any other country in the world. The United States often facilitates illicit financial flows because its financial system’s loose regulations and lack of transparency allow criminals to hide assets from authorities.
There are multiple steps the U.S. government can take to address illicit financial flows by promoting transparent and accountable practices in both the public and private sectors.
First, it should create a public registry of information identifying the people who own and profit from anonymous shell companies to make it more difficult for drug dealers, terrorists, and corrupt government officials to hide their money in the United States.
Second, it can strengthen multilateral rules on taxation to clamp down on common corrupt practices such as deceiving customs authorities and hiding profits. This could include supporting the creation of a UN body that would establish rules against tax avoidance and evasion by multinational corporations, or entering information-exchange agreements that would help tax officials better detect incidents of corrupt practices.
Finally, it can help recover African assets that have illegally ended up in the United States and prosecute perpetrators of corrupt practices. Improving policies in these areas will help to ensure that African citizens can benefit from the funds that rightfully belong to them.
Many Open Society Foundations grantees—including Global Witness, the Natural Resource Governance Institute, and the Publish What You Pay global coalition and its national chapters—are longtime leaders in efforts to combat corruption and stop the flow of illicit gains into the U.S. economy. For more than a decade, Open Society has worked with its grantees and partners to ensure that public resources are used efficiently, effectively, and accountably to benefit those who need them most.
Last year, in partnership with these and other organizations, the Open Society Foundations hosted a high-level panel discussion focusing on ways to improve fiscal and financial transparency and accountability in Africa. The event kicked off discussions about how U.S. and African partners could build on the commitments made during the summit to achieve real progress in reducing the flow of ill-gotten gains from Africa.
The United States can do more to live up to the commitments it made a year ago. The U.S.–Africa Leaders Summit provided an opportunity for U.S. and African partners to develop solutions to some of the complex problems facing the African continent. While some progress has been made, U.S. and African governments must remain focused on solutions to corruption so that all can benefit from better governance and economic growth.
Until March 2017, Toby Shepard was a senior policy associate with the Washington, D.C., office of the Open Society Foundations.