2030 for Zimbabwe: Illicit Financial Flows VS Sustainable Development.

Illicit Financial Flows (IFFs) have become one of the major challenges confronting the surge for socio-economic transformation not only in Zimbabwe, but in the whole of Africa. Just 7 years away from now (2023), the year 2030 presents itself as a very busy year as a number of aspirations are expected to have been realized by then. In a bid to reduce IFFs by 2030, Zimbabwe as a Member State is committed to eliminating safe havens that create incentives for transfer of stolen assets and IFFs abroad. What do the figures look like? Zimbabwe has lost approximately US$ 32.179 billion to illicit financial flows in the last two decades (Chikono 2020). The country is projected to lose double the amount by 2030 due to illegal financial outflows ranging from secret financial deals, tax avoidance to illegal commercial activities. In the past 5 years, a series of investigative papers on corruption and illicit financial flows have continued to report illegal financial activities by Zimbabwean elite, political actors, and multinational corporations. On the other hand, sustainable development on the African continent, as envisioned by the Addis Ababa Action 2030 Agenda, risks remaining a set of goals it is due to the negative effects of IFFs on domestic resource mobilization. Against this poignant background, Zimbabwe is currently classified as a lower-middle income country by the World Bank, against a vision and aspiration by the government to be an upper-middle income country by 2030.

This short write-up attempts to give an understanding of illicit financial flows, how this important discussion is connected to the much broader discourse around the sustainable development goals, and what should be the priorities of the different actors concerned if we are to achieve the Sustainable Development Goals (SDGs) by 2030 under the pretext of IFFs.

What is meant by the term “Illicit Financial Flows” (IFFs)?

Numerous definitions have been advanced in an attempt to understand the concept of illicit financial flows. The Organization for Economic Co-operation and Development (OECD) (2015) produced a thematic module on illicit financial flows which proposed that Illicit financial flows mean all cross-border financial transfers which contravene national or international laws. This wide category encompasses several diverse types of financial transfers, made for different of reasons. This may include funds with criminal origin such as the proceeds of crime (including corruption) and funds with a criminal destination such as bribery, terrorist financing or conflict financing. The World Bank (2017:1) similarly defines the concept of IFFs as cross-border movement of capital associated with illegal activity. More explicitly, it is money that is illegally earned, transferred, or used across borders. There are therefore four ways of externalizing funds illegally: corruption (bribery and theft by government officials); criminal (drug trafficking, racketeering, counterfeiting); tax evasion (through trade mispricing); and smuggling of precious minerals such as gold. The 2016 Mbeki Report further posits that there are three components of illicit financial flows which are used to convey different sources of IFFs: the proceeds of commercial tax evasion (65%), revenues from criminal activities (35%), and public corruption (5%). Illicit financial flows can therefore be defined broadly as all cross-border financial transfers, which contravene national or international laws.

While there is no agreed definition of the concept of illicit financial flows (IFFs), scholars, think-tank institutions and organizations are however agreed on the drivers and enablers of illicit financial flows. IFFs are facilitated by a number of “push” and “pull” factors. These include poor governance, weak regulatory structures, tax incentives, tax havens, financial secrecy jurisdictions, disguised corporations, anonymous trust accounts, fake foundations, trade mispricing, money laundering techniques, custom irregularities, and outdated and unprofitable trade agreements. Illicit financial flows have manifested in the form of corporate profit-shifting, tax evasion, gold and diamond smuggling, tax holidays for mining companies, criminal enterprises, and currency regulation evasion.

Counting The Cost: What Are The Figures in Terms of Development Lost?

As highlighted above, a number of investigative papers alleging and reporting on the uncovered (and unresolved) cases of corruption and illicit financial flows have been published over the years. The Panama Papers of April 2016 revealed quite a number of Zimbabweans who were allegedly assisted by a Panamanian law firm, Mossack Fonseca, to set up offshore accounts in the British Virgin Islands. In June of 2021, a Sentry Report uncovered an offshore business empire in Zimbabwe by one popular business tycoon. The Pandora Papers of October 2021 also provided the most detailed account of buccaneering mining and fuel magnate Billy Rautenbach’s offshore family trust in Singapore. In March 2023, Al Jazeera displayed a four-part documentary titled “Unveiling Zimbabwe’s Dark Secrets: Al Jazeera Exposes Looting, Plunder and Money Laundering,” which features a two-year investigation into corruption and money laundering in Zimbabwe. In July 2023, the Sentry organization released a report detailing how money was illicitly moved from Zimbabwe to London, allegedly using Zimbabwe’s Central Bank. Be that as it may, there have been no legal cases ensuing against these persons on the alleged illegal activities.

The bigger challenge, however, is mostly on generating the citizens’ (particularly the youth constituency) interest in these investigative papers for citizen conscientization and mobilization. It is imperative that citizens, particularly the youth, begin to understand illicit financial flows as a key driver of inequality which has become a systemic problem in the country. The problem with IFFs is that they are not only illicit, but that their effect spreads far beyond their immediate area of occurrence. The impact of illicit financial flows has adversely affected Zimbabwean economy by widening the inequality gap, debt service, domestic resource mobilization, public service delivery such as healthcare, education, social protection, water supply, electricity supply, and roads networks. A look at the Sustainable Development Goals (SDGs), a shared blueprint for peace and prosperity for humanity, shows that these highlighted public goods make up some of the aspirations captured. The sad reality is that the effects of IFFs will not only be faced by the current generation but will spill over to the generations after us. So, at this current rate of uncurbed IFFs and with seven (7) years to go, the plausibility of achieving the success indicators of this bold commitment to finish what we started, and end poverty in all forms and dimensions by 2030, is largely questionable.

Millions of people are affected, the economy is weakened, and development is stagnated, while a shady few accumulate wealth and influence. Amongst other things, there is need to count the cost – the cost in missed opportunities and the amount of youth development forgone. There is a much greater need to demonstrate how the future is being stolen from young people by outlining the effects spelt out by their lived experiences - particularly the way corruption and IFFs deepen inequality and heightens conflicts for scarcer resources. This resultantly pushes young people to the peripherals of development.

Possible Recommendations?

Institutional Strengthening. Institutional reform guided by law is key to ensure that the judiciary and the executive respect the separation of power on one hand while working together as a force to fight against corruption and all forms of illicit financial flows. Agencies responsible for investigating and prosecuting crimes, such as the Zimbabwe Republic Police (ZRP) and the Zimbabwe Anti-Corruption Commission (ZACC), need to be adequately resourced in human and financial terms and independent from external pressure.

Increased Fiscal transparency. Another measure that can serve to curb IFF is public disclosure of financial information. Civil Society Organizations (CSOs) may increase advocacy efforts for Zimbabwe to make a commitment to joining the Extractive Industries Transparency Initiative (EITI). Such initiative is primarily focused on the extractive sector. The holistic application of the EITI will ensure that information on payments to government by companies in this sector is published by both companies and government. This should make it possible to compare the figures and investigate discrepancies indicating the possibility of IFFs.

Advocacy for Asset Recovery Framework. Although holding assets in a tax haven is not illegal perse, the practice of concealing taxable income from domestic fiscal authorities by political actors, multinational corporations and elites, with the assistance of the financial systems of many developed countries, should be condemned and be rectified. Perhaps it is time for a recovery framework to be put in place at law? Food for thought!

Law on Whistleblower Protection. CSOs ought to scale up advocacy initiatives aimed at the formulation of a law on Whistleblower Protection for Zimbabwe in order to promote transparency and accountability in both the public and private sector.

In Conclusion?

The rate at which investigative journalism keeps unraveling issues of IFFs is unbelievable. Such unprecedented levels of IFFs are definitely not healthy for the country. Hopefully, we can come back in 2030 and be able to tell which, between Illicit Financial Flows and Sustainable Development, will have won this war. For the latter to prevail, there is need for genuine political will by the government to implement reasonable alternatives that address the root causes of corruption and illicit financial flows.

It is imperative to note that effective domestic resource mobilization and utilization lies at the heart of the process of sustainable development and growth, and Illicit financial flows undermine both. The next article will therefore attempt at dissecting the concept of domestic resource mobilization and how it fits into this discussion.

Keen on hearing your thoughts on this post, and hope to see you in the next post!

For Further Reading?

Chikono, M. (2020) Zimbabwe losses US$ 32bn due to illicit financial flows. [Online]. Available at http://www.thezimbabwenewslive.com/zimbabwe-loses-us32bn-due-to-illicit-financial-flows/#:~:text=ZIMBABWE%20has%20lost%20in%20excess%20of%20US%2432%2C179%20billion,for%20the%20whole%20of%20the%20southern%20African%20region

OECD (2015), Policy Coherence for Sustainable Development (PCSD), Thematic Module on Illicit Financial Flows, Workshop, pg. 3.

World Bank (2017). Illicit financial flows. Washington, D.C.

T. Mbeki, (2015) High Level Panel Report on Illicit Financial Flows from Africa, United Nations Economic Commission for Africa.

OBERMAYER, B., & OBERMAIER, F. (2016). The Panama papers: Breaking the Story of How the Rich & Powerful Hide Their Money.

Sentry Report (2021), Shadows and Shell Games: Uncovering an Offshore Business Empire in Zimbabwe.

Al Jazeera Documentary (2023), Unveiling Zimbabwe’s Dark Secrets: Al Jazeera Exposes Looting, Plunder and Money Laundering.

Sentry Report (2023), Fronts, Fakes and Facades: How South African and Mauritian Enablers Helped Move Millions From Zimbabwe to Britain.