Author: Chris Kodo

Illicit Financial Flows (IFFs) refer to the movement or transfer of money and assets acquired from an illegal trade across borders in a manner that is illegal, illicit, or intended to evade taxation or regulation. 

Forms or Types of IFFs:

IFFs can take various forms and have significant implications for Ghana’s economy. These include: 

Trade Misinvoicing which occurs when the value of goods imported or exported is deliberately misrepresented on customs documents to either understate the value of imports (thus avoiding taxes) or overstate the value of exports (allowing for illicit capital flight).

Transfer Pricing Abuse: Companies manipulate intra-group transactions to shift profits from high-tax jurisdictions to low-tax or tax haven jurisdictions, thereby reducing their tax liabilities in Ghana.

Corruption and Bribery: Funds obtained through corrupt practices, such as embezzlement, kickbacks, or bribery, are often moved offshore to avoid detection and prosecution.

Money Laundering: Illegal proceeds from activities such as drug trafficking, human trafficking, and organized crime are laundered through legitimate financial systems to obscure their illicit origins.

Tax Havens and Offshore Financial Centers: Wealthy individuals and corporations use offshore accounts and tax havens to conceal assets and income, avoiding taxation in Ghana, etc. 

Impact on Ghana’s Economy

Ghana continues to grapple with the pervasive issue of Illicit Financial Flows (IFFs), which continues to siphon billions of dollars annually.

Some effects of IFFs on Ghana’s economy include:

Revenue Loss: Illicit financial flows deprive the Ghanaian government of much-needed revenue, limiting its ability to invest in infrastructure, healthcare, education, and other essential services.  Per available data, the country loses approximately USD 3 billion annually through IFFs.

Erosion of Tax Base: By evading taxes through various means, including trade misinvoicing and transfer pricing abuse, companies reduce the tax base, leading to higher tax burdens on compliant taxpayers and undermining the fairness and integrity of the tax system.

Undermining Development: IFFs hinder economic development by diverting resources away from productive investments towards illicit activities and offshore accounts, exacerbating poverty, inequality, and economic instability.

Weakened Institutions: The prevalence of IFFs undermines governance, transparency, and accountability in Ghana. Corruption and lack of enforcement mechanisms facilitate the flow of illicit funds, weakening institutions and eroding public trust.

Increased Debt Burden: The loss of revenue due to IFFs may force the government to rely more heavily on borrowing, leading to an unsustainable accumulation of debt and potential debt crises.

IFFs, which represent the clandestine transfer of illegally obtained funds across borders, are facilitated by a myriad of nefarious activities such as corruption, tax evasion, money laundering, and organized crime. These illicit channels not only undermine the economy but also impede the nation’s progress towards achieving the Sustainable Development Goals (SDGs).

According to estimates by the Organisation for Economic Co-operation and Development (OECD), Africa loses a staggering $60 billion yearly to IFFs, with Ghana bearing a significant burden. The country’s economy bleeds through various channels including trade mispricing, under-invoicing, and fraudulent practices in sectors ranging from real estate to the extractive industry.

Recent revelations by the Economic and Organised Crime Office (EOCO) highlight the magnitude of the issue in Ghana. Investigations uncovered billions of dollars illicitly transferred outside the country, with alarming figures pointing to $1.8 billion in the customs management system alone and over $1 billion from gold exports.

The impact on Ghana’s economy is profound. The country’s historical data reveal a staggering $40 billion drain between 1960 and 2012 solely through trade-based illicit flows. Moreover, studies highlight losses amounting to billions from key sectors such as gold and cocoa exports, exacerbating economic challenges and hampering development efforts.

Despite the gravity of the situation, media coverage on IFFs remains disproportionately low. Journalists cite the complexity of the issue and lack of resources as key barriers to comprehensive reporting. However, there is a growing call for increased capacity building and funding to empower journalists to delve deeper into this critical subject matter.

In response to the crisis, Ghana has initiated various measures aimed at combating IFFs. Inter-agency coordination committees have been established to foster collaboration among key stakeholders, while new institutions such as the Financial Intelligence Centre (FIC) and Transfer Pricing Unit (TPU) are being tasked with enhancing oversight and enforcement.

Internationally, efforts to address IFFs are gaining momentum through initiatives like the Financial Action Task Force (FATF), Global Forum on Transparency and Exchange of Information for Tax Purposes, and the OECD’s Inclusive Framework on Base Erosion and Profit Shifting (BEPS). These frameworks aim to strengthen cooperation among governments and stakeholders to combat illicit financial activities effectively.

The onus to combat IFFs extends beyond national borders. In addressing the canker, developed nations must lead the charge in preventing illicit inflows, while developing countries like Ghana must bolster their legal and regulatory frameworks to deter such activities. Civil society organizations also play a crucial role in advocating for transparency and accountability, while the international community must collectively address entities profiting from illegal behaviors that undermine global efforts to promote fair taxation and trade policies.

Journalists must also do their part by “following the money,” which is a term that basically means tracing the movement of funds through various financial transactions and records to uncover the source and destination of illicit funds.