AFRICA’S UNSEEN KILLER – ILLICIT FINANCIAL OUTFLOWS Part 1

Isaac Clottey

Jamrock4ever@gmail.com

Illicit Financial Outflows (IFFs) are a severe impediment to Ghana's development, draining billions of dollars annually and undermining economic stability, governance, and social progress. These outflows, essentially money illegally earned, transferred, or utilized, typically vanish across borders, robbing the nation of critical resources.

How Illicit Financial Outflows Manifest in Ghana:  

Illicit financial outflow Forum in Accra, Ghana

IFFs from Ghana occur through various channels, with some of the most significant being:

The Extractive Sector: Ghana's rich natural resources, particularly gold, are a major source of IFFs. This happens through:

Illegal Mining (Galamsey): Unregulated and illegal artisanal and small-scale mining operations often involve smuggling gold out of the country, with proceeds frequently untaxed and unrecorded.

Under-declaration and Mis-invoicing by Mining Companies: Both large-scale multinational corporations and smaller entities can engage in practices like undervaluing exports or overstating import costs to shift profits abroad and evade taxes.

Corruption: Bribery of officials can facilitate illegal mining operations and the illicit export of minerals.

Trade Mis-invoicing: This is a widespread method where importers and exporters deliberately falsify the value, quantity, or quality of goods or services on customs documents. This can be done to evade customs duties and VAT, launder money, or illicitly transfer capital abroad. It includes practices like import over-invoicing, import under-invoicing, export under-invoicing, and export over-invoicing.

Corruption and Bribery: Public sector corruption, including embezzlement of state funds and bribery, directly contributes to IFFs as illicitly acquired wealth is often moved and hidden overseas.

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Tax Evasion and Avoidance: Individuals and corporations may use complex schemes, including offshore accounts and shell companies, to hide income and assets, thereby evading their tax obligations in Ghana.

Money Laundering: Proceeds from criminal activities such as drug trafficking, human trafficking, and fraud are often laundered through various channels and moved across borders.

The Devastating Impact on Ghana: 

The term "killing Ghana" reflects the profound and multifaceted damage inflicted by IFFs:

Economic Strangulation:

Loss of Critical Revenue: Estimates suggest Ghana loses vast sums annually. For instance, Tax Justice Network Africa reported an annual loss of approximately USD 1.4 billion primarily through tax evasion and exemptions. Between 2002 and 2011, trade mis-invoicing alone reportedly cost Ghana around USD 14.39 billion. These lost funds could have been invested in vital development projects.

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Reduced Public Spending: The massive leakage of resources means less money is available for essential public services like healthcare, education, and infrastructure (roads, energy, water), hindering human capital development and quality of life.

Hindered Economic Growth and Development: IFFs drain foreign exchange reserves, reduce domestic savings and investment, and stifle economic diversification and structural transformation.

Increased Debt Burden: To compensate for lost revenue and fund development, Ghana may resort to increased borrowing, exacerbating its debt situation.