Vulture fundsSPOTLIGHT ON THE PARADOX OF ILLICIT FINANCIAL OUTFLOWS IN THIS NEW DEVELOPMENT AGE

THE PROBLEM THE PARADOX

$443 billion lost to (& mostly STOLEN from) Sub-Saharan Africa....by 2004 as ‘capital flight’. Also known as Illicit Financial Flows (IFFs)*

$400 billion- to be mobilized in next 3 years (2016-2018) for Sustainable Development goals in Sub-Saharan Africa & the rest of the developing world.**

Illicit financial flows (IFFs)are also called VULTURE funds *

IN JULY 2015, THE THIRD INTERNATIONAL CONFERENCE ON FINANCING FOR DEVELOPMENT PRODUCED A SET OF AGREEMENTS CALLED THE ADDIS ABABA ACTION AGENDA (AAAA)**

The July 2015 Agenda provides the foundation for a new global financing framework aimed at:

Supporting the Post 2015 development goals - the Sustainable Development Goals (SDGs)

Aligning financial flows and policies with clearly defined global priorities of the SDGs

Including over 100 concrete measures which ‘draw upon finance, technology, innovation, trade, debt and data’*.

E. g. Africa 50 - an infrastructure financing plan of the African Development Bank to bridge Africa’s annual financing gap of $50 billion**

IFFs issues are hardly addressed - limited to poor governance, inadequate regulations, rule of law, tax structure of developing countries

On Illicit Financial Flows.......

The AAA Agenda has this to say:

To commit to substantially reduce IFFs by 2030 with a view to eliminating them over time including combatting tax evasion and corruption both through strengthened national regulations and international cooperation....

Notably the agenda also: ‘Invites appropriate international institutions to publish estimates of IFFs volume and compostion...[as well as] develop good practices on asset return....

AND ‘Countries further commit to strive to eliminate safe havens...for the transfer of stolen assets’

Africa’s CURRENT LOSSES to IFFs or Vulture funds are in excess of $50bn:

$50-60 billion EVERY YEAR*..... ANNUALLY.... RELENTLESSLY...

Vulture cap-ital

Financing gap

44464850525456586062

The Vulture fund paradox

$ billions

Decades of relentless IFFs means that....

Sub- Saharan Africa...

the poorest region in the world. Is effectively a NET CREDITOR to the REST of the World. By 2004 Sub-Saharan Africa (SSA) had a total debt stock of $195

billion* given capital flight of $443bn (1970-2004)

Who drives this IFF and transfer of stolen assets?

Private actors – companies and/or individuals making ‘portfolio choices’ (Collier, Paul et al, 2004) by trade mis-pricing, tax evasion or plain stealing of public assets *

Public authorities - i.e corrupt public officers often with cooperation of private actors in poorly regulated, unstable, poor governance environments

The Result is....

1. Loss of public/government revenue2. EROSION of tax base and financing available for development*3. REDUCTION in private investment

Poor Governance + = CAPITAL FLIGHT

SAFE HAVENS

Profit and Ethics can go together

So... The new global agenda is about economic returns being able to co-exist with social returns...*

The idea that morality or ethical action and business are not mutually exclusive activities... This is the new international thinking.

Inter-generational justice requires that the same instruments, ethics and regulations aimed at developing country institutions should be directed at all actors who drive IFFs

It is no longer only about current annual $135billion in Official Development Assistance (ODA) flows but rather about crowding in, leveraging and pooling in finance from other sources. Already Remittances alone are almost 3 times the flow of ODA** YET......

ODA Remittances FDI What about capital that

'flies'?

$ billions

BEPS - Base Erosion and Profit Shifting- framework provides a good starting point.

This Organization for Economic Cooperation and Development (OECD) mechanism known as the Base Erosion and Profit Shifting framework is aimed at reducing the secrecy – information asymmetry- that has allowed IFFs to thrive in the most developed capitals and shores of international finance.

Translation:

Base erosion – public sector revenue theft

Profit shifting– transfer of illicit funds through taz evasion, under-invoicing etc...Criminal /Illegal activity that has contributed to human suffering should not be given such consideration.