Draining African Finances

The longstanding charge that African leaders too often drain their country’s financial resources is once again surfacing because of a U.S. Senate investigation, but this time an American accomplice is under the spotlight as well.

The Senate inquiry, being joined by the Gabon Ministry of Finance, is looking into a failed deal by the Government of Gabon to purchase cargo airplanes that allowed US$9.2 million to be transferred to the private bank account of the late President Omar Bongo in Malta. Bongo, Africa’s longest-serving head of state with 41 years in office until his death last year, apparently amassed millions in diverted U.S. funds through that Malta account, along with his son, Defense Minister Ali Bongo.

A French magistrate also has been investigating Bongo’s assets in that country, which include more than 30 properties, nine luxury cars and cash in more than 70 bank accounts. Under Bongo’s government, French companies dominated Gabon’s economy through the widespread use of kickbacks and bribes. Meanwhile, Bongo’s people are among the world’s poorest.

In the Malta case under investigation, an American lobbyist has been implicated in laundering millions in “suspect funds.” According to the Senate investigators, lobbyist Jeffrey Birrell, using a corporation he formed known as The Grace Group, funneled funds to the personal account of then-President Bongo. Birrell allegedly used other foreign accounts as well to transfer money to Bongo or his cronies. For his efforts, he allegedly was paid approximately US$1 million.

Unfortunately, this is not an isolated case of money siphoned from the accounts of an African country. Global Financial Integrity, a program of the Center for International Policy, released a report entitled “Illicit Financial Flows from Africa: Hidden Resource for Development,” covering 1970-2008. That report estimates that US$854 billion in illegal capital flows left the continent during that 39-year period, and correcting for current reporting techniques, the total could reach US$1.8trillion during that period.

So much attention is paid to bribery and theft by government officials, but the report found it to total about 3% of illicit flows. Criminal income from drug trafficking, racketeering, counterfeiting comprise between 30-35% of the total, while commercial tax evasion, mainly through trade mispricing, constitutes 60-65% of the total. The report found that this illicit flow is facilitated by an international network of tax havens, secrecy jurisdictions, disguised corporation, anonymous trust accounts, fake foundations and money laundering techniques.

Corrupt African officials are not working alone in this effort; there is a cadre of people in the international community only too eager to make money off the misery of people in the countries from which money is systematically drained. Aid money and other income come into countries through one door and go out another into personal bank accounts. For a long time the blame rested solely on corrupt African leaders, but it is all too clear that many others make this corruption possible. Recognizing the destructive nature of this corruption, 34 nations signed the OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions in November 1997.

However, of the 34 signatories and nations that have conformed their laws to prevent bribery and other corrupt practices, neither China, nor India nor Malaysia – major economic actors in Africa – are included. Where there is a willing buyer, there is a willing seller, and gaining business advantages and avoiding costs are major incentives for foreign financial interests to corrupt African officials or facilitate already-corrupt officials.

“The enormity of such a huge outflow of illicit capital explains why donor-driven efforts to spur economic development and reduce poverty have been underachieving in Africa,” states the GFI report, which estimates that developing countries lose US$10 through illegal capital flows for every US$1 they receive in external assistance.

The criminals who bankrupt governments and deny African citizens services to which they have a right must be stopped if the Millennium Development Goals and other development benchmarks can ever be realized. Here’s a hint in the effort to find them: they’re not all Africans.