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Tackling illicit financial flows through technology

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There is no gainsaying the fact that illicit financial flows in Nigeria and Africa have become a deep-rooted issue characterised by a complex network of activities. It stemmed from corruption and tax evasion to money laundering and illegal trade. These flows are diverse and pervasive, permeating different sectors of the Nigerian economy. Arguably, there have been calls for the deployment of technology to tackle this menace. ADEYEMI ADEPETUN, reports. 

The issue of illicit financial flows (IFF) ranks top on the international agenda, affecting both industrialised and developing countries. Though, the current scale of IFFs originating in developing countries cannot be adequately measured. Precisely, it is believed that the value has been worth more than official development assistance from Organisation for Economic Cooperation and Development (OECD) donor countries according to the Global financial integrity report.

These practices occur in all countries and are quite damaging both to the social and economic life of the nations and severe to Nigeria and other African countries, whose resources are small. Consequently, the issue of IFFs occupies a prominent place in development policy discourse of nations calling for a higher quality of national regulations, proper implementation and compliance with international best practices.

Lately, there have been calls for the deployment of technology in swiftly tackling this menace. Indeed, at Realnews 11th anniversary lecture in Lagos, the possibility of bridging this gap through information and communications technology, among others came to the fore.

At the event, speakers including the Director-General of the ECOWAS Inter-Governmental Action Group Against Money Laundering In West Africa, GIABA, Edwin Harris; Executive Vice Chairman, Nigerian Communications Commission (NCC), Dr. Aminu Maida; Executive Director, Civil Society Legislative Advocacy Centre (CISLAC), Auwal Rafsanjani; Publisher of Realnews Magazine and the President of the Guild of Corporate Online Publishers (GOCOP) Maureen Chigbo; Director of Proceeds of Crime Department, Independent Corrupt Practices and Other Related Offences Commission (ICPC), Kayode Adedayo among others, spoke extensively on this matter.

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Speaking on ‘The Threats of Illicit Funds Flow to the African Countries,’ Harris urged African leaders to step up efforts in the fight against IFF in the region.He stated that IFFs are a systemic problem requiring a systemic solution and as such, African leaders cannot afford to relax in the fight against a cankerworm that threatens their sustainable development. He noted that IFFs as money illegally earned, transferred or used in violation of laws in their origin, or during their movement or use, and are therefore considered illicit.

”Others are criminal activities, ranging from trafficking in people and drugs, arms smuggling, fraud in the financial sector, such as unauthorised or unsecured loans, money laundering, stock market manipulation and outright forgery,” he said.

Harris also mentioned commercial activities, arising from business-related activities, and having several purposes, including hiding wealth, evading or aggressively avoiding tax, and dodging customs duties and domestic levies.

The GIABA DG said that the United Nations Economic Commission for Africa (UNECA) High Level Panel (HLP) on IFFs had stated that Africa is estimated to have lost $1 trillion or more over the past 50 years to IFFs.

The commission, he said, also revealed that the continent is estimated to lose more than $50 billion yearly in IFFs. Harris stressed that this was corroborated by the OECD, which estimated that Africa loses as much as $60 billion each year in IFFs. He stated that in 2020, the UN Conference on Trade and Development (UNCTAD), in its report on Economic Development in Africa, estimated that Africa loses about $88.6 billion, 3.7 per cent of its Gross Domestic Product (GDP), yearly in IFF.

Harris said, at a regional level, the scale of criminal proceeds in West Africa has been estimated at 3.6.per cent of global gross domestic product (GDP).

“IFF are a global phenomenon and do not respect borders. They undermine global social, political and economic security and have become a serious threat to the attainment of development agenda, particularly in Africa.

“Africa’s efforts to ensure the reduction of IFFs must be proactive, firm and unwavering while activities that give rise to IFFs must be vigorously fought without compromise.

“The key task is to take bold steps, cooperate and coordinate efforts, and unite to dismantle the system extracting wealth from Africa,” he said.

According to him, this requires collective actions by all critical stakeholders, including national authorities, the private sector and civil society organisations to press for change in their countries and the continent at large.

More threats of IFFs to African Economy
Harris stressed that IFFs are a threat to sustainable development and one of the greatest contemporary challenges facing the international community and in particular, Africa.

He said literature showed that IFFs have severe economic, social and political consequences on Africa, adding that the UN Office on Drugs and Crime (UNODC), in its Strategic Vision for Africa 2030 launched in February 2021, noted that IFFs remain a key impediment to Africa’s attainment of the 2030 Agenda and the African Union Agenda 2063.

“IFFs threaten fundamental aspects of development, including weakening the rule of law, undermining the quality and accountability of democratic institutions and, some argue, affect broader social trust and encourage further criminal activity,” he stated.

Although the direct economic impacts of IFFs on Africa cannot be precisely quantified, Harris said IFFs constitute a major threat to Africa with significant devastating consequences, as a vast volume of wealth is lost each year that could be used to fund sustainable economic development and provide public services.

“In particular, IFFs undermine domestic revenue collection and have adverse consequences on the ability of African countries to optimally benefit from the extractive sectors. Thus, IFFs exacerbate the challenges African governments face in mobilizing domestic resources to address the needs of citizens, to promote development, and to achieve the Sustainable Development Goals. Also, IFFs deprive the African countries of appreciable amounts of investment funds, which could otherwise spur economic growth. In addition to foregone investment,” he stated.

Can technology help stem the tide?
It has been argued that illegal funds and money laundering have been dramatically influenced by the development of information and communications networks. Digital technologies offer countless opportunities to facilitate each traditional stage of illegal money transfer on their way to being distanced from illegal sources—placement, layering, and integration.

Initially, the problem of money laundering with the use of digital technologies was mostly associated with the underground economy of cybercrime. However, as the payment systems are becoming more complex, decentralized, and dependent on the information networks, criminals can enjoy the opportunities digital technologies offer to transfer any type of illicit funds.

Underscoring this, Maida said with the increasing adoption of digital technologies, the emergence of new technologies, and the often-transnational nature of these crimes, the scope of financial crimes has broadened and created further concerns.

The NCC EVC, who said these financial crimes include money laundering, terrorism financing, proliferation financing, embezzlement, fraud (E-fraud, Banking, securities, corporate, Intellectual Property), noted that these crimes do not only have a huge economic and social impact but can also be linked to violent crimes that lead to loss of lives. He said these crimes threaten the integrity, trustworthiness, stability, security, safety, and future of an entity (Country, enterprise, individual).

Role of ICT in curbing financial crimes
Maida, represented by the Director, Public Affairs, Reuben Mouka, believed that robust ICT systems remained critical for preventing/investigating financial crimes or mitigating the risks associated with virtual assets in financial markets, saying that these systems facilitate compliance with established standards or regulations and also provide a platform that allows the monitoring, tracing, and analysing of digital transactions in real-time.

The NCC EVC said ICT systems support secure data storage and encryption technologies, which are critical for safeguarding sensitive financial data.

According to him, technological advancements have significantly aided crime prevention and law enforcement agency performance. He said large datasets have been analysed using advanced data analytics, artificial intelligence, and machine learning algorithms to look for trends that indicate criminal activity.

He said based on historical data and real-time intelligence, predictive police programmes have arisen to foresee and prevent crimes, adding that digital forensics techniques have also proven useful in criminal investigations.

To combat financial crimes, he said innovative solutions such as blockchain, instant payments, artificial intelligence, machine learning, data analytics, regulatory technology solutions, and automated procedures are being deployed. According to him, the use of technological tools has made it significantly easier to deal with financial crime while building a long-term strategy for combating it.

Maida listed the following; Computer Security Incident Response Team (CSIRT); Digital Forensics; Verification of Biometrics; Palamir Technologies Solution; Chain Analysis Solution Case Study.

He explained that law enforcement agencies and financial institutions have used Palantir’s data analytics platform to examine massive volumes of data for patterns indicative of financial crimes. He said the analytics permits the integration of many data sources, allowing for more thorough investigations.

According to him, Chainalysis specialises in blockchain analysis and provides tools for tracking cryptocurrency transactions. This platform supports law enforcement in tracing illicit blockchain activity such as money laundering, ransomware payments, and illegal transactions.

The NCC boss however revealed potential concerns linked with the use of ICT to combat financial crime, which are threats to cybersecurity; false positives and algorithmic bias; human capacity issue; regulatory compliance: technological obsolescence and funding issue.

Further, he said while ICT has transformed the fight against financial crime, there are still difficulties that must be addressed collaboratively, which include, inclusion and digital divide; harmonisation of regulations; continuous improvement and adaptation; collaboration and international cooperation.

Going forward
ICT plays a critical role in combating financial crimes by enabling real-time surveillance, regulatory compliance, and secure data processing. It provides advanced analytics, AI, and machine learning to law enforcement organizations for better crime detection. Furthermore, hard technologies such as CCTV cameras and security systems supplement physical security measures.

Continued investment in ICT solutions, as well as a multidisciplinary and multi-stakeholder strategy, combining technology specialists, legal professionals, and legislators, are critical in keeping up with emerging criminal methods. Public education and understanding of Internet safety are also important in limiting the risks linked with the spread of criminality via technology.

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