Ethiopia Fighting Against $3.26 Billion in Illicit Financial Outflows: Addis Ababa Conference Aims to Curb Trade Misinvoicing and Illicit Flows
At the Third Financing for Development (FfD) Conference in Addis Ababa, Ethiopia, UN Member States made a commitment to substantially reduce illicit financial flows (IFFs) from their economies by 2030. This conference aimed to mobilize trillions of dollars for sustainable development. Three organizations – Global Financial Integrity (GFI), the Africa Progress Panel, and Jubilee USA – praised this consensus, as IFFs, which include proceeds from crime, corruption, and tax evasion, can have a significant impact on the poorest countries.
The Impact of Illicit Financial Flows on Developing Countries
According to a recent GFI study, there is a strong correlation between higher illicit outflows and greater poverty and economic inequality. Ethiopia, for example, lost approximately $11.7 billion due to illegal capital flight between 2000 and 2009. This figure jumped significantly in 2009 to $3.26 billion. A substantial portion of this total resulted from corruption, kickbacks, and bribes.
Trade Misinvoicing: A Primary Source of Illicit Financial Flows
A significant contributor to Ethiopia’s IFFs and those of other developing economies is trade misinvoicing. In 2012, Ethiopia exported plastic buckets to the Czech Republic for $970 each, despite the actual value being much lower – an instance of under-invoicing. Conversely, brown sugar was over-invoiced at $240 per pound in a transaction from Turkey. These practices enable criminal proceeds, corruption, and tax evasion to flow covertly to and from Ethiopia and other developing nations.
Instances of Trade Misinvoicing
- In 2012, Ethiopia exported plastic buckets to the Czech Republic for $970 each, despite their actual value being much lower – an instance of under-invoicing.
- Brown sugar was over-invoiced at $240 per pound in a transaction from Turkey.
The Importance of Addressing Illicit Financial Flows and Trade Misinvoicing
The current opportunity at the Addis Ababa conference represents a chance for Ethiopia and other developing countries to seize resources kept abroad due to IFFs and trade misinvoicing. Targeting these issues would significantly bolster their development efforts and improve governance, providing a more promising future for millions of people living in poverty.
GFI’s Role in Advocacy and Improving Global Governance
Global Financial Integrity will be advocating for specific, measurable, and achievable targets to reduce IFFs from developing countries and improve global governance. The organization will collaborate closely with the United Nations, government representatives, and other stakeholders to address these challenges.