Tunisia’s Illicit Financial Flows: A US$1.2 Billion Annual Drain on the Economy

Tunisia’s economy is under threat from illicit financial flows (IFFs), estimated to amount to around US$1.2 billion each year. This represents approximately 3% of the country’s gross domestic product.

Tunisia: A Hotspot for Illicit Financial Flows and Corruption

According to the Economic and Social Commission for Western Asia, between 2008 and 2015, Tunisia ranked first in the Middle East and North Africa for IFFs and eighth for corruption ¹. The data may only scratch the surface of the issue, as the Financial Action Task Force estimates that tax evasion and avoidance through mis-invoicing and abusive transfer pricing result in over US$500 million in lost revenue for Tunisia annually ².

IFFs Origins

IFFs can originate from various sources, including:

1. Commercial Activities
2. Criminal Activities
3. Corruption

The United Nations Economic Commission for Africa reports that each of these sources is present in Tunisia ³.

Smuggling

Illicit income from smuggling is a substantial contributor, with an estimated US$2.4 billion and US$1.8 billion generated from the trade between Tunisia and its neighbors, Algeria and Libya, respectively ³. In 2019, customs officials seized smuggled merchandise worth US$81 million ³.

Government Corruption

However, the primary source of IFFs remains government corruption at the highest levels. Corruption-related IFFs accounted for 87% of Tunisia’s cumulative capital flight between 1970 and 2010 ⁴. The former President Ben Ali and his entourage were estimated to control over 21% of profits generated by Tunisia’s private sector ⁴. Despite Ben Ali’s ousting in 2011, corruption remains widespread and has been linked to various government institutions, including the political party Ennahda, co-founded by Rached Ghannouchi ⁴.

Consequences of IFFs

The effects of IFFs are far-reaching, contributing to:

1. Economic Instability
2. Political Decay
3. Insecurity

Impact on Critical Sectors

The loss of income through these flows has a profound impact on critical sectors like healthcare and education, preventing them from reaching their full potential.

Combating IFFs in Tunisia

Tunisian authorities have made attempts to combat IFFs, including the Central Bank’s Financial Analysis Committee’s efforts to freeze suspected money laundering transactions and the launch of the Hannibal platform ⁵. However, personnel constraints limit their effectiveness.

International Cooperation

International cooperation is crucial in addressing the transnational nature of IFFs and ensuring that the financial systems of global powerhouses do not facilitate tax evasion and money laundering.