Tunisia’s Illicit Financial Flows: A $1.2 Billion Drain on the Economy and a Threat to Security

Tunisia, a country in the North African region, faces challenges in the form of financial crimes and economic instability. One significant issue that Tunisia grapples with is the issue of illicit financial flows (IFFs), which is estimated to cost the economy around US$1.2 billion annually. This represents approximately 3% of the country’s Gross Domestic Product (GDP).

Overview of Illicit Financial Flows in Tunisia

IFFs refer to the illegal transfer of unlawfully earned money or capital moving out of a country. From 2008 to 2015, Tunisia was ranked first in the Middle East and North Africa region for IFFs and eighth for corruption, according to the Economic and Social Commission for Western Asia (ESCWA). During this period, illicit financial inflows amounted to US$2.6 billion (11.4%), while outflows totaled US$1.28 billion (5.6%) of Tunisian trade.

Although the most recent data on IFFs is not available, the issue is a concern that requires Tunisia’s urgent attention.

Types and Sources of IFFs in Tunisia

Tax Evasion and Avoidance

According to the Financial Action Task Force (FATF), tax evasion and avoidance through misinvicing and abusive transfer pricing account for over US$500 million in lost revenue each year in Tunisia. The Tax Justice Network also emphasizes the need to acknowledge various forms of illicit financial activity, including tax avoidance, in the overall assessment of IFFs.

The International Monetary Fund (IMF) supports this view, advocating increased scrutiny on multinationals exploiting tax loopholes to move profits.

Commercial Activities (Tax Evasion)

The United Nations Economic Commission for Africa identifies three primary sources of IFFs: commercial activities (tax evasion), criminal activities, and corruption. In the case of Tunisia, a substantial portion of illegal income and financial outflows stems from the proceeds of crime.

Goods smuggling is a lucrative business, generating an estimated US$2.4 billion in profits annually between Tunisia and its neighbors Algeria and Libya, respectively. This form of criminal activity contributes significantly to Tunisia’s economy but also undermines it.

Criminal Activities

Criminal activities, such as drug trafficking, arms trafficking, human trafficking, fraud, and money laundering, are prevalent sources of IFFs in Tunisia. The proceeds from these illegal activities fuel the illicit economy and compromise essential government institutions.

Corruption

While millions of Tunisians depend on such smuggling activities to sustain their livelihoods, corruption remains the main source of IFFs. The United Nations Economic Commission for Africa reports that illicit financial flows in Tunisia are largely driven by government corruption at the highest levels.

Impact on the Economy and Society

The loss of income through IFFs has a profound negative impact on Tunisia’s economy, particularly essential sectors like healthcare and education. The government could pay the salaries of over 4,300 teachers for two years with just 10% of the IFFs suspected to be circulating in Tunisia. Corruption also erodes public trust in essential institutions and creates an environment conducive to instability.

Efforts to Combat IFFs

The Tunisian authorities recognize the risks posed by IFFs to the country’s economic development. The Central Bank’s Financial Analysis Committee (CTAF) has identified and frozen approximately US$70 million linked to suspected money laundering transactions. The CTAF also launched the Hannibal platform in February 2021 to identify and monitor national money laundering and financing of terrorism risks.

However, international cooperation is required to effectively combat IFFs and recover public funds sent abroad. World financial centers, including London and Switzerland, have historically played a role in facilitating tax evasion and should take responsibility in assisting nations in addressing this issue.

Case of Corruption: Former President Zine El Abidine Ben Ali’s Family

The former President of Tunisia, Zine El Abidine Ben Ali, and his family are estimated to have controlled over 21% of the profits generated by Tunisia’s private sector between 1970 and 2010. This represented over 87% of the country’s cumulative capital flight. In 2013, Lebanese banks returned US$28.8 million in stolen public funds to Tunisia, which had been amassed by the Ben Ali family.

Conclusion

The impact of IFFs on Tunisia’s economy is significant, with essential sectors like healthcare and education in desperate need of increased funding. The loss of income through IFFs not only weakens the economy but also undermines public trust in essential institutions and creates an environment conducive to instability. While the Tunisian authorities have taken steps to combat IFFs, international cooperation is essential to effectively address this issue and ensure that economic opportunities are provided to all Tunisians.