Financial Crime World

Tunisia Battles Multi-Billion Dollar Illicit Financial Flows: A Battle Against Corruption and Tax Evasion

The North African country of Tunisia faces a significant challenge in combating illicit financial flows (IFFs), estimated to amount to approximately US$1.2 billion annually – equivalent to 3% of its gross domestic product. IFFs, which involve the illegal transfer of capital from one country to another, pose a major threat to Tunisia’s economic development.

Extent of the Issue

From 2008 to 2015, Tunisia was ranked first in the Middle East and North Africa by the Economic and Social Commission for Western Asia for IFFs and eighth for corruption. In 2015, illicit financial inflows totaled US$2.6 billion (11.4%), while outflows reached US$1.28 billion (5.6%). However, these statistics likely underrepresent the true extent of the issue.

According to the Financial Action Task Force (FATF), tax evasion and avoidance through mis-invoicing and abusive transfer pricing result in over US$500 million in lost revenue for Tunisia yearly. Furthermore, IFFs should include exploitative activities that don’t necessarily involve lawbreaking, such as tax avoidance and profit shifting.

Sources of Illicit Financial Flows

The three primary sources of IFFs, according to the United Nations Economic Commission for Africa, are:

  1. Commercial activities
  2. Criminal activities
  3. Corruption

Tunisia experiences all three. The proceeds of crime also contribute substantially to illegal income and financial outflows. Smuggling activities related to fuel, electronics, cooking oil, and textiles between Tunisia and neighboring countries Algeria and Libya generate an estimated US$2.4 billion (for Algeria) and US$1.8 billion (for Libya), respectively.

Corruption and Illicit Financial Outflows

While significant revenue is lost through smuggling, the primary source of IFFs in Tunisia remains government corruption at the highest levels. For instance, in 2013, Lebanese banks returned US$28.8 million in public funds stolen by the family of former president Zine El Abidine Ben Ali. Ben Ali and his clique reportedly controlled over 87% of Tunisia’s cumulative capital flight from 1970 to 2010. Despite his departure during the 2011 protests, corruption persists and affects various aspects of Tunisian society.

The political party Ennahda (the Renaissance Party), co-founded by Rached Ghannouchi, the former Speaker of Tunisia’s Parliament, has also been accused of corruption. The widespread corruption is perceived to be endemic and compromises essential government institutions, including the judiciary, legislative departments, police force, and customs.

Economic Consequences and International Cooperation

The economic consequences of IFFs are far-reaching and devastating. In 2018, Tunisia’s Central Bank’s Financial Analysis Committee (CTAF) froze approximately US$70 million linked to suspected money laundering transactions. Later that year, the CTAF introduced the Hannibal platform to identify and monitor national money laundering and financing of terrorism risks. Despite its best efforts, the CTAF faces a shortage of personnel to address the vast number of reported fraudulent transactions.

To effectively combat IFFs, international cooperation is essential. Foreign financial centers—such as London and Switzerland—historically facilitating tax evasion and offering secrecy to corrupt leaders must help countries like Tunisia in their efforts. Switzerland, for one, provided US$5.6 million laundered by Franco-Tunisian rapper Swagg Man back to Tunisia to construct a mosque and an orphanage. This positive example sets a precedent for greater collaboration and accountability for countries seeking to stem the tide of illicit financial outflows.

Conclusion

Although Tunisia has an institutional framework to ensure transparency, accountability, and integrity, in practice, little progress has been made. Tunisia’s authorities need to fully reform their approach to implementing anti-corruption policies to effectively combat this issue.

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