Tunisia’s Illicit Financial Flows: A Crippling Problem That Needs Urgent Attention

Tunisia’s economy is facing a significant challenge in the form of illicit financial flows (IFFs), which are estimated to amount to around $1.2 billion annually, equivalent to 3% of the country’s gross domestic product.

Sources of Illicit Financial Flows

According to the United Nations Economic Commission for Africa, IFFs in Tunisia originate from three sources:

• Commercial activities such as tax evasion
• Criminal activities like drug trafficking and money laundering
• Corruption

The main source of these outflows is government corruption at the highest levels, with millions of Tunisians relying on smuggling activities to make a living.

Impact of Illicit Financial Flows

The problem is not new, with the Economic and Social Commission for Western Asia ranking Tunisia first for IFFs and eighth for corruption in the Middle East and North Africa from 2008 to 2015. In 2015, illicit financial inflows made up $2.6 billion (11.4%), while outflows constituted $1.28 billion (5.6%) of Tunisian trade.

• Tax evasion and avoidance through mis-invoicing and abusive transfer pricing account for over $500 million in lost revenue in Tunisia every year.
• The Financial Action Task Force estimates that tax evasion and avoidance cost the country around $500 million annually.
• IFFs have a profoundly negative impact on key sectors such as healthcare and education, with millions of dollars lost to corruption.

International Cooperation Needed

Governments and central banks from world financial centres must also share some responsibility in combating IFFs. Foreign financial centres that have historically traded on secrecy and advised corrupt leaders on investing their illegal gains should help countries like Tunisia combat IFFs and recover public funds sent abroad.

Reform Needed in Tunisia

Tunisia’s authorities need to fully reform their approach to implementing anti-corruption policy, with a comprehensive institutional framework already in place but little to show for it. The government could also do more to recruit and train officials to investigate and handle IFFs, providing regular data on the scale of the problem.

Example of International Cooperation

A good practice example is that of Swagg Man, a Franco-Tunisian rapper convicted and jailed for money laundering in Tunisia in 2021. Switzerland sent the $5.6 million he laundered back to Tunisia to build a mosque and a centre for orphans.

Conclusion

Illicit financial flows are a crippling problem that needs urgent attention in Tunisia. The government, international organizations, and foreign financial centres must work together to combat IFFs and recover public funds sent abroad.