Tunisia’s Battle Against Illicit Financial Flows: A Crisis of Corruption and Billions in Losses

Tunisia, a North African gem known for its rich history and culture, is waging a silent war against a lesser-known enemy: illicit financial flows (IFFs). Losing approximately US$1.2 billion annually, or about 3% of its Gross Domestic Product, Tunisia is in desperate need of comprehensive anti-corruption reforms (ACR) to stem the tide of these crippling outflows.

A Silent Crisis in the MENA Region

From 2008 to 2015, Tunisia ranked first in illicit financial flows and eighth for corruption among the Middle East and North Africa (MENA) region, as reported by the Economic and Social Commission for Western Asia. During this period, illicit financial inflows totaled US$2.6 billion (11.4%), while outflows amounted to US$1.28 billion (5.6%). Newer data is lacking, revealing an alarming gap that only underscores the need for urgent attention.

Tunisia, a North African country, is a significant contributor to illicit financial flows (IFFs) in the Middle East and North Africa region.

Sources of Illicit Financial Outflows

Illicit financial flows in Tunisia do not originate only from criminal activities, such as drug, arms, and human trafficking, fraud, and money laundering. Commercial activities, including tax evasion and profit shifting by multinationals, account for substantial losses. For instance, tax evasion and avoidance through mis-invoicing and transfer pricing cost the Tunisian government over US$500 million each year, as per the Financial Action Task Force.

The Role of Corruption

However, corruption remains the primary driver of IFFs in Tunisia. As reported by the United Nations Economic Commission for Africa (UNECA), illicit financial outflows originate from three primary sources: commercial activities (tax evasion), criminal activities, and corruption. The proceeds of crime also contribute substantially to illegal income and financial outflows in the country.

For example, smuggling between Tunisia and its neighbors Algeria and Libya generates an estimated US$2.4 billion from Algeria and US$1.8 billion from Libya in illicit outflows.

The proceeds of government corruption are a significant source of illicit financial outflows from Tunisia.

The proceeds of government corruption are also a significant source of IFFs. In 2013, Lebanese banks returned US$28.8 million in public funds to Tunisia that had been stolen by the family of former president Zine El Abidine Ben Ali. During his rule, Ben Ali and his clique controlled over 21% of Tunisia’s profits from the private sector, accounting for over 87% of the country’s cumulative capital flight from 1970 to 2010. Though corrupt activities did not cease after his fall, newer actors are involved with smaller financial gains that are seemingly endemic across different strata of Tunisian society.

Illicit financial outflows pose a significant challenge to Tunisia’s economic development.

The Consequences of Illicit Financial Flows

Corruption is a leading force in the decay of Tunisia’s economy, politics, and security. Key sectors, such as healthcare and education, could be significantly more efficient if they received just a fraction of the funds lost annually to illicit outflows. For instance, the government could pay the salaries of over 4,300 teachers for two years with just 10% of the suspected IFFs circulating in Tunisia.

Combating Illicit Financial Flows

Tunisia’s authorities recognize the threat posed by IFFs to its economic development. In 2018, the Central Bank of Tunisia’s Financial Analysis Committee (CTAF) froze approximately US$70 million linked to suspected money laundering transactions. In February 2021, the CTAF launched the Hannibal platform to identify and monitor national money laundering and financing of terrorism risks.

Despite its efforts, the CTAF lacks adequate personnel to address the numerous reported fraudulent transactions in Tunisia. More officials with the necessary skills and training are needed to investigate and handle IFFs, providing regular data on the extent of the problem.

International Cooperation and Support

National governments and Central Banks from world financial centers hold some responsibility for Tunisia’s problem. As historical trading partners of secrecy and advisors to corrupt leaders invested in their illegal gains, these countries could play a crucial role in helping countries like Tunisia combat IFFs and recover stolen public funds.

Success Stories of International Cooperation

International cooperation is essential to addressing the transnational nature of illicit financial flows. Switzerland, for example, returned US$5.6 million that Swagg Man, a Swiss convicted and jailed rapper, had laundered to Tunisia to build a mosque and a center for orphans (Figure 1).

Switzerland’s return of US$5.6 million from Swagg Man, a convicted rapper, is an example of international cooperation in combating IFFs.

Long-Term Solutions: Anti-Corruption Reforms (ACR)

Despite having a robust institutional framework, Tunisia lags behind in implementing effective anti-corruption policies. The country’s authorities need to reevaluate their approach to ACR and make long-awaited changes.

The international community can support Tunisia in its fight against IFFs, by providing expertise, resources, and creating an environment for cooperation and transparency.

Contributor: Abdelkader Abderrahmane, Senior Researcher, ENACT project, ISS Regional Office for West Africa, the Sahel, and the Lake Chad Basin.