Tunisia’s Illicit Financial Flows: A Threat to the Economy and Security

A Staggering $1.2 Billion Drain on the Economy

Tunisia loses a staggering $1.2 billion annually through illicit financial flows (IFFs), which is equivalent to 3% of its gross domestic product (GDP). This outflow of illegally earned money or capital from one country to another is a major concern for the government and economists.

Consistent Ranking as Top IFFs in the Region

According to the Economic and Social Commission for Western Asia, Tunisia has consistently ranked first in IFFs and eighth in corruption in the Middle East and North Africa region between 2008 and 2015. The problem persists, with recent figures indicating that illicit financial inflows made up $2.6 billion (11.4%) of Tunisian trade in 2015, while outflows constituted $1.28 billion (5.6%).

Tax Evasion and Avoidance: A Significant Loss

Tax evasion and avoidance through mis-invoicing and abusive transfer pricing account for over $500 million in lost revenue annually, according to the Financial Action Task Force. The Tax Justice Network argues that IFFs should include exploitative activities that may not involve lawbreaking, such as tax avoidance.

Government Corruption: A Major Source of IFFs

The main source of IFFs in Tunisia is government corruption at the highest levels, with millions of dollars stolen by former President Zine El Abidine Ben Ali and his family. Ben Ali’s corrupt regime controlled over 21% of Tunisia’s private sector profits, leading to significant capital flight from 1970 to 2010.

Corruption: A Destabilizing Force in Tunisian Society

Corruption has become a destabilizing force in Tunisia, affecting different strata of society and compromising essential government institutions such as the judiciary, legislative departments, police force, and customs. The political party Ennahda is also accused of graft, with widespread corruption perceived to be endemic in Tunisian society.

Impact on the Economy

The loss of income through IFFs has a profoundly negative impact on Tunisia’s economy, with key sectors such as healthcare and education suffering. Governments and central banks from world financial centers must share some responsibility for combating IFFs and recovering public funds sent abroad.

International Cooperation Crucial in Combating IFFs

International cooperation is crucial in addressing this issue, as illicit financial flows are often transnational. Developed countries like London and Switzerland have historically traded on secrecy and advised corrupt leaders on investing their illegal gains. They should help countries like Tunisia combat IFFs and recover stolen funds.

Good Practice Example: Switzerland’s Return of Stolen Funds

A good practice example is Switzerland’s return of $5.6 million laundered by Franco-Tunisian rapper Swagg Man to build a mosque and center for orphans in Tunisia. This demonstrates the importance of international cooperation in combating IFFs.

Implementing Anti-Corruption Policy

The Tunisian government needs to fully reform its approach to implementing anti-corruption policy, with more officials required to investigate and handle IFFs. The Central Bank’s Financial Analysis Committee has launched the Hannibal platform to identify and monitor national fraudulent transactions, but it lacks personnel to address the large number of reported cases.

Conclusion

Tunisia has an institutional framework to ensure accountability, integrity, and transparency on paper, but it needs to be implemented in practice. The country’s authorities must work together with development partners and foreign governments to address this critical issue.