Report on high-risk services that enable illicit financial flows out of Africa.

Transparency International’s latest report and analysis uncovers

• Policy loopholes and regulatory blind spots that have allowed professionals operating in the non-financial sector to provide high-risk services and enable illicit financial flows out of Africa.

Transparency International has undertaken an extensive review of available evidence to better examine the role of such intermediaries in facilitating illicit financial flows out of Africa.

They collected and analysed 78 cases covering 33 African countries.

1. These are cases which implicate politically exposed persons (PEPs) from across the continent in siphoning off proceeds of corruption abroad or parking their wealth offshore.
2. Their analysis identifies specific enabling behaviours and high-risk services. It also reveals policy loopholes and regulatory blind spots that require decision-makers’ attention.
3. In the reviewed cases, they were able to identify 87 professionals and businesses who fall under seven categories:
1. accountants and audit firms (4),
2. business consultancies (3),
3. law firms or individual lawyers (42),
4. notaries (4),
5. real estate agencies (7),
6. tax advisory businesses (1), and
7. trust and corporate service providers, or TCSPs (26).
4. All these have likely facilitated corruption and the hiding of wealth abroad – either through direct criminal involvement, negligence or failure to address risks related to their clients.
5. In this report, Transparency International refers to them as “enablers” of illicit financial flows.
6. The seven types of enablers captured in our database performed 15 distinct services for their clients.
7. These are services that are of critical importance to the corrupt as they help them remain anonymous, conceal the illicit origin of funds and circumvent enforcement measures.
8. Services related to the creation or incorporation and management of companies and trusts appeared most frequently in our database, with lawyers and TCSPs providing the majority of these services.
9. In general, lawyers provided the most diverse array of services, followed by TCSPs. Notaries and real estate agents mainly dealt with real estate purchases.
10. These 87 enablers are registered or incorporated in 30 different jurisdictions.

By analysing the data on enablers and mapping the relationships between the jurisdictions where they were registered, where their clients were based and where they were providing their services, we observe three main patterns.

1. Corrupt rely on foreign enablers
1. In the 88 per cent of times an enabler was involved in a case, they provided services to clients who were based abroad. The British Virgin Islands (BVI), Panama, Switzerland, the United Arab Emirates (UAE) and the United States (US) are connected to a particularly high number of countries of origin for illicit financial flows in our database.
2. the United Kingdom (UK) is particularly strongly linked to Nigerian cases, while Portugal is mostly linked to Angolan cases in our database Provision of services to clients abroad may make the due diligence process a lot more difficult.
3. It may also reduce the chances of suspicious activity being flagged in the country where the corrupt individual is based. This is because enablers, when covered by anti-money laundering rules, only have to report suspicious transactions to authorities in the country where they are located and not where the client is based or from which the funds originate.
2. Enablers sell secrecy

1. Secrecy jurisdictions were the most important hubs for enablers providing services to clients in Africa.
2. In the BVI, Cyprus, Mauritius, Panama, Seychelles, Singapore, Switzerland and the UAE, most enablers provided services related to the creation and management of legal entities and arrangements.
3. The majority of services were related either to creation, administration and provision of nominee services or of an address for legal entities.
4. The importance of secrecy jurisdictions in these case studies aligns with wider evidence concerning the abuse of legal persons as a means of laundering corrupt funds.

     3. Enablers deliver corporate services

1. In third countries the analysis also shows that foreign enablers have often provided services from third jurisdictions, rather than where they are registered and regulated.
2. This was the case in 46 per cent of times enablers in our database engaged with a client. Enablers registered in Switzerland provided their services – particularly relating to creating offshore companies and trusts – in the BVI, Panama and Seychelles.
3. Similarly, the UAE emerged as a hub from which services are provided abroad, including in Cyprus, Gibraltar and Spain.
4. Overall, the BVI emerged as the principal jurisdiction where enablers from abroad were delivering their services, largely to create legal entities on behalf of clients.
5. This provision of services outside of the jurisdiction of registration raises questions about who has the mandate to regulate and supervise these activities as well as relevant authorities’ visibility of the entire population of enablers that may be providing services within their jurisdiction. It also raises questions about the types of checks currently conducted when enablers sub-contract local agents to act as intermediaries in a specific country.

Read the report

https://images.transparencycdn.org/images/2023-Report-Loophole-Masters-English.pdf