This became clear during a recent meeting convened by three international civil society organisations (CSOs) - African Monitor, Economic Justice Network and Oxfam.
The organisations noted that illicit financial flows also impacted developed countries, and was such a huge and complex field that it would be best solved by a wide range of organisations working together to address the challenges caused by such flows.
Such flows involve money that is illegally earned, transferred or utilised. Illicit financial flows range from trade in drugs, trade mis-invoicing, corporate malpractices, use of tax havens and aggressive transfer pricing, among others.
According to estimates from Global Financial Integrity (GFI), South Africa is heavily affected by such illicit financial outflows, having lost R1,007bn in the decade 2002 to 2011. Of this amount, over 80% was lost through transfer pricing, pointing to the role of the private sector in perpetuating this illicit practice.
The meeting heard a presentation by Dev Kar of GFI, who noted that such illicit flows is not just a problem for developing countries, but also for developed countries as illustrated by the Eurozone crisis. Numerous attempts have been made to resolve this problem, such as the Thabo Mbeki led high level panel on illicit financial flows from Africa, due to deliver its final report at the July AU Summit and the G20/OECD base erosion and profit shifting (BEPS) project.
In spite of this, there is still serious resistance from governments and the private sectors with vested interests and who are benefiting from illicit financial flows.
To illustrate how entrenched these vested interests are, the meeting cited the dominance of business voices at the recent OECD annual meetings in Paris and a subsequent G20 tax symposium held in Japan on 8 and 9 May hosted by the Australian Presidency.
At this meeting Kojo Parris reiterated the importance for CSOs to closely engage private sector and government on this issue and not treat them as enemies. Hassan Lorgat of the Bench Marks Foundation emphasised the importance of understanding that illicit financial flows is part of a bigger struggle of capital versus workers. Therefore, the need to connect the struggles through engaging grassroots groups is of paramount importance.
Tendai Murisa of Trust Africa urged civil society organisations to also focus on investment treaties the government has entered and is entering into as an important step in addressing illicit financial flows.
The meeting also highlighted the inadequacy of the South African regulatory system in terms of its excessive focus on anti-money laundering at the expense of other dominant forms of illicit financial flows such as trade mispricing.
It was further noted that transparency and an improved reporting standards would be central in ensuring that the agencies are able to monitor developments, calling on government to:
