Strategic Collaborations: Addressing the U.S. Role as a Destination for Illicit Finances from Africa

“The United States of America is part of the problem, and it is not willing to be part of the solution.”

This was among the strong reactions from conveners during a session on illicit financial flows from Africa at the Pan African Lawyers Union (PALU) triennial conference held in Arusha, Tanzania, which I attended two weeks ago. While it is true that the U.S. is a huge part of the problem as per the 2022 Financial Secrecy Index, showing that the U.S. is the foremost supplier of financial secrecy for the world’s illicit funds, there is finally momentum in the U.S. to flip the script toward transparency. 

The Pan African Lawyers Union (PALU) is the premier continental forum of and for lawyers and lawyers’ associations in Africa, set to reflect the aspirations and concerns of the African people and to promote and defend their shared interests. PALU brings together the continent’s regional and national lawyers’ associations and more than 1,000 individual lawyers from various areas of legal practice and professionals that adhere to seeing a united, just, and prosperous Africa built on the rule of law and good governance. The conference that attracted more than 200 participants was set to get African lawyers, judges, and other professionals in one space and discuss strategies to influence policies in a number of professional disciplines such as business law, economic governance, transitional justice, as well as public interest litigation at the regional level and advocacy.

Africa loses $89 billion a year to illicit capital flight than it obtains from development aid, external borrowing, or foreign direct investment, painting the continent as a “net creditor” to the rest of the world. 

Working on solutions to this problem is precisely what the PALU conference strove to achieve. Representing the FACT Coalition on a panel discussing the UN FACTI report and Mbeki Panel Recommendations for improved global financial integrity, I found myself in a unique position as a Ugandan to defend the United States to my counterparts, for finally putting action behind its rhetoric. For the first time, in 2021, the United States named corruption a national security threat and committed to reforming its financial system to address the U.S. role in facilitating corruption worldwide. These plans were laid out in the December 2021 Strategy on Countering Corruption, which will also significantly impact addressing the U.S. role as a destination for illicit finances from Africa or as a supplier of financial secrecy to the continent.

For instance, the U.S. has prioritized reforms on curbing illicit finance, such as the Corporate Transparency Act of 2020 (CTA), which establishes a beneficial ownership directory in the United States. This law is a big deal, as it is set to discourage the use of U.S. shell corporations as a tool to disguise and move illicit funds. Such a law will make it much harder for actors like Equatorial Guinea Second Vice President Teodoro Nguema Obiang – who, using an anonymous company, bought a $30-million Malibu beach house that was later seized by federal U.S. prosecutors – to hide and protect pilfered plunder offshore through the United States.  

The CTA requires certain legal entities formed and operating in the United States to report one’s true, “beneficial” owner to a secure directory housed at the national Financial Intelligence Unit, the Financial Crimes Enforcement Network (FinCEN). Clearly, the United States is behind the world in taking this step, as certain African countries like Kenya and Zimbabwe already have beneficial ownership registries or are working on establishing their own, as in the case of Uganda. Yet, as the United States is the world’s largest economy and a leading destination for capital flight from Africa, this will hopefully have a huge impact in curbing illicit financial flows leaving the continent. FACT is urging FinCEN to promulgate final rules implementing the CTA, incorporating FACT recommendations, by no later than December 2022. 

Additionally, the United States has initiated an advanced notice of proposed rulemaking to tackle money laundering through real estate. Getting better visibility into entity or nominee transactions of real estate can impact illicit financial flows coming from Africa into the U.S. For instance, we have cases where African politicians had their property seized by the U.S. government after finding out that the money used to make those purchases was taxpayers’ money stolen from their respective countries. In one such case, the son of Congolese ruler Denis Sassou- Ngeusso, who allegedly used millions of embezzled state funds on luxury apartments in New York and Florida, spent more than $29 million from 2007-2017. He further acquired assets and paid for his family’s lavish lifestyle to a sum equivalent to around 10 percent of Congo’s 2020 health budget, according to U.S. prosecutors.

To adequately address the risks of illicit financial flows making their way into the United States, a rulemaking to tackle real estate money laundering must encompass the full scope of risky transactions within the market – covering both commercial and residential real estate transactions, whether non-financed or indirectly transferred through the ownership of an entity. Further, a range of real estate professionals should be required to have some basic obligation to “know their customer”, to ensure that a corrupt official or criminal could not simply evade detection by excluding one of a more narrowly defined class of professionals from a transaction. FACT is urging FinCEN to promulgate a proposed rulemaking on real estate incorporating these recommendations by no later than December 2022. 

Further, the U.S. is finally taking steps to require certain non-bank business professionals to have anti-money laundering obligations. The U.S. House of Representatives just passed the ENABLERS Act to address professional enablers who aid corrupt and criminal actors by requiring trust and corporate service providers, lawyers, accountants, and others to vet clients seeking to move money and assets into the American financial system. As the world’s anti-money laundering standard setter, the Financial Action Task Force has repeatedly called out the United States for failing to bring these professionals under its anti-money laundering regime.  FACT is calling on the Senate to follow the House and pass  the ENABLERS Act as doing so will be  an historic step toward bringing the U.S. anti-money laundering framework into the 21st century.

These reforms cannot happen in a vacuum and are only one part of the bigger puzzle to tackle worldwide corruption and illicit financial flows. Nonetheless, addressing the U.S. role as a destination for the world’s illicit funds is important and calls for international collaborations with Africa-based civil society groups and movements to advocate for best practices.

While PALU has developed a new online platform for its members with detailed courses on beneficial ownership and countering illicit finances, there remains a vivid gap between the will to carry out the work needed and the adequate resources required to build counter-corruption expertise and implement effective anti corruption measures. This demands further investment from agencies like the USAID Anti-Corruption Task Force to support these front-line movements to counter corruption and illicit finances.

Similarly, the Stop the Bleeding consortium, composed of public interest lawyers and activists, is solely dedicated to curbing IFFs from Africa. It continues to render capacity building to grassroots civil societies but needs resources and support from development partners like USAID and philanthropists to spread its measures across sub-Saharan Africa.

The United States has taken an important first step in recent months to admit its unfortunate role in perpetuating and facilitating global corruption and capital flight out of African nations. To tackle global corruption, the U.S. must start by cleaning up its own house through the reforms discussed in this blog, as well as by working collaboratively with African nations, civil society actors, and professionals to properly stem the root causes and key loopholes that enable capital flight, illicit financial flows, and corrupt or criminal financial abuses. In turn, domestic financial transparency reforms in the U.S. will also help our counterparts in Africa and around the world to curb illicit financial flows leaving their countries, better support development, and strengthen governance, especially in Africa.