Illicit activities in the realm of global finance
llicit financial flows are illegal movements of money or capital from one country to another. Global Financial Integrity (GFI) classifies this movement as an illicit flow when the funds are illegally earned, transferred, and/or utilized.
Just two days before the United States federal government shut down started on December 22, 2018, the United States Treasury Department published an important report about illicit activities in the realm of global finance. In a nutshell, its message is that our security is at risk. The 2018 United States “National Strategy for Combatting Terrorist and Other Illicit Financing,” is a coldly terrifying document. It shows that threats are probably escalating, while the responses by law enforcement worldwide are inadequate.
On the terrorist front the report reveals that, ISIS, for example, continues to raise funds to support terrorism. It obtains money from selling stolen oil, extorting funds from the people whose villages and towns it controls, the proceeds of crime as well as from United States citizens. The cash raised by ISIS, and other terrorist organizations, buys them arms and entangles them in an international web of corruption and organized crime. Despite ramped-up efforts by law enforcement, the new report provides no hope that the cash flowing to terrorists is being curtailed.
Frank Vogl, co-founder of Transparency International and author of “Waging War on Corruption: Inside the Movement Fighting the Abuse of Power” stated that the various state-sponsored networks, terrorist groups, perpetrators of large-scale cross-border fraud, including cyber crime, as well as drug-trafficking and other criminal organizations might be directed from headquarters beyond United States borders. However, many of their financial transactions go through the United States capital market and are skilfully processed through United States banks.
This is unsettling news. Global Financial Integrity reported that after all, efforts to monitor the trillions of dollars of financial transfers flowing through United States banks every year have never been more rigorous and sophisticated. And yet, the United States Treasury acknowledges that United States banks “generally may be unwitting and can encounter difficulties in identifying the underlying illicit actors given the information available to them.”
Major efforts are being made, according to the United States Treasury’s report, to strengthen intelligence sharing across the key departments of the United States government and foreign governmental counterparts. Even so, there is not a scintilla of evidence that the amount of illicit finance crossing the world has declined.
According to the Global Financial Integrity, the only comfort may lie in the fact that United States authorities have not increased their 2015 estimate that domestic financial crime, excluding tax evasion, generates approximately $300 billion of proceeds each year for potential laundering. Aside from the fact that this is almost certainly a most conservative estimate, it is also in and by itself a staggeringly high number.
By coincidence, the United States Treasury’s disturbing study has been published at the same time as an extraordinary book, “Dark Commerce-How a New Illicit Economy is Threatening Our Future”, by George Mason University professor Louise Shelley. Her research shows the deepening international ties between corrupt governments and organized crime. Their joint activities range from vast trafficking in people to ivory and counterfeit goods of all kinds.
All of this can only take place when the criminals secure the complicity of bribe-taking officials, from the helm of some governments down to border customs agents. Both Professor Louise Shelley and the United States Treasury underscore that the uses of crypto-currencies in illicit finance is increasing and placing an even greater challenge on detection and law enforcement.
The Treasury’s Financial Crimes Enforcement Network (FinCEN) estimates that, over the last two years, virtual currency transactions include over 1 billion dollar in ransoms are extortion funds. In addition, over 1.5 billion dollar has been stolen through hacks of virtual currency exchangers and administrators. Again, this may well be a conservative estimate.
The importance of Professor Louise Shelley’s book is that it not only deepens our overall knowledge of the scale of illicit crime and finance, and the extraordinary strategic security threats that are posed, but it forces us to consider the impact on world trade and legitimate commerce of counterfeiting.
In 2005, journalist Moises Naim wrote a powerful book called “ILLICIT – How Smugglers, Traffickers and Copycats are Hijacking the Global Economy”. Such pioneering work done by Moises Naim, now adds enormous detail about the world of fake products, from medicines and pesticides, to cigarettes and luxury goods of all types. The scale of such crimes is rising with the greater use of new technologies, social media and other means to market goods, steal and transfer cash.
The United States Treasury report, like Professor Louise Shelley’s book, point to security challenges that are given insufficient priority by leading United States politicians and the United States media. Maya Forstater, a visiting fellow at the Center for Global Development asserted that an important step in the right direction will be seen in coming weeks with legislation to be advanced in the United States Congress. Its intent is to provide the United States Treasury with powers to obtain comprehensive knowledge of the true beneficial owners of all holding companies investing in the United States, from those registered in the United States, British Virgin Islands and other offshore centers.
According to Maya Forstater, the legislation, promoted by The Fact Coalition, comprising more than 100 interest groups, has bi-partisan support and, significantly, the backing of leading banking associations who see it as a means of reducing their most substantial regulatory compliance costs. The proposed legislation should be viewed as an important first step. Far more needs to be done given the magnitude of the threats that the United States Treasury and Louise Shelley describe.
Maya Forstater seriously stressed that policymakers and the media, not just in the United States, but worldwide, need to wake up to the fact that the scale of illicit finance, and all the crimes it reflects, are a matter of the highest national security priority. Unless there is this appreciation, the problems and the threats will multiply.
A Great Day!
“Let, us, here and now, agree upon the basic instrument which will constitute the foundation for the future growth in peace and harmony and oneness of this continent.” HIM Emperor Haile Selassie I, 25 May 1963
Today, 10 February 2019, the African Union (AU) unveiled the approximately 2.5 meter high bronze statue of His Imperial Majesty Emperor Haile Selassie, a Founding Father of the African Union and world renowned statesman; amongst the myriad accolades bestowed on the Emperor, affectionately called Ababa Janhoi. The commission for the iconic art work was granted to Addis Ababa University, Alle School of Fine Art and Design by the Government of Ethiopia, with artist and academician extraordinaire Professor Bekele Mekonnen at the helm. According to Art School Director, Agegnehu Adane, the statue was entrusted to the Art School to design and create, all done within seven months. It is fitting if not a wonderful irony that the Art School, inaugurated by the Majesty sixty years ago will fulfill the mandate agreed to by Member States of the AU.
The unveiling ceremony has a list of invitees including the Imperial Family, His Imperial Majesty Haile Selassie I Memorial Association and the Ethiopian World Federation, active proponents for this recognition. Other invitees are diplomats and dignitaries from the Continent and the world, all wishing to pay homage to The Majesty for His significant role as an advocate for African unity. However, it is the fact that the unveiling has been positioned on the first day of the AU General Assembly, during the mid-morning opening session, where 55 Heads of State are represented, that is most significant and indeed fitting.
The decision taken to build and erect the statue, was initiated by the President of Ghana H.E. Nana Akufo-Addo based on the historic relationship between President Nkrumah and the Emperor, who shared the vision of African unity. H.E. Nkrumah, during a State visit in 1960 for HIM to Accra said, “I cannot express in words adequate to the occasion, the emotions and feelings aroused in the breast of every Ghanaian which your visit has invoked. Ethiopia in our minds stood or freedom, African independence, African dignity and African self-respect.” This sentiment spoke volumes then and is relevant for the occasion today. So as H.E. Nana Akufo-Addo is joined by Prime Minister, H.E. Dr. Abiy Ahmed; AU Chairperson, President Paul Kagame and AU Commission Moussa FAki Mahamat to unveil the statue we are reminded by The Majesty’s words, “Today, we look to the future calmly, confidentially and courageously. We look to the vision of an African not merely free but united… . History teaches us that unity is strength. This conciliatory and cautionary excerpt is engraved on the grey cultured marble foundation surrounding the stone pedestal, on which the statue sits, accented with malachite stones. This new and overdue focal point on the AU Compound will see an inauguration, enshalla, when the AU Summit and all the traffic and security details attached to said have subsided, allowing for the People of Ethiopia who longed for this day and all others to join in an august occasion fit for the King of Kings. This in mind, I close with the words of the AUC Deputy Chairperson, H.E. Kwesi Quartey who states, “This is Africa’s diplomatic capital and a symbol of Pan-Africanism. We extend our appreciation to the Federal Democratic Republic of Ethiopia as well as the good people of Ethiopia for their commitment to the AU.”
Note: There was “…so much thing to say right now..” in the words of Bob Marley that I had to write this short column.
Dr. Desta Meghoo is a Jamaican born
Creative Consultant, Curator and cultural promoter based in Ethiopia since 2005. She also serves as Liaison to the AU for the Ghana based, Diaspora African Forum.
Micro-Entrepreneurship and the Growth of Enterprise
Entrepreneurship is not easy anywhere in the world. An entrepreneur is called upon to use their own finances—or a loan which has to be paid back—to start something that may ultimately fail. The risk involved is the reason that so many potential entrepreneurs choose to end their business before it even begins.
In economies where free enterprise is limited by low start-up capital and high interest rates for bank loans, dreams of running a business have no chance at seeing fruition.
However, for the brave and industrious, the pursuit of business is still a possibility. This is extremely evident in the case of micro-entrepreneurship.
Micro-entrepreneurship is what we see happening all over Ethiopia in small and big ways. From the elderly woman selling vegetables on the side of the road to the young man shining shoes, these small means of earning an income have the power to create big change when utilized to their fullest potential.
So how can we encourage these practices to have a more successful output? What education needs to occur to maximize the benefits to these entrepreneurs?
One of the primary tools currently under study by developmental economists are the means of savings and micro-finance groups.
A savings cooperative can be formed when a group of people come together to pool their finances, with each member contributing as low as 40 birr per month. This model can take on many forms and the group can decide how many people are allowed in the coop, how often each person is allowed to take from the savings, and whether or not the savings will be used as a small loan, which has to be paid with or without interest, or if the amount is given in turns to each member of the group.
What happens with a micro-finance cooperative is that when each member has their opportunity to take the money that has been saved, they use it specifically to invest in a business start-up or the growth of an existing enterprise.
Micro-finance opportunities have been met with incredible rates of payback. As the loans in these coops are typically required to be repaid in order for the next member of the group to launch their business, community members hold one another accountable.
Studies of micro-finance cooperatives and loan repayment have reported a success rate of roughly 99% according to Grameen Bank and as low as 85% according to the Poverty Action Lab. Additionally, repayment by women is consistently even higher than repayment by men.
Again, these success rates are typically due to social pressures and community-based accountability. As these groups are built around relationship, members help one another to succeed in their business and the entrepreneur feels a stronger desire to honor the commitment to a community loan as opposed to a bank loan.
An important aspect of all of this is simply ensuring that communities have the awareness of these opportunities.
As one of the primary benefits of community-based micro-finance is that it can be completely self-contained, there is no need for any sort of foreign intervention or nongovernmental organization to be involved. However, it is important for local education to be engaged and to talk about these initiatives.
Hearing about different models of micro-finance and how it can benefit micro-entrepreneurship means governing authorities have to talk about strategies. They have to spread the information, provide guides in local languages, and enable schools and religious communities opportunities to come together and discuss how to make it happen.
Terefech*, a single mother living around Kore was given a loan of 500 birr through her church community to start a business creating beautiful women’s accessories from trash. She used the loan to invest in materials to add beauty to the products and was able to make enough stock to begin selling. As people began to see the quality of her work, she quickly sold through her stock and repaid the loan.
Upon repayment of the loan, she was given 1000 birr to expand, which she did quite successfully, rapidly repaying the second loan.
The best part of her story, however, is not simply her own success. It is the fact that she used her skill to train other women, helping them get started in their own accessory making businesses.
This woman has not only changed her own economic situation, she has enabled others to do the same. And just as Terefech made all this happen from a loan of 500 birr, so Abera* used his loan for a business to sew clothing and has trained young men to do the same.
Micro-entrepreneurs have to use ingenuity and creativity to make their businesses happen. And while it is, perhaps, more difficult for them than for many, success stories abound for those who are pursuing these options.
Through community empowerment and business-friendly government policies, we can see men and women changing their communities and transforming their lives from destitution to economic prosperity.
*Names and minor details changed for privacy
Hannah Edington
