Addressing Illicit Financial Flows

James Emejo writes on the need to strengthen regulatory and enforcement mechanisms to plug tax leakages

Illicit Financial Flows (IFFs) pose a significant danger to Nigeria and the broader African continent,  undermining economic development, fueling instability, and hindering progress towards sustainable development goals. 

IFFs, which include money gained illegally or transferred and used illicitly, deprive countries, particularly Nigeria,  of vital resources, weaken governance, and exacerbate social and economic inequalities. 

Nigeria is currently confronted by significant challenges related to IFFs, including corruption, tax evasion, and illegal exploitation of natural resources. These flows significantly impact the country’s ability to address poverty, improve infrastructure, and achieve sustainable development – and greatly impacted on the amount of revenues declared for any fiscal period.

The development has continued to present major concerns to the federal government, especially the apex revenue agency in recent times.

Executive Chairman, Federal Inland Revenue Service (FIRS), Dr. Zacch Adedeji, said IFFs remained one of the most critical challenges facing the economy, calling for urgent measures to safeguard national resources, and build a resilient, equitable future.

Speaking at the opening of the national conference on Illicit Financial Flows (IFFs) with the theme, “Combating Illicit Financial Flows: Strengthening Nigeria’s Domestic Resource Mobilisation” in Abuja, Adedejireaffirmed FIRS’ unwavering commitment to lead with purpose and remain a convening force for collaboration, and a vigilant steward of the country’s fiscal sovereignty.

He lamented that illicit financial flows through tax evasion, profit shifting, money laundering, and trade mis-invoicing.

He said these do not merely represent financial wrongdoing but constitute structural drain on the economy, depriving government the resources needed for inclusive development.

According to him, the scale of these outflows, especially through aggressive tax avoidance by multinationals exploiting opaque global arrangements, continued to threaten the country’s fiscal stability.

Adedeji said, “Each unaccounted dollar undermines governance, erodes trust, and translates into lost infrastructure, inadequate public services, and deepening inequality.

“Like many other resource-constrained nations, we lose billions annually through these illicit conduits—making this conference not just a policy dialogue, but a national imperative.

The FIRS chairman, however, declared that under President Bola Tinubu’s Renewed Hope agenda, “we have entered a new era of fiscal reform”.

Specifically, he pointed out that the current tax reforms efforts signaled the present administration’s strong commitment to overhauling the tax system, modernise the legal framework, and institutionalise transparency in revenue collection.

“At the Federal Inland Revenue Service, we are responding with a deliberate, multidimensional strategy. First, we are championing voluntary compliance by promoting taxpayer education and simplifying systems. Our goal is to foster a culture where compliance is driven by trust, not fear.”

Countering IFF

According to the FIRS boss, responding to the menace of IFF required an agile, intelligence-led, and globally coordinated to achieve positive results.

He said at FIRS, “We are harnessing technology and intelligence. We have launched an ambitious digital transformation programme, including the establishment of a tax intelligence and automation department. With real-time analytics, integrated third-party data, and anomaly detection, we are building a tax system that is proactive, smart, and secure. 

“This is not just about digital infrastructure but digital vigilance. We recognise that combating IFFs demands collective action. As the designated coordinating agency under the Proceeds of Crime Act (2022), FIRS has established the Proceeds of Crime Management and Illicit Financial Flows Coordination Directorate. 

“This unit is leading implementation efforts, supporting asset recovery, and coordinating with law enforcement, the judiciary, private sector actors, and international development partners.

“We are also reviewing Nigeria’s Double Taxation Agreements (DTAs), some of which-due to outdated clauses-may inadvertently enable profit shifting.”

Adedeji said, “I have personally initiated renegotiations with several jurisdictions to align our treaties with present economic realities and to close loopholes that facilitate capital flight.

“Let me be clear: criminal networks adapt quickly. Whether through secrecy jurisdictions, the manipulation of beneficial ownership, or digital innovations, illicit actors continue to outpace traditional enforcement. Our response must therefore be agile, intelligence-led, and globally coordinated.

“This conference must go beyond dialogue. It must yield concrete action-real-time data exchange across institutions, robust enforcement mechanisms, and strengthened accountability frameworks. Only through unified effort can we plug the gaps that enable IFFs and reclaim the fiscal space necessary for national development.

“The time for incremental steps is over. Let this conference mark a decisive shift in Nigeria’s stance against illicit flows a moment where we stood together to defend the integrity of our tax system and the promise of shared prosperity.As Executive Chairman of FIRS, I reaffirm our unwavering commitment. We will continue to lead with purpose serving as a catalyst for reform, a convening force for collaboration, and a vigilant steward of Nigeria’s fiscal sovereignty.”

Financial cost to economy

Also, addressing the participants at the conference, Minister of State for Finance, Dr. Doris Uzoka-Anite, disclosed that Nigeria loses about $15 billion annually to profit-shifting and adverse tax avoidance practices, particularly perpetrated by some multinational corporations transacting in the country.

Profit shifting is when multinational companies reduce their tax burden by moving the location of their profits from high-tax countries to low-tax jurisdictions and tax havens. The minister said huge sums of money are moved out of the country, robbing the country of resources that could be used to finance the much-needed public services.

According to her, these adverse tax transactions had resulted in fewer hospitals, schools, roads, and bridges, and police officers on the streets as well as undermined jobs creation and poverty eradication, adding that the country, under President Bola Tinubu, was undergoing strategic fiscal reforms aimed at building a resilient, self-reliant economy driven by revenue and not by debt or by grants.

Uzoka stressed that IFFs remained a critical issue and one of the most urgent challenges currently facing the country, and continues to undermine the country’s development efforts as well as undermine economic sovereignty, highlighting the need to protect and retain wealth generated within borders, he said illicit financial flows are the “in-between pipes of our national wealth”.

Uzoka-Anite said, “They undermine revenue generation, erode tax bases, promote corruption, and reduce the resources available for critical investments in health, education, infrastructure, and social protection.

“This gathering reflects a growing recognition that illicit financial flows are not just a technical problem, they are a political problem, a developmental problem, and a national security concern.

“Illicit financial flows is a hydra-headed monster about to be evacuated and it takes various forms, from terrorist financing to corporate tax evasions. And since we are here at an event organized by the tax plan, we will focus our efforts and our attention on conversations around tax avoidance and tax evasion.”

The minister further noted that Nigeria had heavily relied on oil revenue which had been volatile and unsustainable, adding that the current reforms recognised the urgent need to diversify the revenue base, shifting focus on oil and non-oil resources, particularly tax revenue.

She added that by strengthening tax systems, the government seeks to create a more inclusive and accountable fiscal framework, one capable of funding national development, reducing debt dependency, and ensuring that all sectors contribute their inclination to it.

Also, addressing the august gathering, Member of Mbeki High Level Panel on Illicit Financial Flows, Hon. Irene Ovonji-Odida, said the global economic system played a core role in the ‘underdevelopment’ of Africa via governance of its pillars that included trade, debt, banking, finance, taxation among others.

According to her, billions are lost to trade mispricing from 2001-2010, stating that organised crime drove 30 per cent of IFFs while 5 per cent from official government bribery.

Citing a UN report, she said, “IFFs undermined development, security, and governance and public expenditure in critical sectors such as education, health, and natural resources.

“The power dynamics and confluence of vested interests between global corporations, states, professional enablers, and organized criminals make IFFs a complex, highly technical, and political phenomenon.   

“Unlike the approach of western-led global institutions which emphasize organized crime and corruption aspects of IFFs, the Mbeki Panel and AU broke new ground in its broad framing of IFFs, including activities that without necessarily being illegal subvert the intent of the law, or exploit legal loopholes and mis-alignment between national tax laws of different countries, to aggressively minimise tax liability and prevent fair taxes from being paid to jurisdictions where profits are made.”

Ovonji-Odida stated that recent international tax reform efforts aimed to correct historical imbalances rooted in colonial and post-colonial structures.

She said the UN Tax Framework Convention supported by developing countries would signify a shift towards rebalancing global economic governance.

According to her, the abuse or use of loopholes and weak global frameworks in the global tax system by rich governments, MNCs and HNWIs is facilitated by globalisation and digitalization of the economy.

She said the nature of IFFs, with vested interests and technicalities, are highly secretive and difficult to track, particularly when involving complex transactions and intra-group trade within global conglomerates.

She said, “These initiatives have significant implications for domestic tax processes and national development.  Africa needs to strengthen its strategic engagement in this process.

“What is at stake is for Africa and the Global South in general, is fair allocation of taxing rights to increase DRM for investment in public goods in an unfair international tax system that entrenches asymmetries between advanced economies MNCs and the ultra-wealthy on the one hand, and developing economies, domestic enterprises and ordinary citizens on the other.”

Collaborative action to curb outflows

According to Ovonji-Odida, strengthening capacity and coordination of Africa will help to address illicit financial flows.

She noted that as a net loser in the current global economic system in general, and IFFs in particular, African governments should prioritise and invest in national capacity to end IFFs and build an effective mechanism to coordinate efforts at the AUC, linked to New York and the capitals.

She said, “To establish global coherence of what has been agreed by Africa  Africa needs to continue to develop its common negotiating position on global tax reform and through south-south cooperation, build a global south position, in the UN negotiations process. 

“This involves the African Group in New York, finance/ tax and foreign affairs departments at capitals, and the broader civil society/ researchers to match the power of the western governments. PTLAC may provide a model to build African and interregional mechanisms.  

“How can Africa use the AU membership since 2024 of the G20 and South Africa’s incoming presidency better?  3) To develop the global mechanism which will ensure complete adherence to the implementation of these agreements.”

She added, “The outcomes of the negotiations on the Tax Framework Convention will shape global governance of taxation, perhaps for the next 100 years. This process is a once in a century opportunity for Africa and the Global South to finally have fair, inclusive allocation of taxing rights, with implications for our ability to finance our development agenda. We should not waste this opportunity and consider how to harness developments within BRICS+ in the new global political-economy.”