This year the international community will adopt the post-2015 Sustainable Development Goals (SDGs), a transformational agenda to support global development aspirations for the next 15 years. As set out last April in a paper jointly prepared by the multilateral development banks plus the IMF, the financial resources needed to achieve the SDGs will require moving from a discussion of mobilizing “billions” to “trillions” of dollars.

The costs of closing Africa’s infrastructure gap alone, for example, are estimated at approximately US$50 billion per year. And so, while action is needed on many fronts, including leveraging private sector investment, domestic tax mobilization and smarter official development assistance, stemming the flow of illicit finances merits serious attention.

Illicit financial flows are by no means limited to Africa. In Illicit Financial Flows from Developing Countries: 2003-2012, a report launched last December by Global Financial Integrity (GFI), a non-profit research and advisory outfit,  developing countries collectively lost an estimated US$6.6 trillion in illicit outflows between 2003 and 2012, with Asian economies accounting for the largest share at 40%, followed by developing European countries. Over this same period, according to GFI, illicit outflows were: (i) greater than the combined value of total official development assistance and foreign direct investment to developing economies, which amounted to US$6.5 trillion; and (ii) grew by 9.4% per annum, significantly greater than the growth in GDP.

Meanwhile, in its report, the UNECA High Level Panel on Illicit Financial Flows  noted that Africa has lost an estimated US$1 trillion over the past 50 years in illicit financial flows, a sum roughly equal to all of the official development assistance received by the continent over the same timeframe. Similarly, a joint study conducted by the African Development Bank and Global Financial Integrity, covering the 1980-2009 period, estimated that the continent lost between US$1.2 – 1.3 trillion in illicit financial flows over the 30 year period, on an inflation-adjusted basis.

Drivers of illicit financial flows can be macroeconomic, structural or governance-related. In resource-rich economies, for example, the natural resource sector is often a major source of illicit outflows when rents and royalties are diverted and do not find their way into the national treasury. In resource-poor economies, the vast majority illicit outflows arise from the mispricing of trade, which mainly involves corporate actors, both local and international.

Grabbing the illicit outflows by the horn will require a partnership between both developing economies, which are losing these valuable resources, and developed economies that are absorbing them.

Developed economies should encourage greater financial transparency     by reexamining issues related to confidentiality, the role of off-shore financial centers and tax havens.  Improved due diligence and know-your-customer provisions are needed so that true ownership information is readily available.

Tax evasion is an important aspect of illicit finance. To tackle it, developing countries should enter into automatic exchange of tax information agreements with developed countries. This should be accompanied by the signing of double tax agreements, to protect parties from being taxed twice.

Resource-rich countries should adopt and comply with initiatives like the Extractive Industries Transparency Initiative, which encourages the verification and publication of payments made by companies and revenues received by governments from oil, gas and minerals.

Countries with weak institutional capacity should strengthen legal institutions and empower regulatory agencies to exercise adequate oversight over trade and financial systems. Reducing inordinately high tax burdens, broadening the tax base, simplifying tax systems, and strengthening tax administration will all help curb illicit financial flows.

The May 6 draft of the Financing for Development Outcome document rightly highlights the importance of curbing illicit financial flows, which are sustained through global trading and financial systems. As the Africa Progress Panel says, global problems need multilateral solutions; this is one area where Africa and the developed world need to agree on joint action to develop a credible, effective multilateral response.

At the African Development Bank we’ve adopted a multi-pronged approach to support the efforts of African economies to minimize illicit outflows by helping them implement the EITI initiative. It entails: supporting the African Tax Administration Forum to build capacity among tax administrators; financing procurement reforms to better regulate and manage public procurement; helping countries negotiate complex contracts through the Africa Legal Support Facility; supporting public financial management initiatives to improve economic and financial governance; assisting in the development of fiscal transparency and accessibility through the Open Budget Initiative; and encouraging regional initiatives to harmonize standards and enhance regulatory frameworks through programs like the Organisation pour l’Harmonisation en Afrique du Droit des Affaires, the Investment Climate Facility, and the Collaborative Africa Budget Reform Initiative.

Kapil Kapoor has been Director of Strategy and Policy for the African Development Bank Group since 2012. Latterly the World Bank’s representative for Uganda and Zambia, he was a development economist and governance specialist with the WB Group for over twenty years.