African capital repatriation: new paper

The publication African Development Review is carrying an article by Hippolyte Fofack and Léonce Ndikumana (the latter a co-author with Jim Boyce of a seminal 2008 article on Africa's stolen resources) which takes forward the arguments about dealing with stolen African loot. Here is part of the abstract:

"The current debate on resource mobilization for development financing in Africa has overlooked the problem of capital flight, which constitutes an important untapped source of funds.

This paper argues that repatriation of flight capital deserves more attention on economic as well as moral grounds. On the moral side, the argument is that a large proportion of the capital flight legitimately belongs to the African people and therefore must be restituted to the legitimate claimants. The economic argument is that repatriation of flight capital will contribute to propelling the sub-continent on a higher sustainable growth path while preserving its financial stability and independence and without mortgaging the welfare of its future generations through external borrowing.

The anticipated gains from capital repatriation are large. In particular, this paper estimates that if only a quarter of the stock of capital flight was repatriated to SSA, the sub-continent would go from trailing to leading other developing regions in terms of domestic investment."

The paper itself adds:

"The other argument is based on economics principles: instead of continuing to rely on debt-generating resources and other forms of financing that are usually associated with binding direct and indirect conditions, African countries would be much better off tapping the stocks of funds held in Western countries in the form of capital flight. This source of financing, unlike aid and debt, does not imply any commitments to future payments to be shouldered by the African population.
. . .
Western governments also have a very important role to play in facilitating repatriation of capital flight. The first area of responsibility is the enforcement of transparency in the banking system. Historically, African leaders and private asset holders have benefited from the tradition of secrecy that characterizes banking operations. Even when the asset holders are well known to be corrupt leaders, Western banks have always put their profit motives before the principles of honesty and transparency in the dealings with corrupt leaders. It is the responsibility of Western governments to uproot these practices.

Western governments can also play a critical role in the effort to recover stolen assets by utilizing their economic and financial intelligence services to uncover deposits of illegally acquired funds especially from African leaders and their private acolytes. In the post-2001 fight against terrorism, it has been demonstrated that given adequate political will on the part of Western governments, it is possible to track down illicit transactions. Similarly, albeit belated, the success in tracking down hidden Nazi assets showed that strong political determination is critical to enforce cooperation by Western financial centers in uncovering illicit funds. Such strong political commitment from Western governments will be indispensable for the success of the efforts to repatriate the massive wealth stolen from African countries."

There is also this:

In the absence of complicity from Western banks, it would be nearly impossible for corrupt African leaders and private actors to channel and hide stolen funds abroad. Therefore, it is necessary for Western governments and the international financial institutions to design regulatory mechanisms that provide for appropriate and symmetrical sanctions to both African smugglers of wealth and their bankers. Thus far, when stolen funds have been uncovered, only the African culprits have incurred the penalties while their Western bankers have enjoyed impunity. This asymmetric treatment of financial crime undermines efforts aimed at curbing capital flight and recovering stolen funds from the African continent.

Well said. Bankers, and governments, take note. This article and a recent (unrelated) literature review have, in a few short days, advanced the cause of understanding the crisis in African development.