patrick njoroge : the role of banks and the securities markets in curbing the movement of illicit financial flows remarks by dr patrick njoroge, governor of the central bank of kenya, at the 2nd annual general meeting and conference of african organization of public account committees ( afropac ), nairobi, 30 august 2016. * * * it is a privilege for me to join this panel to discuss the role of banks and the securities markets in curbing the movement of illicit financial flows. i would like to take this opportunity to thank the african organization for public account committees ( afropac ) for inviting me to speak on this topical issue. i would also like to recognize and appreciate afropac ’ s role in promoting transparency and accountability in the governance of public resources. it is apt to note that the topic of illicit financial flows was recently highlighted at the 14th session of the united nations conference on trade and development ( unctad ) that recently convened in nairobi about a month ago, a meeting that brought together heads of states and governments, and key stakeholders from the business world and civil society. the damaging effects of illicit financial flows on the african continent are now welldocumented and it is only fitting that afropac has brought the issue to the fore. stemming illicit financial flows from developing countries has emerged as one of the key issues shaping the global development agenda. as you are aware, goal no. 16 of the sustainable development goals ( sdgs ) under the united nations 2030 agenda for sustainable development, commits to “ significantly reduce illicit financial and arms flows, strengthen the recovery and return of stolen assets and combat all forms of organised crime ” 1. there are good reasons for this : • first, the amounts involved are massive. with assistance from the imf and the world bank, the advocacy group global financial integrity ( gfi ) has estimated that africa loses about us $ 50 billion annually to illicit financial flows 2. additionally, according to the report of the high level panel on illicit financial flows, between 1970 and 2008, africa lost an estimated us $ 854 billion in illicit financial flows. 3 this amount is equivalent to the development assistance received by the continent over the same period. • second, illicit financial flows have far - reaching effects, particularly on the african continent. these flows and the activities that support them have been shown to lead to increasing inequality in the source countries, in addition to undermining the economic and social institutions, discouraging transparency, and undermining international development cooperation.

• third, all countries are involved in this fight, and there are no winners if illicit financial flows are not dealt with. it is noteworthy that the financial sector is the most common conduit for illicit financial flows. this is largely attributed to the interconnection between national and international financial united nations sustainable development goals ( september 2015 ). available at : https : / / sustainable development. un. org /? menu = 1300. global financial integrity ( 2010 ) illicit financial flows from africa hidden resource for development. available at http : / / www. gfintegrity. org / storage / gfip / documents / reports / gfi _ africareport _ web. pdf. stop it! track it! get it! report of the high level panel on illicit financial flows from africa ( 2015 ). available at http : / / www. uneca. org / sites / default / files / publicationfiles / iff _ main _ report _ 26feb _ en. pdf. bis central bankers ’ speeches systems, which can thereby provide a wider geographical reach through which illicit financial assets are moved and laundered. the financial sector, therefore, has to be at the forefront of the agenda to stem illicit financial flows. nevertheless, in order to develop and implement policies that would appropriately address the issue of illicit financial flows it is important to appreciate the vulnerabilities of african financial systems. more importantly, to understand how they enable or facilitate the movement of illicit financial flows. most of our economies are characterized by the presence of informal financial systems that are primarily cash based. however, significant gains have been made in increasing the level of financial inclusion, most notably in sub - saharan africa, where countries like kenya and tanzania have embraced mobile and financial products and services. but the overall level of financial inclusion in africa remains low. only a small percentage of the population has bank accounts, and the percentage of those owning insurance policies and securities is even lower. this is relevant given that it serves to hamper efforts to trace illicit financial flows from the continent. weak banking regulatory and supervisory frameworks has largely hindered the effective implementation of initiatives aimed at reducing illicit financial flows from africa. this is reflected at the national level, given that most african countries are yet to fully adopt and implement the 2012 financial action taskforce ( fatf ) recommendations, the international standards on combating money laundering and the financing of terrorism. the fatf standards are a comprehensive framework of preventive measures