De-risking and illicit financial flows

The document examines how regional economic hubs in sub-Saharan Africa facilitate capital flows and how the interplay between de-risking and illicit financial flows (IFFs) undermines this process. It argues that de-risking—the termination of business relationships to avoid AML-CFT risks—often drives users toward unregulated shadow banking and informal channels, which in turn exacerbates IFFs. This creates a vicious cycle that reduces legitimate capital inflows, impairs financial inclusion for SMEs and NGOs, and weakens the overall financial integrity of both hub and spoke countries.

• Regional economic hubs act as gateways for capital into 'spoke' countries by providing financial depth and spreading anti-money laundering and combatting the financing of terrorism (AML-CFT) compliance best practices.
• The document identifies South Africa as an SSA-wide hub, while Kenya, Nigeria, and Morocco serve as hubs in their respective regions; Mauritius and Seychelles are identified specifically as conduits for foreign direct investment (FDI).
• De-risking is driven by a combination of limited information on money laundering and terror financing (ML-TF) risks, high compliance costs, and the fear of regulatory penalties.
• De-risking has significantly impacted African hubs, with the Seychelles, Morocco, and Mauritius being the most affected in terms of the percentage decrease in correspondent banking relationships (CBRs).
• Wholesale de-risking leads to financial exclusion, pushing individuals and businesses toward unregulated informal financial services and shadow banking, which creates an enabling environment for IFFs.
• SMEs are disproportionately affected by de-risking, with 60% of all trade finance requests by SMEs globally being rejected, which limits their access to capital.
• Among identified hubs, South Africa and Senegal had the highest risk of trade-related IFFs in 2015, each representing 21% of total country trade with advanced economies.
• IFFs impair the investment climate by reducing the tax base, increasing public sector debt, and deteriorating state capacity through the entrenchment of corruption.
• The document concludes that a 'vicious cycle' exists where IFFs trigger de-risking, and de-risking in turn fosters the use of unregulated channels that generate further IFFs.

APA

Cooper, B., Rusare, M., Ferreira, M., & Gatwabuyege, F. (2020). De-risking and illicit financial flows. FSD Africa. https://fsdafrica.org/wp-content/uploads/2025/05/De-risking-and-illicit-financial-flows_Note1-1.pdf

Chicago

Cooper, Barry, Masiiwa Rusare, Matthew Ferreira, and Fabrice Gatwabuyege. De-risking and illicit financial flows. FSD Africa, 2020. https://fsdafrica.org/wp-content/uploads/2025/05/De-risking-and-illicit-financial-flows_Note1-1.pdf.

Wikipedia

{{cite report |last1=Cooper |first1=Barry |last2=Rusare |first2=Masiiwa |last3=Ferreira |first3=Matthew |last4=Gatwabuyege |first4=Fabrice |title=De-risking and illicit financial flows |publisher=FSD Africa |date=August 2020 |url=https://fsdafrica.org/wp-content/uploads/2025/05/De-risking-and-illicit-financial-flows_Note1-1.pdf |access-date=23 October 2026 |via=Climate Insights Directory}}

BibTeX

@techreport{cooper2020derisking, author = {Cooper, Barry and Rusare, Masiiwa and Ferreira, Matthew and Gatwabuyege, Fabrice}, title = {{De-risking and illicit financial flows}}, institution = {FSD Africa}, year = {2020}, month = aug, url = {https://fsdafrica.org/wp-content/uploads/2025/05/De-risking-and-illicit-financial-flows_Note1-1.pdf}, urldate = {2026-10-23}, note = {Indexed by Climate Insights Directory} }