West Africa: Liberia Vulnerable to Illicit Financial Flows (2025)

Despite ongoing reforms and legislative amendments to the Liberia Revenue Code (LRC), the country is losing millions of dollars annually due to illicit financial flows (IFFs) and a dominant informal economy.

According to a recent analysis by Dr. Bonokai G. B. Gould, Senior Lecturer at the University of Liberia's Department of Economics, these challenges are exacerbating the country's fiscal constraints and undermining economic stability.

In his paper titled, "Evaluating the Liberia Revenue Code: A Strategic Framework for Combating Illicit Financial Flows and the Informal Sector", Dr. Gould highlighted that the country's current tax framework, although comprehensive, lacks the structural provisions to effectively tackle IFFs and the unregulated informal economy. These two factors, according to the document in our possession, is draining significant revenue from the Liberian government, depriving the country of essential funds needed for infrastructure, healthcare, and education.

"Liberia's revenue losses due to illicit financial flows and the informal economy are substantial, representing one of the greatest barriers to national development," Dr. Gould explained. "While the LRC provides a foundational tax framework, its ability to address these issues is severely limited by weaknesses in enforcement, compliance, and the broader institutional landscape."

IFFs, which encompass activities like tax evasion, trade misinvoicing, unrecorded capital flight, and corruption, are estimated to cost Liberia hundreds of millions of dollars each year. Dr. Gould pointed out that despite attempts to rationalize tax rates and simplify compliance procedures through amendments in 2011 and 2020, illicit financial flows continue to erode Liberia's fiscal space.

"Despite the establishment of a comprehensive tax framework in the Liberia Revenue Code (LRC) of 2000 and its subsequent amendments in 2011 and 2020, the country's fiscal space remains constrained. These amendments have sought to rationalize tax rates, encourage investment, and simplify compliance procedures. However, Liberia continues to experience high levels of illicit financial flows (IFFs) and a dominant informal sector. There are two major factors that undermine the LRC's operational efficiency and the broader objective of fiscal sustainability," he added.

A report from Global Financial Integrity (GFI) in 2021 revealed that Liberia loses more than US$ 200 million annually due to these illegal financial movements. Simultaneously, the informal sector, which makes up over 80% of Liberia's workforce, operates largely outside of the formal tax net, further exacerbating revenue losses.

The paper criticizes the Liberia Revenue Code for several critical shortcomings that hinder its ability to address illicit financial flows and bring the informal sector into the formal economy.

"The Code lacks targeted provisions to tackle the systemic issues of tax evasion, offshore tax avoidance, and the pervasive presence of unregistered businesses," Dr. Gould said. "There is also a significant gap in the Code's integration with anti-money laundering laws and international financial transparency standards, which are crucial for combating IFFs."

Dr. Gould noted that the over-reliance on resource-based taxation, particularly from industries such as rubber, iron ore, and timber, leaves Liberia's fiscal revenue vulnerable to external shocks, further limiting its capacity to generate stable income. The absence of mandatory reporting of beneficial ownership, and the failure to implement automatic information exchange protocols, only exacerbates the problem.

The shadow economy in Liberia, which comprises a wide range of unregistered and untaxed activities, is estimated to constitute approximately 61% of the country's GDP, according to the International Monetary Fund (IMF). This informal economy is not only a major contributor to the country's tax gap but also prevents the government from effectively funding critical development projects.

"The informal sector represents a significant portion of Liberia's economic activity, but it largely operates outside the formal tax system, contributing to an estimated annual loss of US$ 50-75 million in tax revenue," Dr. Gould remarked. "This unreported income from micro, small, and medium-sized enterprises (MSMEs) is a major barrier to expanding Liberia's tax base."

According to estimates, illicit financial flows and the informal sector combined account for a staggering 30-35% of Liberia's potential tax revenue each year. With Liberia's domestic revenue pegged at approximately US$500 million, this translates to an annual revenue loss of between US$150 million and US$175 million.

To address these issues, Dr. Gould calls for the development and implementation of a national strategy that goes beyond the periodic amendments to the Liberia Revenue Code. The proposed strategy, according to Dr. Gould, should include legal reforms, institutional capacity building, and technological innovations. He stressed that Liberia must amend the LRC to include provisions that directly tackle illicit financial flows, such as beneficial ownership disclosure, and mandatory financial transparency measures aligned with international standards.

Dr. Gould also emphasized the need to strengthen the Liberia Revenue Authority (LRA), the Ministry of Finance, and the Financial Intelligence Unit (FIU) to improve enforcement capabilities and monitoring systems, especially in high-risk sectors like mining, telecommunications, and cross-border trade. In addition, he pointed out the importance of investing in digital tools for tax administration, such as integrated e-filing systems, real-time financial reporting, and automated customs data tracking.

"Without comprehensive reforms, Liberia's fiscal situation will only continue to deteriorate," Dr. Gould warned. "The strategic integration of digital infrastructure, legal frameworks, and stronger enforcement mechanisms is key to reversing the losses Liberia faces."

The proposed reforms, according to Dr. Gould, could result in significant improvements in Liberia's revenue collection. By curbing IFFs and formalizing the informal sector, Liberia could recover between US$100 to US$125 million annually within five years, which would be reinvested into critical sectors such as infrastructure, education, and healthcare.

"With the proper reforms, Liberia could reduce its shadow economy to less than 40% of GDP, significantly increasing its tax base and providing a foundation for sustainable economic development," Dr. Gould said. "These reforms are not just fiscal; they represent an opportunity to build a more transparent, resilient, and accountable system for future generations."

As Liberia continues to grapple with systemic fiscal challenges, Dr. Gould's analysis underscores the urgent need for comprehensive reform in the country's tax code and broader economic policies. Tackling illicit financial flows and integrating the informal sector into the formal economy are not just critical for fiscal stability but are necessary for Liberia's long-term development.

"Liberia stands at a crossroads," Dr. Gould concluded. "The implementation of a national strategy to curb illicit financial flows and formalize the economy is essential for the country's economic growth, stability, and future prosperity. Without these reforms, Liberia will continue to forgo critical financial resources needed to improve the lives of its citizens."