The policies and challenges related to tackling Illicit Financial Flaws in the context of implementing the 2030 Agenda and achieving the SDGs.
There is a direct link between the development challenges and the illicit financial flows (IFFs). Nearly US$1 trillion of unrecorded money leaves the emerging market and developing countries annually (OECD, 2018; GFI, 2019; UNODC). IFFs undermine the efforts of countries to mobilize finance for sustainable development and the internationally-agreed SDGs by the target date of 2030. The Illicit Financial Flaws (IFFs) originate from (i) illegal activities (e.g. corruption, smuggling and trafficking in minerals, wildlife, drugs, and people, tax avoidance); (ii) the funds that stem from these illegal activities; and, (iii) the funds that are used for illegal purposes (e.g. organized crime). (UNDP, 2019) They tend to travel worldwide with the aim to infiltrate in the legal economy or to be hidden abroad. About 45% of illicit flows end up in offshore financial centers, and 55% in developed countries. (GFI, 2019) According to the OECD, between 2008-10, Africa alone had lost US$63.4 billion through trade mispricing and other illicit outflows.
It is more than what Africa had received in aid and foreign direct investment, which amounts to US$62.2 billion over the same period. (GFI, 2019) The latest 2019 GFI Report titled "Illicit Financial Flows to and from 148 Developing Countries: 2006-2015", provides the list of top 30 countries ranked by dollar value of illicit inflows and include a regionally diverse group including Vietnam ($22.5 billion), Thailand ($20.9 billion), and Indonesia ($15.4 billion) as well as Latin American nations Panama ($18.3 billion) and Argentina ($4.8 billion). Additional countries include Kazakhstan ($16.5 billion), Belarus ($6.1 billion) and Morocco ($3.9 billion). It underscores the global character of the problem.
The studies by the OECD suggest even more dramatic figures, providing that the losses from corruption only to be more than one trillion dollars per year; with corruption adding up to 25% to the cost of government contracts in developing countries. Estimates of global losses from tax evasion vary widely, but all are large. The estimated amount of money laundered globally in 2009 was $1.6 trillion, or 2.7 per cent of global GDP. These figures are significantly larger than ODA, which in 2013 totalled $134.4bn from DAC members.
Illicit financial flows create complex systemic effects on development, enjoyment of human rights in the context of the post-2015 development agenda (See. Human Rights Council Resolution 25/9). Investments of ‘dirty money’ into licit economies may distort the markets, efficient resources allocation, result in the “crowding out” of licit sectors and undermine the reputation of local institutions. (UNODC, 2011)
Combating illicit financial flows could potentially contribute more resources to support sustainable development than a doubling of global ODA, and would also bring improved governance and stability, and help to reduce crime and violence.
"Follow the money" approaches adopted by the international community didn't bring about the meaningful change in tackling the causes and the drivers of the IFFs. Despite the enforcement efforts and international cooperation, the IIFFs remain to be a persistent drag on developing economies, remain to be a complex developmental issue that needs proper development-oriented policies, policy coordination, and policy coherence.
The Agenda 2030 and its Goal 16 recognizes the importance of fighting the IIFFs for achieving the SDGs, represents a paradigm shift in the development of new policies fostering peaceful, just and inclusive societies, based on fair and robust justice systems and free from crime and violence, is the basis for fighting poverty and reducing inequalities while enhancing economic growth and stability, and protecting the environment. First time ever, the development agenda refers to a specific target related to combating Illicit financial flows (IFFs). In particular, the indicator 16.4.1 of the Goal proposes that “by 2030, significantly reduce illicit financial and arms flows, strengthen the recovery and return of stolen assets and combat all forms of organized crime.” At the 3rd International Conference on Financing for Development, held from 13-16 July 2015 in Addis Ababa, States made as well the commitment to “redouble efforts to substantially reduce illicit financial flows by 2030, with a view to eventually eliminating them, including by combating tax evasion and corruption through strengthened national regulation and increased international cooperation.” (A/CONF.227/L.1). States also agreed to “strive to eliminate safe havens that create incentives for transfer abroad of stolen assets and illicit financial flows.”
Despite the new commitments made in related to fighting IIFFs in the context of implementing 2030 Agenda and Addis Ababa Agenda, the sustainable development expert community underscores the existence of several challenges in developing and implementing effective policies to combat illicit financial flows: (i) the lack of the definition for the concept of the IIFFs, that prevents developing a proper indicator (indicator 16.4.1 is still under developing and testing) and effective policies towards combating concrete illegal activities and funds stemming from them; (ii) the shortage of optimal methodological tools to measure IIFFs (the existing methodologies give approximate estimates that may vary significantly). Several important stakeholders and the UN agencies such as UNODC, UNICRI, the UNCTAD are working together to develop the shared definitions and the methodologies.
The topic is an interesting field to invest time and the effort in research for sustainable development policies to fight the IIFFs. There are many interesting policy-related aspects to study and develop such as: incorporating human rights considerations in the management of returned stolen assets, resulted from the asset recovery processes; developing policy options and policy recommendations on how the goal of curbing illicit financial flows could be operationalized within the 2030 Agenda; addressing gender-related aspects in the policies aimed at combatting the illicit financial flows.
See the following documents and materials on the topic: the UNGA resolutions indicating to the links between fighting IFFs and achieving sustainable development such as the GA resolution 73/222 on “Promotion of international cooperation to combat illicit financial flows and strengthen good practices on assets return to foster sustainable development” (A/RES/73/222) – 20 December 2018. See all other relevant resolutions here; The OECD Reports and studies related to fighting the tax avoidance (base erosion and profit shifting of the multinational corporations, money laundering); the materials published by the UNODC, UNDP, UNICRI, FATF, Interpol and Europol; the resolutions by the Human Rights Council.