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Improving coherence in the illicit financial flows agenda

The illicit financial flows (IFF) agenda has momentum, but weaknesses remain in its foundations, with the definition, measurement, and estimation of IFF, especially as these apply to country level studies. Addressing these weaknesses must include recognition of corruption’s role in facilitating IFF generally. Donors should focus on promoting country studies of IFF and broader anti-corruption policies in order to have the greatest impact on curbing IFF.

26 November 2018
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Main points

  • Problems with the typical definitions of IFF affect efforts to identify IFF, estimate their value, determine their drivers, prioritise focus, and establish the effectiveness of anti-IFF measures at various levels.
  • Existing definitions of IFF, often designed for a global context, have proven hard to relate to the IFF problems seen in individual countries.
  • The methodologies researchers have used to make estimates of IFF within specific countries have also proven problematic. Using full balance of payments or ‘mirror’ trade mismatches often fails to capture IFF, including most originating from government corruption, criminal activities, and illegal corporate activity.
  • There are reasons to question the underlying assumption of the prominence of misinvoicing among IFF within standard estimate methodologies.
  • Attempts to address definitional questions must account for the role of corruption not only in generating some IFF, but also in enabling and facilitating IFF generally. As greater understanding of IFF at the country level emerges, anti-corruption policies will prove very important in curbing IFF.
  • Researchers, policy makers, and donors should not rely on past (flawed) IFF estimates and should focus on in-depth, in-country research across the full range of IFF-related activities. This research will inform country-level anti-corruption and anti-IFF policies.
  • Researchers, policy makers, and donors should also recognise that corruption is a fundamental hurdle to implementing anti-IFF measures at country level. Accordingly, they should prioritise those factors that are preconditions for succeeding in curbing IFF if there is enough popular and powerful support. If there is not, they should support collective action initiatives to reshape social norms and expectations.

Cite this publication


Erskine, A.; Eriksson, F.; (2018) Improving coherence in the illicit financial flows agenda. Bergen: U4 Anti-Corruption Resource Centre, Chr. Michelsen Institute (U4 Issue 2018:8)

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About the authors

Alex Erskine

Alex Erskine undertakes research through Erskinomics Consulting Pty Ltd and is an affiliated expert of the Australian Centre for Financial Studies. He was international project manager for a 2014 – 2016 Tanzania country study of illicit financial flows by the Government of Norway and has been a consultant to the United Nations Office on Drugs and Crime on on illicit financial flows. He draws on a four-decade public- and private-sector career as an economist and strategist.

Fredrik Eriksson

Fredrik Eriksson is a lawyer with extensive experience from private sector research, policy analysis, evaluations, strategy development, and consultancy work — mostly on anti-corruption and governance issues. His experiences span the public, private and voluntary sectors across a wide range of countries. Between 2009–2011, he worked on the implementation of the Norwegian government’s illicit financial flows policy in development. He is a former Senior Adviser at U4 Anti-Corruption Resource Centre, and was involved in developing U4 TRIAL – the anti-corruption innovation lab, and research on corporate actors in anti-corruption.

Disclaimer


All views in this text are the author(s)’, and may differ from the U4 partner agencies’ policies.

This work is licenced under a Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International licence (CC BY-NC-ND 4.0)

Keywords


illicit financial flows, trade, corruption, grand corruption