Illicit Financial Flows Research Articles

Tax governance: how the EU supports third countries

Abstract This paper aims to provide an analysis of the legislative framework that regulates the inclusion of clauses on good governance in tax matters, in the agreements concluded between the European Union, with its Member States, and third countries. We provide a representation of the regulatory pathway from a set of standards on tax good governance according to the principles of transparency, exchange of information and fair tax competition towards a common EU external strategy for effective taxation. Agreements that the European Union has either in place or negotiating with countries and regions around the world are an excellent tool in fighting unfair trade practices and promoting international standards on good governance in the tax area, and set the basis for a fair competition in the economy of developing countries: a strong tax administration and institutions responsible for fighting illicit financial flows in developing countries can contribute to erase poverty and inequalities while promoting good governance and state-building.

Development and Economy in Mongolia through a Human Rights Law Lens

Abstract This article studies the Mongolian economic and development policies implemented in recent years until March 2020, including its revenue matrix sustainability, from an international human rights law perspective. Policy and legal recommendations for discussion are also presented. Based on a United Nations mission the author conducted to Mongolia in 2019, this country study examines the macroeconomic policies, including debt issues, from a human rights perspective; the extent to which mineral rents are translated into inclusive and comprehensive social and environmental policies, focusing on the mining project Oyu Tolgoi; the impact of illicit financial flows on human rights; and the effects of lending for infrastructure and mining projects and other foreign direct investments. The study concludes that economic diversification and conducting effective gender-sensitive, participatory human rights and environmental impact assessments of economic reforms and mining and infrastructure projects are the main challenges Mongolia faces.

Orphan Imports and Lost Exports in India’s Trade: A Quantitative Assessment of the Significance and Implications for Illicit Financial Flows


 
 
 Orphan imports and lost exports refer to import and export transactions that have been reported by only one of the two trading partners.They are excluded from computations of trade mis-invoicing based on comparing partner country trade statistics. We show that India’s trade with 19 trading partners over 2000-2018 not only indicates substantial trade mis-invoicing but alsosignificant orphan and lost trade in the commodities displaying mis- invoicing. We also show that the amounts involved show an uptrend and are more pronounced in imports, with the orphan imports recorded by India being more than 15 times the orphan imports recorded by partner countries. Therefore, any conclusion on illicit flows through mis-invoicing in these commodities will be incomplete without analysing the impact of orphan and lost trade. We analyse some possible causes and discuss specific commodity-level examples to demonstrate that orphan and lost trade could not only lead to re-adjustment of computed amounts of trade mis-invoicing but, in the worst scenario, indicate serious fraud, with important implications for illicit flows. The paper’s finding that only a few commodities account for bulk of the amounts in orphan and lost trade could facilitate better analysis and mitigation measures.
 
 

Effect of quality of governance on the relationship between illicit financial flows and economic growth

PurposeThe purpose of this paper is twofold. First, the study aims to examine the direct effect of illicit financial flows (IFF) and quality of governance (QoG) on economic growth. Second, this study seeks to examine the moderating effect of QoG on the economic consequences of IFF.Design/methodology/approachThis study collected data from nine The Association of Southeast Asian Nations (ASEAN) countries for the period of 10 years from 2008 to 2019. The study concerned an analysis of the testing of a conceptual framework which based on secondary data which may lack a comprehensive substantiation on the grounds of measurement theory. A partial least squares (PLS) modelling using the SmartPLS 3.2.8 version was used as a statistical tool to examine the measurement and structural model.FindingsKey findings provide empirical support on the effect of IFF and QoG on economic growth. It also confirmed that QoG significantly moderated the relationship between IFF and economic growth by reducing the negative impact of IFF on economic growth.Practical implicationsImmediate corrective action needs to be implemented by policymakers of ASEAN countries to strengthen QoG to effectively curb IFF activities.Originality/valueThis study provides current empirical evidence on the relationship of IFF, QoG and economic growth within ASEAN countries.

Currency depreciations in emerging economies: A blessing or a curse for external debt management?

We investigate the long-term effect of domestic currency depreciation on external debt for a panel of 41 emerging economies over the years 1999–2019 based on quarterly data. Using heterogeneous panel cointegration methods, we find that domestic currency depreciation leads to an increase in the external debt to GDP ratio over the long-term and it might, therefore, reduce the sustainability of external debt. This is particularly the case for larger depreciations, while smaller depreciations might even reduce the external debt burden over the long-term for more developed emerging economies. Poorer emerging economies face a greater increase in external debt burden following domestic currency depreciation. We also find that higher exchange rate volatility and the use of floating exchange rates contribute to a greater increase in external debt burden over the long-term following currency depreciation. Furthermore, we find asymmetric effects of exchange rate depreciation on external debt: greater central bank independence limits the effect of currency depreciation on external debt, while higher financial development and illicit financial flows augment the effect of depreciation on external debt.

Cash economy, criminality and cash regulation in Ethiopia

PurposeThis paper aims to examine the contribution of Ethiopia’s cash economy to financial crimes. It also investigates the regulation of cash in the context of controlling crime stemming from the cash economy.Design/methodology/approachThis study relies on primary data generated from 20 interviewees drawn from the National Bank of Ethiopia, Ethiopian Financial Intelligence Center, selected commercial banks and law enforcement agencies and document review from government reports, media press and statutes, as well as secondary data from online and offline sources.FindingsThe cash-intensive nature of Ethiopia’s economy has enabled a significant amount of cash to circulate outside of the formal financial system. This money is partly to blame for the prevalence of criminal activities such as cash hoarding, corruption and illicit financial flows. To address the threat of crime posed by the cash economy, the Ethiopian Government has taken measures such as restricting cash withdrawals from financial institutions, limiting the amount of cash individuals can hold and demonetizing the banknotes. The measures enable the banks to collect the cash circulating outside of the formal financial sector. However, the effect of these measures on reducing future criminality remains uncertain. Improving the financial inclusivity of the country, specifically expanding basic financial products to the rural areas, digitalizing the country’s payment system, raising general financial awareness and establishing a strong financial consumer protection framework would play a critical role in reducing future criminality and transforming the cash-intensive into a cashless economy.Originality/valueThis paper provides a first-of-its-kind analytical perspective on the contribution of Ethiopia’s cash economy to criminal activity and the adequacy of countermeasures so far taken.

5 - Illicit Capital Flows and Money Laundering in Botswana: An Institutional Economic Analysis

Despite the success story of Botswana’s economy, the country is among other southern African countries that are highly prone to money laundering and illicit financial flows. Botswana has been regarded as one of the global conduits for illicit economic activities. Approximately US$ 1.1 billion and US$ 1.2 billion illicit financial flows were recorded in 2004 and 2013 respectively. However, there is a dearth of literature on the illicit financial flows in Botswana that takes into account the peculiar institutions, transactions and markets in Botswana. This study therefore aims to contribute to the body of literature by using document analysis and an institutional approach to analyse illicit financial flows in Botswana. The results show that over the years, tremendous efforts have been made to respond to money laundering and related offences. However, some deficiencies still remain. It is essential for financial institutions to carry out remedial exercises in their customer due diligence data in order for them to have useful profiles for risk management purposes. Furthermore, inter-agency co-operation and co-ordination should be enhanced and promoted in order to combat illicit capital flows and money laundering.
 Patricia K. Mogomotsi, Associate Professor (Natural Resources Economics), Okavango Research Institute, University of Botswana. Email: finkymadigele@gmail.com; pmadigele@ub.ac.bw
 Goemeone E.J. Mogomotsi, Senior Research Fellow (Environmental Law & Policy), Okavango Research Institute, University of Botswana.
 Wame L. Hambira, Senior Research Fellow (Climate Change Adaptation Economics), Okavango Research Institute, University of Botswana.

Conference on Illicit Financial Flows

Conference on Illicit Financial Flows

The dark side of tax havens in money laundering, capital flight and corruption in developing countries: some evidence from Nigeria

PurposeThis paper aims to assess the role of secrecy jurisdictions in providing supply-side stimulants for illicit financial flows from developing countries and how the tax havens structures shape the role of actors. Specifically focussing on decades of trade liberalisation and markets, and of increasingly rapid movement of people, capital and information across regions and around the globe, the paper draws on the political economy theory of globalisation to illuminate the connections between capital flight, money laundering and global offshore financial centres (OFCs).Design/methodology/approachThe paper uses publicly available evidence to shed light on the role played by tax havens in facilitating money laundering, capital flight and corruption. The issues are illustrated with the aid of case studies.FindingsThe evidence shows that, in pursuit of organisational and personal interest, the tax havens create enabling structures that support illicit activities of the political and economic elites from developing countries. The paper further argues that the supply-side of corruption severely limits the possibilities of preventing corruption in developing countries.Research limitations/implicationsThe paper uses publicly available evidence to illuminate the role played by OFCs in facilitating elite corruption and money laundering practices.Practical implicationsIt is impossible to quantify the volume of money laundered, but it has been estimated that money laundering may account for as much as 5% of the world economy.Social implicationsThe paper, therefore, suggests that unless this supply-side of corruption is tackled there is little prospect for an end to aid dependency and the creation of economically stable and democratic states in developing countries.Originality/valueThe paper examines predatory practices of the international financial industry in tax havens and OFCs in facilitating money laundering, corruption and capital flight and the challenges posed for the economic development of developing countries.

Implications of Illicit Financial Flows on Zimbabwe's Development

Illicit Financial Flows (IFFs) is a major challenge to Zimbabwe's development. They have a direct impact on the country’s stability to raise, retain and mobilize its own resources to finance sustainable economic development. The study finds that Zimbabwe lost over US$32.179 billion during the period 2000 to 2020. The study relies on normative and legal arguments to justify the effects of illicit financial flows. The problems with IFFs are that they are not only illicit but that their effect spreads far beyond their immediate area of occurrence. Zimbabwe has suffered irreparable damage because of illicit financial flows. IFFs are mainly driven by the desire to hide wealth and to evade taxes; perpetrators clearly do not respect the obligations of citizenship. Financial flows are crucial for poor countries and have played an important role in Zimbabwe. Since not all financial flows are good for development, the integration of poor countries into the global financial system poses opportunities as well as risks.

Natural Resources and Illicit Financial Flows from BRICS Countries

Natural Resources and Illicit Financial Flows from BRICS Countries

Who are our owners? Exploring the ownership links of businesses to identify illicit financial flows

This article investigates the patterns of business ownership in Europe, using a unique dataset on the nationality of 28.7 million shareholders of companies registered in 41 European countries. By means of an exploratory multivariate analysis, it tests whether ownership links between different countries are driven exclusively by social and macroeconomic variables – such as trade or geographical or cultural proximity – or are also related to measures of financial secrecy, corruption and lack of compliance with anti-money laundering regulations. The results indicate that factors other than licit economic incentives explain the international ownership structure of European companies. European firms have an abnormal number (that is, above the predicted value) of owners from tax havens and countries with poor financial transparency, which may suggest the use of holding companies for money laundering and tax evasion and to conceal illicit financial flows. However, ceteris paribus, the number of owners is abnormal in countries where rule of law and the control of corruption are more effective, suggesting that a high level of corruption may be a cost in money laundering activities. The findings contribute to the current international debate on illicit financial flows – as framed by United Nations Sustainable Development Goal 16.4 – and can be used by public agencies and private actors to detect anomalies in business ownership and prevent potential financial crime schemes at corporate level.

La mobilisation des ressources fiscales en Afrique subsaharienne: quel rôle des flux financiers illicites?

L'objectif de cet article est d'analyser la contribution des flux financiers illicites aux écarts de taux de pression fiscale en Afrique subsaharienne. Notre échantillon est constitué à la fois de 18 pays coopératifs et de 12 pays non coopératifs en matière de lutte contre le blanchiment des capitaux et le financement du terrorisme. L'utilisation de la décomposition d'Oaxaca-Blinder, montre que la différence en termes de flux financiers illicites explique les écarts de pression fiscale.

Presenting a new atlas of illicit financial flows from trade misinvoicing

Presenting a new atlas of illicit financial flows from trade misinvoicing

The effect of illicit financial flows on government revenues in the West African Economic and Monetary Union countries

This is a study of the effect of illicit financial flows on government revenues in the West African Economic and Monetary Union countries. The study uses data from 8 countries and covering the 1996...

Global Illicit Financial Flows: Where does Dirty Money from Developing Countries become legal?

The study determines most favorite destinations for money laundering preferred by wrong doers from 25 developing nations selected on the basis of highest illegal financial fund outflows from 2004 to 2014, a report published by Global Financial Integrity (GFI) in 2015. Firstly, it has been discussed that how money laundering activities are shackling the economic and financial stability in a country by distorting and damaging different sectors of economy as well as financial sector. Walker's Gravity Model has used to determine the most preferred destinations for money laundering. Research indicates that most developed and stable economies with lax controls are preferred by criminals. Robustness has been checked through triangulation method. It is recommended that uniform controls at global level are essential to eliminate havens and the need of international body which shall be responsible for policy making and enforcement of strong regulations is also highlighted.

Global financial changes and results in Latin America: à la carte selection of regulation

His article analyzes the implementation of the Basel II, II.5 and III rules in Latin American countries by means of specific banking regulations and finds that because the rules were not fully implemented, banks were then able to use some of the principles that give them room for regulatory arbitrage and facilitate illicit financial flows (IFFs). The Basel banking norms supposed that regulatory capital would be a minimum of 10.5%, but equity to asset ratios computed for big banks fell by 0.8% between 2005 and 2015 and provisions for loan losses on assets increased 0.6% in the same period. The on-demand implementation of these standards puts the region at the mercy of an underground globalization that favors IFFs.

Trust Africa Conference on Illicit Financial Flows

Africa Research Bulletin: Economic, Financial and Technical SeriesVolume 57, Issue 10 p. 23196B-23196C Policy and Practice Trust Africa Conference on Illicit Financial Flows First published: 08 December 2020 https://doi.org/10.1111/j.1467-6346.2020.09776.xRead the full textAboutPDF ToolsRequest permissionExport citationAdd to favoritesTrack citation ShareShare Give accessShare full text accessShare full-text accessPlease review our Terms and Conditions of Use and check box below to share full-text version of article.I have read and accept the Wiley Online Library Terms and Conditions of UseShareable LinkUse the link below to share a full-text version of this article with your friends and colleagues. Learn more.Copy URL Share a linkShare onEmailFacebookTwitterLinked InRedditWechat No abstract is available for this article. Volume57, Issue10December 2020Pages 23196B-23196C RelatedInformation

The effects of illicit financial flows on oil and gas revenue generation in Nigeria

Purpose The purpose of this study is to determine the extent illicit flows affect the oil and gas revenue generation in Nigeria specifically the activities concerning oil theft. Design/methodology/approach A qualitative approach using a systematic quantitative assessment technique was used to select peer-reviewed articles and reports that discussed crude oil theft in Nigeria. This was followed by the use of empirical evidence and content analysis. Findings Crude oil theft in Nigeria accounts for 10% of illicit financial flows (IFFs) from Africa annually and this amounts to US$6bn annually. Research limitations/implications Oil theft is a new subject area of public policy and academic research; data, secondary literature and peer-reviewed journal articles are limited. This paper was from the public sector perspective only. Originality/value This study is one of the few works to highlight the connection between crude oil theft and IFFs.

Aid, Governance and Public Finance Fraud: Evidence from Angola

This article examines the process of public finance fraud leading to unjust enrichment of ruling elites in Angola, a resource-rich, yet ironically povertytrapped country, owing to decades of rule of José Eduardo dos Santos. It analyses the phenomenon of political corruption in the Angolan context, translating into mismanagement of public revenues coming from natural resources as a means of attaining private economic benefits and consolidating power. Moreover, by examining cross-border inter-company networks aimed at concealing public assets behind front companies, the author attempts to establish a connection between corruption and illicit financial flows. Ultimately, since political corruption is intrinsically linked to governance, the article looks at the impact of the latter on social development as well as on the effectiveness of development aid granted to Angola. It was written based on secondary resources including existing literature and material evidence. Its findings and conclusions correspond with the overall theory postulated by the academic community, maintaining that natural resources and aid have negative impact on governance, institutional accountability, and in consequence on human development, especially in countries characterised by despotic rule.