Illicit financial flows are detrimental to sustainable development
Illicit financial flows (IFFs) is a catch-all term for capital flight of money that is illegally earned, transferred or spent, and includes money flows relating to corruption, tax evasion, organized crime, trade mispricing, illegal trade in natural resources, and trafficking of drugs, weapons and humans.
At the forum, Raymond Baker, President of Global Financial Integrity (GFI), and Nena Stoiljkovic, Global Practices Vice President of the World Bank Group (WBG), underscored the detrimental effect of IFFs on development: draining of hard currency reserves, heightened inflation, reduced tax collection, curtailed investment, undermining of free trade, limits on poverty alleviation and complicated security concerns. According to the 2011 World Development Report, "when state institutions do not adequately protect citizens, guard against corruption, or provide access to justice; when markets do not provide job opportunities; or when communities have lost social cohesion-the likelihood of violent conflict increases."
Illicit Financial Flows: Global Initiatives
To reverse the tide, the global community has enhanced its momentum over the past few years. Progress has been made through the work of the Organisation for Economic Co-operation and Development (OECD), G20 and G8, Financial Action Task Force and Global Forum on Transparency and Exchange of Information for Tax Purposes. The Stolen Asset Recovery Initiative (StAR), the partnership between the World Bank Group and United Nations Office on Drugs and Crime (UNODC), assists countries in tracing and recovering stolen assets that have been funneled abroad. The forthcoming report from the High Level Panel on Illicit Financial Flows from Africa, chaired by His Excellency Thabi Mbeki, former president of South Africa, is expected to recommend purposeful and aggressive steps needed to curtail IFFs.
The UN Open Working Group on Sustainable Development Goals has proposed post-2015 targets to "by 2030 significantly reduce illicit financial and arms flows, strengthen recovery and return of stolen assets, and combat all forms of organized crime," as well as "substantially reduce corruption and bribery in all its forms" and "develop effective, accountable and transparent institutions at all levels." At the forum, GFI advocated that the target on IFFs be rephrased to "cut illicit financial flows stemming from trade mis-invoicing by 50 percent in 15 years," creating a measurable and achievable common commitment for developed and developing countries.
The Post-2015 Sustainable Development Goals will require massive mobilization of new investment resources for developing countries, as emphasized at the forum by Dr. Atiur Rahman, Governor of the Central Bank of Bangladesh and Hans Brattskar, State Secretary for International Development from the Norwegian Ministry of Foreign Affairs. Private and public, domestic and international resources will be needed. But given the realities of ODA, developing countries will need to rely mainly on domestic resource mobilization. Brattskar pledged that Norway would use its role as co-chair for the Financing for Development process to put illicit financial flows squarely at the center of the preparations for next year's conference in Addis Ababa.
Currently, only 1% of ODA is used for stimulating domestic resource mobilization. Dr. Rahman suggested that development partners could commit a certain percentage of their ODA for domestic resource mobilization. Both Norway and Denmark have achieved increased resource mobilization in the multiples through partner programs on tax in developing countries.