Illicit financial flows are a major enemy in our fight against poverty. The diversion of money from development priorities such as health and education is bad enough, in itself. But equally damaging are the activities that enable these outflows.
Illicit financial flows are covering a wide range: from undeclared profits from multinational companies; the proceeds of corruption and bribes; to the earnings of traffickers of drugs, weapon, and people.
These activities erode the rule of law and perpetuate impunity for the powerful. This is why addressing – and stopping - illicit financial flows is not a choice but a necessity for every economy, large or small. It means going to the heart of the issue.
The goal of combatting illicit financial flows it to help countries mobilize domestic resources to finance their development goals.
Illicit financial flows are a symptom of broader issues – of how governments mobilize, manage and allocate their resources; of how the private and financial sector behave; of how the international financial system is regulated.
This is an agenda where we need developed and developing countries, the private sector, and civil society to come together.
Once we understand the root causes of illicit flows at the country level – and once we recognize how corruption, crime, and tax evasion reinforce each other – we can then mobilize the tools to address them.
Tax evasion but also dubious financial transactions are often rooted in a country’s legal, economic, and financial system.
This is why we at the World Bank Group are working with our client countries to strengthen these systems.
We do this in two ways:
First, we focus on the concrete measures that countries can take to “shut off the tap.” This requires mobilizing and improving the analytical tools to understand illicit transactions and associated illicit flows, including how illegal assets exit the country.
We already have several of these diagnostic tools and are doing more to incorporate so called “soft issues” such as political economy or sociological dynamics.
The combination of our long-standing country engagement and our global expertise on issues including taxation, governance, natural resource management, anti-money-laundering, and asset-recovery offer our clients customized programs to build their capacity to address illicit financial flows.
Our recent work on Tunisia, through “All in the Family” and “The Unfinished Revolution,” illustrates the importance of such analytical work, which helps frame each country’s agenda for action.
In addition, the World Bank is also partnering with the IMF in a Joint Initiative to strengthen support for taxation with two key components: development of an innovative tax policy assessment framework; and increasing the voice of developing countries in the global discussion on international tax issues.
Second, we are focusing on connecting national and global actions. International cooperation – and the commitment by all countries to eliminate safe havens for dirty assets – is essential. For instance, we support developing countries in combatting transfer mispricing (15 countries to date) and in enhancing their ability to exchange information with other countries for tax purposes (6 countries). In the context of asset recovery, the StAR initiative facilitates international cooperation on actual asset recovery cases.
Public expectations are high, and need to be managed. We need to take practical steps. Designing and implementing successful programs will take time, political will, resources and the mobilization of the best expertise of the international community. We very much look forward to working with others, including our bilateral and multilateral development partners.
And we also need to create an “enabling environment” that inspires governments, private-sector firms, financial institutions and civil society to do their utmost to eliminate illicit transactions.