Illicit financial flows (IFFs) strip countries of important resources. They stem from corruption, crime, terrorism, and tax evasion, and use channels ranging in sophistication from cash smuggling and remittance transfers to trade finance and shell companies. The cross-cutting nature of IFFs requires policy makers and other stakeholders to have a more strategic overview of IFFs. They need to assess the potential trade-offs and synergies in an inter-disciplinary manner, better inform policy making upstream, and help governments to take more effective action. This module aims to address this challenge by providing a simplified framework and self-screening tool for countries to help them plan for, avoid, and resolve the most significant trade-offs or policy inconsistencies and apply existing international standards in a coherent and effective way.
See below for the Screening Checklist.
For more information, consult the complete Toolkit and the Annotations for the illicit financial flows module.
1. Identify and raise awareness of the types, magnitudes and risks of illicit financial flows
An important step in the process of addressing illicit financial flows (IFFs), governments and other relevant actors need to build an evidence-base to guide further action. It is crucial to map the territory and to identify the types of IFFs, quantify their magnitudes, and assess the threat they pose.
- What evidence does the government have on the types and levels of IFFs in the country? Is there a formal national risk assessment?
- What indicators are used for assessing the scale and impact of IFFs in the country (e.g. estimates of tax gaps or the black economy)?
- What is the perceived or assessed level of priority given to IFFs? Is it commensurate to the risk?
- Is the government prioritizing both the domestic and foreign sources of IFFs?
2. Consider the contextual factors that allow illicit financial flows to thrive
Contextual factors can be divided into enabling environments (enablers) which have a positive impact on sustainable development outcomes, and systemic conditions (disablers) which have a negative impact on sustainable development outcomes. The role of policies is to strengthen enabling environments and to remove or minimise the effect of systemic conditions.
- What non-policy drivers contribute to making a friendly or a hostile environment for IFFs and how so?
3. Support coherence within and between national and international normative frameworks (vertical coherence)
To strengthen vertical coherence it is necessary to: align national efforts with international initiatives and standards and strengthen international co-operation; ensure political commitment and leadership at the highest level to mobilise both state and non-state actors, and; enhance national inter-agency co-ordination mechanisms to strengthen co-operation to combat IFFs.
Compliance with international norms:
- Which of the international standards and bodies is the country a party to?
- What is the country’s assessed level of compliance? What is their assessed level of effectiveness?
- Are there action plans to improve the level of compliance and implementation?
- What is the level of international co-operation (as set out in the UN conventions and other standards)?
- Does development co-operation help to counter IFFs?
- Do national supervisors have influence over financial institutions’ measures against IFFs? Or are the implementing group policies overseen by foreign supervisors?
- Is there a national strategy(ies) which includes measures to combat IFFs?
- Are resources made available through the budget (or off budget through donors and donor requests) commensurate to risk?
- Are IFFs considered as separate issues (e.g. as corruption, money laundering, tax evasion etc.) or in a comprehensive manner?
- Who are the actors?
- Who has overall responsibility for IFFs within government?
- Which sectors and actors outside government are required to implement measures to combat IFFs?
- Which other actors are affected by IFFs and measures to combat them?
- Are there any consultative bodies where policymakers can discuss IFFs and policies to combat them with non-government actors?
Co-ordination and policy making:
- Which government actors are involved in implementing measures to combat IFFs?
- Is there an inter-agency coordination mechanism?
- Are there agreements or memoranda in place to allow information sharing between different operational authorities?
- Does the government allow for/encourage case-focussed collaboration projects?
- Are there other (formal and informal) mechanisms to improve awareness and understanding, or to encourage cooperation, between the different agencies involved in combating IFFs?
Making use of evidence and effective implementation:
- Do policy-makers receive and make use of:
- Data and statistics on the implementation and effect of measures to combat IFFs?
- Indicators of changes or trends in the sources, methods, and risks of IFFs?
- Feedback from operational agencies on the implementation of policies to counter IFFs?
- Feedback from non-government actors on the impact of preventive measures and controls?
- Are there periodic reporting or accountability mechanisms on the impact of measures to combat IFFs (e.g. annual reports to parliament)?
- Is there sufficient capacity to assess new evidence or developments and to amend or reform policies in response?
4. Consider critical interactions across economic, social and environmental areas (horizontal coherence)
The Sustainable Development Goals (SDGs) are indivisible in nature. This implies that in order to make progress on IFFs, policy makers will need to consider inter-linkages and critical interactions between target 16.4 and all other goals.
Rooting the response to IFFs in the SDGs:
- Is the government framing its approach to IFFs in the context of the SDGs, particularly target 16.4 ?
- Does the government take into account the interactions between different SDG goals and targets bearing on IFFs?
- Does the government’s (political) interests and priorities align with specific goals and/or targets, and is there coherence between them?
5. Promote synergies and identify potential trade-offs across different sectors to combat illicit financial flows
As IFFs cut across traditional policy sectors, the responses will inevitably interact with other policies and at times even interfere with their specific policy objectives.
- How well are counter-IFF measures implemented within the criminal justice system? Is there adequate capacity to investigate and prosecute for offences related to IFFs and their predicate crimes?
- How are counter-IFF obligations on the financial sector and other regulated businesses supervised?
- What measures are used to promote integrity and prevent corruption in government and public administration?
- What controls and transparency measures are applied to the formation of legal persons and arrangements?
Trade-offs and conflicts:
- What proportion of the population uses the formal financial sector? What proportion relies on the informal sector for access to financial services? Does the government have policies to promote financial inclusion? Are these taken into account in IFF policies?
- Do remittance providers and NPOs have adequate access to banking services?
- How do data protection laws interact with anti-IFF measures or transparency requirements? Is there consultation between data protection authorities and anti-IFF authorities?
- Is there a formal voluntary tax compliance programme? If so, what controls are applied to prevent it being misused?
- Do the preventive measures required of financial institutions and other private sector firms reflect their role and risk?