Measuring and Curbing Illicit Financial Flows

IFFs affect many countries across the globe as a source, transit or destination country. By eroding the tax base and discouraging public and private investment, IFFs obstruct efforts towards inclusive and resilient recovery, structural transformation of economies and efficiency of green policies. It is therefore paramount to quantify and analyse IFFs from various sources, and design and implement policies within integrated national financing frameworks for sustainable development.

In July 2017, the United Nations General Assembly adopted the indicator framework for the monitoring of progress towards SDGs, with indicator 16.4.1 on the “total value of inward and outward illicit financial flows” selected as one of two indicators to measure progress towards target 16.4 to “significantly reduce illicit financial (and arms) flows by 2030, strengthen the recovery and return of stolen assets and combat all forms of organized crime”. As co-custodians of SDG Indicator 16.4.1, UNCTAD and UNODC are mandated to collect data and provide methodological guidance on how to measure such Indicator.

The two agencies published in October 2020 the Conceptual Framework for the Statistical Measurement of Illicit Financial Flows, which constitutes a cornerstone in the measurement of IFFs with a first globally agreed definition and conceptual classification of IFFs. The Framework has been endorsed by the UN Statistical Commission in March 2022. UNCTAD published in 2021 Methodological Guidelines to measure tax and commercial Illicit Financial Flows for pilot testing, while UNODC has developed and continues to enhance methods to address IFFs from criminal activities, such as smuggling of migrants, drugs trafficking, illegal mining, wildlife trafficking, and corruption. These concepts and methodological guidelines have been put to a test by twelve countries in Africa, six in Asia and earlier, four countries in Latin America. The methodologies are being refined, and further work is needed to aggregate estimates of different IFFs into one SDG indicator.

Preliminary results of pilot testing activities and lessons learned from the project in Africa, Asia and Latin America confirm the feasibility of the IFF measurement. This project builds on lessons learned from previous work by following the verified process in setting up the process to compile IFF statistics; it further directly builds on capacities of pioneering countries already strengthened in previous projects by addressing issues relating to enhancing data sources, applying different, complementary methods, and expanding their measurement work to several categories of IFFs; and aggregating various estimates into a single value for reporting on SDG indicator 16.4.1, something that has not been attempted by any country up to date.

Objective

To strengthen the capacity of developing countries across regions to produce standardized estimates of illicit financial flows and enhance investigative and analytical capacities to develop evidence -based policy responses to monitor and curb illicit financial flows.

Link to SDGs

Primary targets:

Target 16.4: by 2030, significantly reduce illicit financial and arms flows, strengthen the recovery and return of stolen assets and combat all forms of organized crime.
Target 16.5: Substantially reduce corruption and bribery in all their forms.
Target 16.6: Develop effective, accountable and transparent institutions at all levels.
Target 15.c: Combating poaching and trafficking of protected species, including by increasing the capacity of local communities to pursue sustainable livelihood opportunities.
Target 15.7: Take urgent action to end poaching and trafficking of protected species of flora and fauna and address both demand and supply of illegal wildlife products.

Secondary SDG targets include: 10.5, 1b, 17.19 and 17.8.

Planned activities

This project aims to strengthen the statistical capacity of selected countries across regions to measure IFFs, while increasing awareness of the globally agreed definitions, concepts, methods and tools in all regions (learn). This includes enhancing knowledge among statisticians on the IFF measurement and raising awareness among policy practitioners on the need to curb IFFs. Second, the project will consolidate methodological guidelines with the aim to produce estimates on IFFs, by gathering and aggregating existing early estimates (where possible) from different IFFs types (tax and commercial, and crime-related IFFs) to allow for the reporting of data on SDG Indicator 16.4.1 (develop). Third, the project will improve the capacity of beneficiary countries to develop evidence-based policy responses to curb IFFs and strengthen domestic resource mobilization (use).