Illicit financial flows : definitions from international organizations

Definitions from international organizations

As per OECD, Illicit Financial Flows (IFFs) are defined as : « all cross-border financial transfers which contravene national or international laws ».

Alexandre PAMART, Compliance Specialist, PhD program at CEDS Paris

All rights belong to the author, Alexandre PAMART and Institut Talleyrand.

This article is part of the ongoing thesis prepared at CEDS by the author.

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Increased illicit flows are the consequences of the growing globalization occuring over last decades. Criminal organizations target to extend the illicit markets, optimize the supply chain and buy at lower cost, while managing risks (seizures of illicit products, arrests of staff, or loss of proceeds from the sales). Illicit flows could generally refer to persons, wildlife, merchandises (drugs, gold, arms) or financial value (money, real assets, virtual assets…).

The International Monetary Fund (IMF) defined illicit financial flows, (IFFs), on its website : « Illicit financial flows refer to the movement of money across borders that is illegal in its source (e.g. corruption, smuggling), its transfer (e.g. tax evasion), or its use (e.g. terrorist financing) » (1). Additional damages generated by these financial flows are enumerated : « They divert resources from public spending and can cut into the capital available for private investment. Illegal flows also can encourage further criminal activity, undermine the rule of law, erode trust in public institutions, and threaten a country’s political stability. »

This definition lists several features and consequences to apprehend an extremely complex international phenomenon. Other definitions are worth scrutinizing to complete the first attempt to grasp the risks arising from IFFs.

As an example, OECD defines IFFs as follows : « 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 » (2).

A third definition is the one of the United Nations Office on Drugs and Crime (UNODC). It provides further insight into challenges of IFFs : « The importance of the reduction of illicit financial flows (IFFs) as a priority area to build peaceful societies around the world has been recognized in the 2030 Agenda for Sustainable Development. The Sustainable Development Goal (SDG) target 16.4. calls for “[b]y 2030, significantly reduce illicit financial flows and arms flows, strengthen the recovery and return of stolen assets and combat all forms of organised crime”. Progress towards SDG target 16.4 is measured by indicator 16.4.1. “Total value of inward and outward IFFs in current United States dollars » (3).

To compare at a glance the keywords and approaches of the three international organizations, a table is displayed below.

Alexandre PAMART, Compliance Specialist, PhD program at CEDS Paris

All rights belong to the author, Alexandre PAMART and Institut Talleyrand.

This article is part of the ongoing thesis prepared at CEDS by the author.

INSTITUT TALLEYRAND - TOUS DROITS RÉSERVÉS

Sources

(1) IMF webiste, The IMF and the fight against illicit financial flows

(2) OECD website, Illicit Financial Flows

(3) UNODC website

(4) European Commission, Global Illicit Flows Programme, (https://illicitflows.eu/programme) and the booklet https://illicitflows.eu/global-illicit-flows-programme-the-booklet-updated/

(20) Tracfin, l’activité de Tracfin Bilan 2022

(21) www.economie.gouv.fr, Tracfin, https://www.economie.gouv.fr/tracfin