Curbing illicit financial flows from resource-rich developing countries

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Illicit financial flows (IFFs) refer to cross-border financial transfers that contravene national or international laws, including efforts to exploit loopholes or mismatches in tax rules. Curbing IFFs is critical to enable developing countries to expand their tax base and mobilize domestic resources. It is a key element of the development strategies defined in the Financing for Development agenda and the Sustainable Development Goals.

Research partnership between Switzerland, Laos, and Ghana

The interdisciplinary research project on «Curbing illicit financial flows from resource-rich developing countries: Improving Natural Resource Governance to Finance Development» aims at improving knowledge of commodity trade-related IFFs as well as designing and promoting effective ways to address them from a scientific and policy perspective. It combines economic, legal, and political science viewpoints, with a particular focus on issues of trade and transfer mispricing. Implemented within the framework of a South–North research partnership, the project is funded by the Swiss Programme for Research on Global Issues for Development (r4d programme). It includes partners from Switzerland, Laos, and Ghana.

Legal issues

The Centre for Development and Environment (CDE) hosts the project’s legal work package. This work package seeks to identify and address the specific policy incentives and regulatory dynamics that influence commodity trade-related IFFs. It addresses the following research questions:

  • What are the main regulatory issues involved in trade-related IFFs?
  • What are the mechanisms, regulatory approaches, and policy innovations through which commodity trade-related IFFs can be effectively addressed?

The analyses tackle discrete regulatory areas and issues, including:

  • Transparency and exchange of information on tax matters
  • Corporate disclosure requirements
  • Contract transparency
  • Human rights due diligence
  • Customs enforcement and trade transparency
  • International tax competition and harmful tax practices
  • Anti-corruption measures

Particular attention is given to the legal and political frameworks in place in Switzerland, the UK, Laos, Ghana, and internationally. The project’s analyses are contextual and socially embedded, with due regard for the specific institutional, political, and socio-economic conditions present in diverse settings. Finally, the project is practice-oriented, aiming to identify pragmatic regulatory approaches capable of addressing commodity-trade related IFFs in specific contexts.

Key research findings in the UNCTAD flagship report

Key study findings by CDE researchers stemming from this r4d project are highlighted in the UNCTAD "Economic Development in Africa Report 2020". They help to inform and push forward the urgently needed policy dialogue on IFFs and ways of tackling them.

The film about the research project

“Missing Dollars” by Ghanaian filmmaker Fiifi Koomsom delves into the complex and often hidden world of illicit financial flows (IFFs) and their profound impact on developing countries. The video retraces the research collaboration. Through expert interviews, real-world examples and detailed analysis, it explores how IFFs drain vital resources from developing nations, exacerbating poverty, hindering sustainable development and undermining governance and the rule of law. The video sheds light on the mechanisms through which these flows occur, including trade misinvoicing, shell companies and offshore financial centres. It also examines the global efforts to combat IFFs, highlighting the roles of international organisations, governments and civil society in creating effective policies and regulations and the importance of transparency, international cooperation and strong legal frameworks in tackling this global issue.
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