Combating illicit financial flows worldwide

Project description

Title: Combating illicit financial flows, project within the fund for cross-cutting political cooperation
Commissioned by: German Federal Ministry for Economic Cooperation and Development (BMZ)
Country: Global
Overall term: 2015 to 2019

Context

The international commitment to sustainable development is being increasingly undermined by illicit financial flows (IFF). Financial flows are said to be illicit if their origin, purpose or transfer is unlawful. This includes revenues from organised crime, tax evasion, fraud in international trade, money laundering and corruption.
It is estimated that developing countries lose up to USD 1 billion every year through illicit financial flows. This is seven times more than they receive in official development assistance. The impact on developing countries and emerging economies is devastating:
The illegal outflow deprives the countries concerned of important revenue, such as income from taxes or customs duties. The funds are lacking for urgently needed investments in health, education and other public services. Criminal activities associated with illicit financial flows, such as human trafficking and illegal trade in drugs, destabilise countries and regions. Bribery and corruption also weaken public confidence in government and law enforcement. Countries which do not meet international anti-money laundering standards continue to face sanctions which restrict their access to the capital market. This has a negative impact on the investment and employment climate. In addition, wealthy individuals and companies are usually the only ones to benefit from complex tax avoidance strategies and corruption, a factor which further exacerbates social inequality. Combating illicit financial flows is therefore essential in the fight to help developing countries and emerging economies to mobilise own-source revenues, become more secure and grow their economies.

Objective

There has been an improvement in the conditions required across sectors, countries and regions to combat illicit financial flows to and from developing countries and emerging economies.

Combating illicit financial flows helps developing and emerging economies to mobilise their revenues, become safer and grow their economy.

Approach

The project links initiatives and key players at global and regional level in Africa, Latin America and the Western Balkans and in selected partner countries in these regions. In collaboration with regional networks, the project encourages the sharing of information and best practice within and between the regions.
The project operates in three fields of action:

  1. Prevention: The project supports the development of coherent strategies to prevent illicit financial flows in partner countries, both at regional and international level. Global anti-money laundering and transparency standards are being introduced nationally, with measures including registers indicating the true economic owners of companies.
  2. Financial investigation: The project advises the relevant authorities in partner countries on new methods and ways of investigating illicit financial flows. National financial investigation units, anti-corruption authorities, public prosecution departments and tax fraud investigation authorities are key partners. Effective cooperation is encouraged between the authorities at national, regional and international level.
  3. Asset recovery: The project assists with the recovery of assets stolen in developing countries and emerging economies. Regional networks strengthen the cooperation between law enforcement agencies and other authorities. Policy-makers and law enforcement agencies are developing solutions in the field of mutual legal assistance at international events.

Additionally, the project will also facilitate a six-month dialogue between the Federal Ministry for Economic Cooperation and Development (BMZ) and other German government ministries on joint strategic coordination. This dialogue will see BMZ cooperating with the Federal Ministry of Finance (BMF), the Federal Ministry of the Interior, Building and Community (BMI), the Federal Ministry of Justice and Consumer Protection (BMJV), the Federal Ministry for Economic Affairs and Energy (BMWi), the Federal Foreign Office (AA) and the Federal Ministry of Food and Agriculture (BMEL). The project also works with civil society and international organisations like the OECD and the World Bank.

Results

The project has achieved considerable success at international level in the priority regions of Africa, Latin America and the Western Balkans, as well as at national level in Kenya, Peru and selected countries in the Western Balkans.

Africa/Kenya: In Kenya, the project has facilitated the introduction of multi-agency teams (MAT) of investigators. The new form of cooperation has prompted the authorities to exchange information more quickly. As a result, the Kenyan anti-corruption authority increased its conviction rate by more than 50 per cent from 2016 to 2017 and recovered KES 500 million. Kenya has rolled out the successful approach through the Asset Recovery Inter-Agency Network for Eastern Africa (ARIN-EA). Consequently, several member countries in the network have decided to introduce MATs as well.

Latin America/Peru: The project has facilitated money laundering risk analyses in the mining, fisheries, timber and financial sectors in Peru. The analyses were used in the preparation of a coherent national plan to combat money laundering. Peru shared its methodology and results within the regional organisation of the Financial Action Task Force of Latin America (GAFILAT) so that other member countries could also benefit from the experience.

Western Balkans: The project has conducted in-service training courses in the Western Balkans in order to advance financial investigation and asset recovery and to improve national and regional cooperation between the authorities. Innovative investigation methods have been introduced. The project procured sniffer dogs specialising in the detection of cash, for example, and trained law enforcement authorities in the handling of the animals in order to combat the regional problem of cash smuggling.

At international level, the project has prompted more effective cooperation between Africa and Europe in the field of asset recovery. Policy-makers and law enforcement authorities attended a consultation event organised by the project where they discussed specific cases, identified challenges in the area of mutual legal assistance and worked out joint solutions.