Illicit financial flows resulting from different sources, such as corruption, organized crime and other profit-driven crimes can deplete a nation's economic resources and pose a threat to its security. Low- and middle-income countries are often disproportionately affected by these devastating effects. However, the threat of illicit activities linked to these financial transactions extends beyond the borders of individual countries. Illicit financial flows pose a significant risk to the integrity of the whole global financial system.
To combat this intricate challenge, it is necessary to adopt sound governance practices, enhance financial regulations, and ensure transparency. By doing so, resources can be effectively allocated and utilized in support of sustainable development while upholding principles of good governance. That is why the international community has pledged to combat illicit financial flows as part of the SDG Target 16.4.
A holistic approach to Fighting Illicit Financial Flows
A successful fight against illicit financial flows requires a holistic approach, including the implementation of the anti-money laundering and countering the financing of terrorism standards developed by the Financial Action Task Force (FATF) and the United Nations Convention against Corruption (UNCAC). However, interdependencies of these globally developed frameworks and the Agenda 2030 with its 17 SDGs remain underexplored. Repercussions on and opportunities for low- and middle-income countries deriving from the implementation of these standards and frameworks require more attention in the international debate.
Excessive regulation can have unintended consequences and lead banks and innovative payment providers to close their businesses, especially in fragile countries, depriving some of the poorest in society of access to finance. Similarly, disproportionate implementation of standards or overregulation can lead to a “shrinking space” for civil society. At the same time, civil society and the private sector are often excluded from voicing their perspectives and needs to co-shape the fight against illicit financial flows.
Overall, combating illicit financial flows is a crucial component of promoting sustainable development, which can be achieved through a combination of measures that inevitably require increased international cooperation and cross-sectoral exchange.
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The United Nations Convention against Corruption (UNCAC)
The UNCAC is the only legally binding universal anti-corruption instrument. Its far-reaching approach and the mandatory character of many provisions make it a unique tool for developing a comprehensive response to the global corruption problem.