Finding the Money: how capping illicit flows can spur development

October 31st, 2014

ODAvsIFFAs the deadline for the Millennium Development Goals looms, policy makers worldwide have begun discussing a post-2015 development process to formalize new Sustainable Development Goals (SDGs). While targets have been discussed, creating a comprehensive financing framework remains essential to the process.

United Nations Secretary General Ban-Ki Moon elaborated on the importance:

“We have three priorities for the year ahead (…) First, we must accelerate our efforts to achieve the Millennium Development Goals. Second, we have to agree on a transformative post-2015 development agenda. Third, we need to achieve a meaningful universal climate agreement in Paris next year. Financing is one of the keys to succeed in all these endeavors. It will be at the heart of the political agreement that Governments have to reach for a successful sustainable development agenda.”

The success of the SDGs depends on how effectively and efficiently the world’s countries can mobilize the resources necessary to meet substantial future targets. But the current global economic climate has put pressure on major donor countries to reduce the amount of official development assistance (ODA) that goes to developing nations. In the face of this reality, one question looms large overhead: how are developing nations expected to finance the SDGs?

While there always seems to be a discussion reserved for asking how to make the aid that is given more effective, one potential source of sustainable revenue in the developing world could come from reducing illicit financial flows (IFFs). IFFs refers to money that is illegally earned, transferred or utilized, and includes money flows relating to corruption, tax evasion, organized crime, and trade mispricing.

During the 2014 Annual World Bank/IMF meetings, global leaders met to discuss the role of IFFs in the development process. In a panel titled “Illicit Financial Flows and the Post-2015 Development Agenda”, Dr. Atiur Rahman, Governor of Bangladesh’s Central Bank, stressed the importance of domestic resource mobilization in light of declining ODA. He also stressed the necessity of combating corruption. The post-2015 Sustainable Development Goals will require massive mobilization of new investment resources for developing countries, as emphasized at the forum by Dr. Rahman. The point was echoed by Hans Brattskar, State Secretary for International Development from the Norwegian Ministry of Foreign Affairs, who said that “curbing illicit financial flows is the single most powerful initiative we can take to secure the right every country has to generate domestic resources.”

GDPinfographicAs illicit financial outflows often represent a noticeable portion of a developing nation’s gross domestic product, recovering this lost revenue should be a priority in the effort to achieve effective development finance streams. Not only will curbing IFFs reduce dependence on external loans and ODA, but it will also give nations a chance to build capacity and the institutional infrastructure necessary to combat corruption and trade abuses in the long term.

The UN Open Working Group on Sustainable Development Goals has already acknowledged the substantial role IFFs must play in the post-2015 process, and the group has proposed targets to (by 2030) “significantly reduce illicit financial and arms flows, strengthen recovery and return of stolen assets, and combat all forms of organized crime.” This firmly places the reduction of illicit flows as a key component of the sustainable development goals.  Targets like this, in addition to significant support from the international community to create global initiatives, will be key to laying the foundation for sustainable financing of development.

The World Bank Group panel has put IFFs at the forefront of the financing development agenda. Secretary Brattskar pledged that Norway would use its role as co-chair for the Financing for Development process to put illicit financial flows squarely at the center as they prepare for next year’s conference in Addis Ababa, Ethiopia. While the future remains to be seen, the case for curbing illicit flows is powerful, the numbers are alarming, and the call to action is very clear.


Written by Alec Simpson

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