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Illicit Financial Flows - Illicit drug trafficking and tax evasion

Author

Listed:
  • Johnny Flentø

    (Development Economics Research Group, University of Copenhagen)

  • Leonardo Santos Simao

    (Former Minister of Health, Former Minister of Foreign Affairs & Cooperation, Government of Mozambique)

Abstract

The discourse about illicit financial flows (IFFs) repeatedly stresses promoting development and equality in the world, but the links between them are much more difficult to ascertain. As defined in relation to Sustainable Development Goal (SDG) 16, the concept of what is illicit rests on definitions of terror and crime, on which there is no universal agreement, and it contains too many and too different types of flows to be of operational use in policy formulation. Combined with the difficulties and weaknesses in estimating the aggregate volume of illicit flows, this broad umbrella definition of the term lends itself to the harbouring of various political agendas and instrumentalizations of the concept for other political ends. The discourse that illicit flows undermine development seems widely accepted, as long as one does not have to be specific. However, to address questions about the effects of anti-IFF initiatives and which anti-IFF initiatives actually work, we need much more sector-specific and granular analysis, as some researchers are already pursuing. In this paper we argue that there is large potential for stemming illicit flows if some drugs are legalized and the fencing of stolen money in tax havens and secrecy jurisdictions is effectively outlawed. Important and potentially strong initiatives which could change the tax landscape are under way. However, they are geared more towards corporations and less towards trusts and individuals, and they stop short of criminalizing the fencers of illicit money. In relation to inequality, the reforms will mainly assist governments in the rich countries, primarily OECD countries, to tax and redistribute income from very large and wealthy corporations. Taxation tools that could effectively redistribute income from the large tech giants and other multinational enterprises to the world’s poor are not really on the table. At the same time, the rich countries insist on globally outlawing many drugs that would make excellent cash crops for farmers in poor countries, primarily because they anticipate a public health problem at home. In curbing illicit flows with a development effect, legalizing cannabis should be high on the agenda.

Suggested Citation

  • Johnny Flentø & Leonardo Santos Simao, 2022. "Illicit Financial Flows - Illicit drug trafficking and tax evasion," DERG working paper series 22-16, University of Copenhagen. Department of Economics. Development Economics Research Group (DERG).
  • Handle: RePEc:kud:kuderg:2216
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    File URL: https://www.econ.ku.dk/derg/wps/16-2022.pdf
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    References listed on IDEAS

    as
    1. Sebastian Beer, 2021. "Is There Money on the Table? Evidence on the Magnitude of Profit Shifting in the Extractive Industries," IMF Working Papers 2021/009, International Monetary Fund.
    2. Kasper Brandt, 2020. "Illicit financial flows and the Global South: A review of methods and evidence," WIDER Working Paper Series wp-2020-169, World Institute for Development Economic Research (UNU-WIDER).
    3. Niels Johannesen & Jukka Pirttilä, 2016. "Capital flight and development: An overview of concepts, methods, and data sources," WIDER Working Paper Series wp-2016-95, World Institute for Development Economic Research (UNU-WIDER).
    4. Kouame,Wilfried Anicet Kouakou & Goyette,Jonathan, 2018. "Tax Evasion in Africa and Latin America : the role of distortionary infrastructures and policies," Policy Research Working Paper Series 8522, The World Bank.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Illicit Financial Flows; Tax Evasion; Drug Trafficking; Extractives; Tech Giants;
    All these keywords.

    JEL classification:

    • F10 - International Economics - - Trade - - - General
    • F18 - International Economics - - Trade - - - Trade and Environment
    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • F51 - International Economics - - International Relations, National Security, and International Political Economy - - - International Conflicts; Negotiations; Sanctions
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • H26 - Public Economics - - Taxation, Subsidies, and Revenue - - - Tax Evasion and Avoidance

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