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Drivers of Illicit Financial Flows

image of Drivers of Illicit Financial Flows

This study offers a comparative analysis of 42 countries, examining common trends among causes leading to illicit cross-border money transfers. Its findings support existing theoretical frameworks on the key drivers of illicit financial flows. Our analysis has identified that most countries that experience large transfers to offshore bank accounts are characterized by weak regulatory systems: i.e., shortcomings in the institutional capacities to detect, monitor and prosecute illicit financial flows are the primary drivers behind tax evasion. The growing availability of macroeconomic and governance data on developing countries provides avenues for more detailed research on illicit financial flows in the future. As alternative methodologies for measuring these flows become more sophisticated, there is both a pressing need and a huge potential for the advancement of a research agenda focusing on illicit cross-border money flows.

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Illicit financial flows: The current state of knowledge

“Illicit financial flows” is a relatively new term which has been promoted by Global Financial Integrity since 2006.16 It is a highly contested term among both scholars and practitioners. In a narrow sense, the term refers to unrecorded capital that is illegally earned, transferred or utilized. This may include funds from illicit activities, such as drug-trafficking or corruption; tax evasion, through the transfer of funds abroad in violation of national tax regulations; and funds used for illegal purposes, such as the financing of terrorism.

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