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Drivers of Illicit Financial Flows

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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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Introduction

One clear demonstration of the growing international concern around IFFs is that, for the first time ever, the United Nations-driven renewed global development agenda incorporates a specific target related to combating illicit financial flows. The 2030 Agenda for Sustainable Development that includes 17 goals with 169 targets and is reflected in the UN Resolution on Transforming Our World (adopted by the UN General Assembly on 25 September 2015), makes specific reference to IFFs. In particular, target 4 of Goal 16 (SDG 16.4) aims to “significantly reduce illicit financial and arms flows, strengthen the recovery and return of stolen assets and combat all forms of organized crime”.

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