Illicit Financial Flows and their Developmental Impacts: An Overview

Abstract

Illicit financial flows — cross-border capital movements for the purposes of concealing illegal activities and evading taxes — pose major challenges to developing countries. They deprive the country concerned of urgently needed resources for private and public investment, thereby hampering infrastructure building and economic growth. This research overview shows that illicit financial flows also favour political changes that go hand in hand with the weakening of state institutions and growing corruption and rent-seeking. As yet, there are no empirical quantitative findings as to the exact functioning and significance of these effects. What is clear, however, is that approaches to problem-solving must come not only from the countries where illicit financial flows originate but also from the recipient countries — offshore financial centres with a high level of financial secrecy.