Illicit Financial Flows

Illicit Financial Flows from Developing Countries

​Every year huge sums of money are transferred out of developing countries illicitly. There is widespread agreement that poor developing countries are particularly badly affected by these flows, and illicit financial flows are likely to far outrange official development assistance of OECD countries. In the last few years, the issue has become a mainstream topic for international organizations, political bodies and governments. Illicit financial flows are at the heart of discussions at the OECD, the G8/G20, and the EU, and has become a key theme of the Addis Abbaba Action Agenda and the 2030 Agenda for sustainable Development.

Switzerland is considered to be among the most important offshore financial centres, being also confronted by illicit financial flows. The Federal Council acknowledges the need for action in partner countries as well as in Switzerland.

The Analysis and Policy Division follows the international debates from a development policy perspective, disseminates evidence-based knowledge, and contributes to coherent Swiss policies relevant to curb illicit financial flows.

Contact: Véronique Bourquin BQV (veronique.bourquin@eda.admin.ch)

 

Documents:  ​ ​

​​Policy Coherence for Development in Switzerland's Implementation of BEPS and Enhanced Global Transparency: Project results

June 2018

 

With the Addis Ababa Action Agenda of July 2015, the donor states have made a political commitment to allow developing countries to participate in the implementation of the AEOI and the BEPS measures. In return, developing countries have committed themselves to responsible and transparent governance, combating all forms of illicit financial flows and ensuring non-discriminatory access to public services for citizens.

Against this background, SDC mandated in 2017 the Chair for Swiss, European and international tax law at the University of Zürich with a project "Policy Coherence for Development in Switzerland's Implementation of BEPS and Enhanced Global Transparency". Notably, the project analyzes the development policy and fiscal challenges and fields of action that arise for Switzerland in integrating developing countries into the policy for implementing the AEOI and the BEPS measures.

Apart a dialogue with Swiss senior tax officials from all levels, the main results of the project include the following two studies:

The study by Professor Matteotti is planned to be translated into English and published in the near future under the title Integration of developing countries into Swiss policy for implementing the AEI and the BEPS measures: challenges and fields of action.

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​​IFF - Action and instruments in Switzerland's development policy

SDC & SECO Report of March 27, 2018

 

Illicit financial flows (IFFs) have been a topic of discussion in international development policy and academic circles for more than 15 years. In its report of 12 October 2016 on illicit financial flows from developing countries, the Federal Council presented its understanding and a thorough analysis of the issue, covering the many and varied factors underlying IFFs. According to the Federal Council, IFFs primarily concern funds which are associated with crime, corruption, money laundering, the financing of terrorism and tax avoidance and evasion and which cross international borders.

Meanwhile, the Federal Council has on numerous occasions reaffirmed its commitment to combating IFFs, both internationally and within Switzerland. In line with international discussions on the topic, it recognises not only the importance of the national legal framework in curtailing inflows of undesirable funds but also the significant role of international cooperation on the ground.

This additional report documents Switzerland's specific commitment to international cooperation and presents the current and future fields of action to tackle IFFs from developing countries.

The SDC and SECO are currently working in this direction.

IFF - Action and instruments in Switzerland's development policy

IFF - Handlungsfelder und Instrumente der Schweizer Entwicklungspolitik

IFF - Champs d’action et instruments de la politique de développement de la Suisse

IFF - Ambiti d'intervento e strumenti della politica di sviluppo della Svizzera

 

​​TRAVERSE: Corruption in the Commodity Sector                     

Follow-up of the event TRAVERSE including video footage and a paper written by moderator Markus Mugglin
 

The majority of the world’s poor live in countries that are rich in natural resources. All too often, the windfall in revenues from the commodities business trickles down to the mere few. Leaving little for the many. The sector is undeniably more transparent than it was a few years ago. But this is still not enough. New strategies are required – strategies that take the extraction of natural resources as their starting point. Strategies that focus on those who work in often precarious conditions, yet barely reap any of the rewards. There is also work for the development agencies to do.

Markus Mugglin, the moderator of the event, furthermore prepared a paper addressing the most pertinent challenges with regard to corruption in the commodities sector for Switzerland and SDC (in German):

Switzerland and corruption in the commodities sector by Markus Mugglin (PDF in German)

Here you can find the video including selected statements by the experts on their take home messages. 

Event-Flyer
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​​Position Paper for the attention of the Foreign Policy Committee of the National Council (APK-N) on the impact of Switzerland's financial contributions on the combat of corruption and money laundering in developing countries                     

23 June 2017
 

On 12 October 2016, the Swiss Government approved its Report on Illicit Financial Flows from Developing Countries. The document responds to two requests by the Swiss parliament and is arguably the first comprehensive analysis of the phenomenon by an OECD country being at the same time an important financial center. 

The report analyses roots, mechanisms, drivers, and volumes of IFF. The analysis distinguishes between roles and conditions of countries of origin, of countries of destination, as well as the importance of the international environment. With its focus on corruption, money-laundering as well as tax evasion and tax avoidance, the report endorses a widely shared (OECD)-definition and understanding of IFF. 

The Foreign Policy Committee of the National Council (APK-N) then discussed the IFF report in its meeting on 21 March 2017. The question was raised on examples demonstrating the impact of Switzerland's financial contributions on corruption and money laundering in developing countries. To answer this question, a report was co-drafted by SDC and SECO and published on 23 June 2017.  

It is available in German and French.  

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​​Shadow Value Chains. Tracing the link between corruption, illicit activity and lootable natural resources from West Africa

June 2017
U4 Issue | No 7

 

The study has been commissioned by SDC and is focused on gold from Mali, timber from Liberia, diamonds from Sierra Leone and oil from Nigeria. The paper attempts to collate some of the more recent existing knowledge of whether and how illegally traded natural resources sponsor other types of illicit activity in West Africa, understood broadly to encompass crime, smuggling, terrorist activity, militancy and insurgency activity. The findings show that in all the four countries studied, deeply entrenched patterns of corruption serve as a facilitating factor for the diversion of natural resources from their legal value chains and enabling shadow value chains to exist and flourish. The paper also finds that while all of the resources sponsor illicit activity to some extent, some of the links that are commonly referred to remain insufficiently documented and should be further explored.

 

By Åse Gilje & Mats Stridsman

U4 Issue 2017-07 full (002).pdf 

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​​Aled Williams/Jan Isaksen, Corruption and state-backed debts in Mozambique - What can external actors do?
November 2016, Anti-Corruption Resource Centre

 

Mozambique recently faced a turn for the worse in its balance of payments problems because semi-public entities took out government-backed debts worth over USD 2 billion without fulfilling constitutional and legal requirements. The sources of the debts where Credit Suisse and the Russian bank VTB. These loans illustrate the mechanisms by which illicit financial flows not only leave developing countries to other locations in the global economy, but also flow back into them, bypassing formal oversight mechanisms and lending rules. Major financial discrepancies exist in terms of the use of the three loans and international development partners and domestic stakeholders suspect some form of corruption. An international firm will implement an independent audit financed by the Swedish government to look into the loans. The audit findings, and investigations by UK and Swiss financial regulatory bodies, will provide a focus for monitoring and evaluation work, possibly leading to criminal and administrative sanctions.

Here you find the pdf Corruption and state-backed debts in Mozambique

 

​​Kathrin Betz/Mark Pieth, Globale Finanzflüsse und nachhaltige Entwicklung: Auch eine Folge von "Panama"?
2016

 

In a daring paper, two Swiss academics of the University of Basel (Basel Institute on Goverance) make an attempt to analyse - from a development policy perspective - the challenges for developing countries as they arise from illicit financial flows (IFF), and document the scope and need for action for Swiss authorities.

The paper is based on a Working Paper No. 21 of the Basel Institute on Governance which has been commissioned and funded by the Swiss Agency for Development and Cooperation in 2015.

Published in German (only):

Here you find the pdf ZSR Betz Pieth Globale Finanzflüsse und nachhaltige Entwicklung.pdf
Here you can buy Zeitschrift für Schweizerisches Recht

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​​Report on Illicit Financial Flows from Developing Countries, 
October 2016, Federal Council

 

On October 12, 2016 , the Swiss Government approved its Report on Illicit Financial Flows from Developing Countries. The document responds to two requests by the Swiss parliament and is arguably the first comprehensive analysis of the phenomenon by an OECD country being at the same time an important financial center.

The report analyses roots, mechanisms, drivers, and volumes of IFF. The analysis distinguishes between roles and conditions of countries of origin, of countries of destination, as well as the importance of the international environment. With its focus on corruption, money-laundering as well as tax evasion and tax avoidance, the report endorses a widely shared (OECD)-definition and understanding of IFF.

The report further provides an detailed overview of contribution and measures undertaken by Switzerland at the international and domestic level to curb IFF with a view to avoid outflows from scarce financial resources from developing countries and to protect the integrity of Switzerland as a financial center.

The report is currently available in French, German, and (at a later stage) in Italian.

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​​Globale Finanzflüsse und nachhaltige Entwicklung - Handlungsmöglichkeiten der Schweiz aus Sicht der Entwicklungspolitik
January 2016, Basel Institute on Governance, Katrin Betz and Mark Pieth, with a preface from Pio Wennubst, Assistant Director General of SDC

 

Globale Finanzflüsse und nachhaltige Entwicklung
Als internationaler Finanzplatz und als Tiefsteuerland trägt die Schweiz zusammen mit anderen dazu bei, dass die Abflüsse knapper finanzieller Ressourcen aus Entwicklungsländern gemäss Schätzungen den Gesamtbetrag der öffentlichen Entwicklungshilfe bei Weitem übersteigen. Die internationalen Finanzbeziehungen von heute stellen immer noch für viele Entwicklungsländer eine grosse Hürde für eine nachhaltige Entwicklung dar.Vor diesem intergrund hat die DEZA am 29. Oktober 2015 mit Unterstützung des Basel Institute on Governance und unter der Leitung von Prof. Mark Pieth eine Fachtagung ‚Globale Finanzflüsse für eine nachhaltige Entwicklung – Handlungsmöglichkeiten der Schweiz aus Sicht der Entwicklungspolitik‘ durchgeführt. Das vorliegende Dokument stellt die Vorarbeiten und Resultate der Tagung zusammen, die auf die Mitwirkung zahlreicher renommierter Fachpersonen zählen durfte.

Please note that this publication is only available in German, with an executive summary in English.

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​​Illicit financial flows: Challenges and possible courses of action for Swiss development policy

Development Policy Brief April 2014, Author: SDC, A&P, this publication exists in English, French and German

 

What strategy options are open to Switzerland for its international cooperation? What are the new trends in international cooperation? On what issues are national and international debates on development currently focused? How are decisions related to development policy arrived at?
The Development Policy Brief addresses these and other questions on a regular basis.  
[en] [fr] [de] The official SDC homepage also informs about this Development Policy (DP) Brief.

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​​Jusletter. Unlautere und illegale Finanzflüsse: Handlungsmöglichkeiten für die Schweizer Entwicklungspolitik
30. Juni 2014, Author: Werner Thut, A&P

 

Jusletter. Unlautere und illegale Finanzflüsse: Handlungsmöglichkeiten für die Schweizer Entwicklungspolitik
Das Thema «Unlautere und illegale Finanzflüsse» wird spätestens seit der Finanzkrise 2008/09 nicht nur in der Zivilgesellschaft, sondern auch in Regierungskreisen von OECD-Ländern intensiv diskutiert. Noch akzentuierter stellt sich die Frage in der Schweiz als einer der weltweit wichtigsten Finanzplätze und gleichzeitig Drehscheibe des internationalen Rohstoff-Handels. Was versteht man unter «illicit financial flows»? Worin liegt die Bedeutung des Phänomens für die Schweizer Entwicklungspolitik? Die Studie resümiert die Diskussion und macht Überlegungen zu Handlungsmöglichkeiten. Kapitel 4 ist als in sich selbständiger, zusammenfassender Text konzipiert.

 Please note that this publication is only available in German.​​  

 

​​Measuring OECD Responses to Illicit Financial Flows from Developing Countries

December 2013
Author: OECD


Measuring OECD Responses to Illicit Financial Flows from Developing Countries
The report shows that progress is made on the fight against IFFs. In recent years, countries have implemented standards and complied with most recommendations of the Financial Action Task Force. 1 300 tax information exchange agreements have been signed and hundreds of offenders for foreign bribery have been sanctioned. In addition, almost USD 150 million in proceeds of corruption, according to the report, were returned between 2010 and June 2012. However, the report argues that there needs to be a continued effort to rally international support to tackle existing performance gaps and shortfalls.

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​​Briefing Document on Illicit Financial Flows - Traverse Discussion

November 2013
Background Paper prepared for Traverse of November 6, 2013

 

Briefing Document on Illicit Financial Flows - Traverse Discussion
Unlautere und illegale internationale Finanzflüsse – Herausforderung und Gegenstand der Schweizer Entwicklungspolitik

This briefing document was written in light of the Traverse discussion on illicit financial flows.
For further details please click here.

IFFs: Konzepte, Handlungsfelder, bisherige Positionen des Bundesrates
November 2013
Author: DEZA, Abteilung Analyse & Politik
Dieses Papier erklärt Konzept und Dimensionen von unlauteren und illegalen internationalen Finanzflüsse und zeigt Handlungsfelder der Entwicklungspolitik sowie Positionsbezüge des Bundesrates auf. 

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​​ Swiss Double Taxation Agreements: Current Policy and Relevance for Development / Schweizer Doppelbesteuerungsabkommen: Aktuelle Politik und Entwicklungsrelevanz
October 2013, Author: World Trade Institute commissioned by SDC, Summary available in English


 Schweizer Doppelbesteuerungsabkommen: Aktuelle Politik und Entwicklungsrelevanz
Dieser Bericht behandelt: 1. „Financing for Development“ und die Verantwortung der Schweiz. 2. Zwischenstaatliche Regulierung im Steuerbereich: Ausgangslage und die Situation der Schweiz. 3. Schweizer DBAs: Konkrete Elemente und Entwicklungsrelevanz. 4. Informationsaustausch und andere Realisierungsinstrumente. 5. Zusammenfassung und Handlungsbedarf aus entwicklungspolitischer Perspektive

Executive Summary
Swiss Double Taxation Agreements: Current Policy and Relevance for Development
October 2013
Author: World Trade Insitute, on behalf of the Swiss Agency for Development and Cooperation SDC

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Links:

- Jusletter - Ausgabe vom 30. Juni 2014
- Organisation for Economic Co-operation and Development: Global Relations in Taxation
- Illicit Financial Flows from Developing Countries Measuring OECD Responses
- Illicit Financial Flows and their Developmental Impacts: An Overview: Article in the journal International Development Policy of the IHEID