illicit financial flows - dr peter norris

Illicit financial flows are something which has an impact on most countries across the globe, but there is much to be learned if we are to effectively combat them.  Their effects are particularly devastating for developing and post-conflict countries and increasingly undermine international efforts to promote sustainable economic development.

Illicit financial flows refer to any transfer of money which is carried out illegally, either by virtue of their origin, such as stemming from organised crime; utilised in an illegal way, such as to finance terrorism; or if the flow of money is illegal in itself, i.e. money laundering.

While the consequences of illicit financial flows (IFF) are immediately noticeable in regions emerging from conflict, they are a hindrance to the likes of Europe and the USA. With organised crime generating vast quantities of illicit flows and attempting to wash them through financial centres across the world, they pose a significant threat to the likes of the city of London, which generates around 11% of the United Kingdom’s GDP.

While there is usually the infrastructure in place to deal with illicit flows in more developed countries – should they choose to use it – it is much more of a challenge in post-conflict environments with limited infrastructure in terms of policing and rule of law. Dr Peter Norris, national security expert and formerly of the Foreign Office, gives his thoughts on addressing the issue.

‘Developing countries and emerging economies lose more money through IFF than they receive in foreign direct investment and official development aid combined. IFF prevent investment in health, education, and other public services.     

‘Too often in this field you’ll have people sitting in the likes of London, Washington or Paris who have identified a country which is the source of illicit financial flows, and their first instinct is discuss what training needs to be delivered to people in that area.

‘There needs to be a greater understanding of the context people may be living and working in throughout these regions. For instance, someone they’re looking to train up on financial governance and increasing compliance with important international standards in a post-conflict situation could live in an environment which is under the control of a terrorist, militia, or criminal organisation. There is no amount of training which could equip that person to stand up to the threats of that organisation. In addition, a focus on ending the illicit trading in licit merchandise or activity by communities who have pursued an entrepreneurial option in the most challenging of circumstances and where alternatives are few, runs the risk of incentivising their involvement in more serious criminal or militia activity.

‘Furthermore, when it comes to people living in places influenced by, or under control of, terrorist groups that are receiving money via the remittance sector from places like the UK, the banks will have concerns as to whether that money is being used to fund terrorism. They will want to know the recipient is the person the sender says they are, but there’s no real way of doing this when they might not have any form of identity documents, birth certificates, passports or even paper.’

Given IFF cover a broad range of activities, there is no single or simple solution. A widespread, coordinated approach is required, building capacity and capability in policing, education and wider infrastructure to ensure any response is sustainable. This is particularly prevalent in countries emerging from conflict, which may not have proper procurement or transport systems.

‘People can become involved with terrorist units or organised crime from as young as 11,’ Dr Norris said. ‘From early on they’ll be getting inculcated into their illegal ways, even if they’re initially dealing with legal entities. You will often find militia units and gangs dealing with legal products but using illegal means to do so.

‘There also needs to be significant developments in policing. You can’t have a regulatory system in place if there’s nobody with the ability to deal with those who don’t submit themselves to that regulation.

The previous year-and-a-half has been even more challenging in terms of tackling these issues, with the Covid-19 pandemic detrimental to the relationship-building required to endorse the idea of regulating against illicit financial flows and delivering meaningful change. Now in the wake of the fallout from the C-19 crisis, all of the negative dynamics are intensifying, driving up the imperative to illicitly move wealth out of conflict/post-conflict countries as they are set to crash hard. Developing countries have become increasingly reliant on the remittances of their foreign workers, but those remittances are likely to fall dramatically as the effects of C-19 hit economies worldwide.  Developing countries will experience serious economic crises as their exports and foreign investment dry up and as their governments and companies fail to raise new funds in current market conditions.  Those with wealth are very likely to try to get it out now more than ever, and by whatever means possible.

The challenge over the past 18 months has been trying to do my sort of work over video calls and you simply can’t,’ Dr Norris added. ‘It’s all about building relationships and if I started asking you things which were against your instincts with just 20 minutes’ knowledge of each other over Teams, you’re not likely to be very sympathetic to that approach.

‘It’s very different to getting to know them in the area they live, visiting their place of work and understanding the hassle factor of everyday movements like going home and to work – which can involve the threat of IEDs and sniper fire.

‘Sometimes it’s only when you can show you’ve experienced that first-hand and you understand the cultural circumstances in which they’re operating, that you can build that mutual trust and respect.’

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