Accepted paper:

Mapping developing countries' exposure to illicit financial flows: a new data-set of risk measures


Alice Lépissier (UC Santa Barbara)
Alex Cobham (Tax Justice Network)

Paper short abstract:

Which developing countries are most exposed to illicit financial flows (IFF)? We provide a new data-set of risk measures for IFF in trade, direct investment, portfolio investment, and banking positions that will facilitate comparative analysis of IFF risks facing individual countries.

Paper long abstract:

'Illicit financial flows' (IFF) is an umbrella term for a broad group of harmful, cross-border economic and financial transactions, comprising two main types: illegal capital IFF (those based on the theft of state assets and the proceeds of crime), and legal capital IFF (those based on tax evasion and avoidance, or regulatory abuses). Most research to date has focused on estimates of scale and harmful impacts. But scale estimates do not typically provide the granularity to support policy prioritisation at the national or regional level. A complementary or alternative approach to seeking indicators of scale can be found in a risk-based approach. This has the potential to offer both a more granular analysis, and also to go beyond overall monitoring and accountability, to support policy prioritization at the national level. The central idea behind this approach is this: that because illicit financial flows are, by definition, hidden, the likelihood of an illicit component will be increasing in the degree of financial opacity in any given transaction. Combining measures of the financial opacity offered by individual jurisdictions with bilateral data on trade, investment and banking relationships, we present a new dataset allowing comparative analysis of IFF risks facing individual countries. We show that there exists large variation in the range of vulnerabilities facing different countries and regions, with clear implications for the most important areas for policy response at each level.

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