Financing democracy: tackling illicit financial flows

Illicit financial flows may be worth as much as 5% of global economic output, representing a trillion-dollar problem that has spread from the realm of organised crime to pose a real threat to democracy, development and the rule of law, a Friends of Europe expert panel heard Thursday.

“Illicit flows have overflowed the system and are flooding the whole of society,” said one participant. “What started … as just a technical problem for juries and policemen and judges and prosecutors to deal with, has now flowed into mainstream society.”

The online event was part of Friends of Europe’s ‘security briefing series’ of invitation-only discussions seeking solutions to pressing contemporary challenges. It looked at defining the dimension of the problem, its evolution from a criminal to a security threat and the various levels of institutional response to illicit money movements.

The European Union was praised for making progress in tackling the issue, yet it still has major room for improvement. One expert outlined serious problems in Europe, including a lack of harmonisation and cooperation among member states; failings in transparency and information exchange; and a shortfall in resources for enforcement agencies and other institutions.

“The EU has the best framework available, so you can imagine what the rest of the world has,” said one discussant. The global response to the problem is still “very early on in the process”, they added, meaning that “the return on investment is not there as much as we would want it to be”.

Europe needs to develop solutions for situations where outside jurisdictions refuse to cooperate with law-enforcement efforts, the meeting was told.

Another suggested measure would be basing assessments less on countries’ legal frameworks, which are often excellent, and more on application of the rules, using the number of procedures launched, convictions obtained or assets recovered, for example.

Currently, just 0.7% of illicit assets are recovered, and international enforcement agencies are looking at setting targets at much higher levels of up to 5%.

Participants highlighted how illicit financial flows are particularly harmful for developing countries, syphoning out money, facilitating corruption and aiding tax avoidance.

“We really have to join forces … not only on big criminality, but on the new criminality that really weakens democracy, weakens institutions and is really dangerous for the rest of the world,” said one development specialist.

Care is needed to strike a balance between more efficient and far-reaching regulation and the maintenance of basic freedoms, and speakers stressed the importance of not allowing enforcement measures to infringe on the operations of legitimate companies and non-profits.

However, one insider insisted: “I don’t see any risk of over-regulation, totally the opposite, there is a lack of regulation.”

With new technological innovations – such as crypto-currencies – impacting illicit flows, the need to make “technology work for us and not just for the bad guys” was underscored.

Artificial intelligence, for example, could help unpick the complex networks used in the flow of illicit finance and analyse the huge amounts of fast-moving financial data that could help uncover unlawful activity.