Curbing Illicit Financial Flows from Resource-rich Developing Countries: Improving Natural Resource Governance to Finance the SDGs

Principal Investigator: Gilles Carbonnier

Principal CCDP Collaborators: Rahul Mehrotra (Postdoctoral Researcher and Project Coordinator), Siddhant Marur (Research Assistant)

Project Partners:

  • Fritz Brugger (NADEL Center for Development and Cooperation, ETH Zürich),
  • Elisabeth Bürgi Bonanomi (Centre for Development and Environment (CDE), University of Bern),
  • Fred Dzanku (Institute of Statistical, Social and Economic Research (ISSER), University of Ghana, Accra), and
  • Sthabandith Insisienmay (Center for Macroeconomic Policy and Economic Restructuring, National Institute for Economic Research (NIER), Ventiane, Laos).


Funded by the Swiss Programme for Research on Global Issues for Development (r4d programme), a joint funding initiative by the Swiss Agency for Development and Cooperation (SDC) and the Swiss National Science Foundation (SNSF).
 

Project Description

Achieving the Sustainable Development Goals (SDGs) by 2030 requires developing countries to mobilize greater domestic resources to finance and implement the Goals. A promising avenue to strengthen their tax base is to effectively reduce illicit financial flows (IFFs). ‘Guesstimates’ tend to highlight that the volume of IFFs from developing countries is considerable. Yet, there is a significant lack of rigorous scientific studies on IFFs. Research to date – conducted primarily by think tanks and advocacy groups – suffers from various data and methodological flaws. Even if the available data does not allow to measure the phenomenon in a rigorous manner, the few scholarly work to date highlight that trade mispricing and abusive transfer pricing account for a majority of IFFs. Identifying and addressing the specific incentives and regulatory dynamics that influence trade-related IFFs is thus critical to address tax base erosion, which is a precondition to generate additional resources that can be channeled to finance the SDGs.

In this context, the project awarded to Prof. Carbonnier seeks to improve our collective knowledge and understanding of commodity trade-related IFFs, and to design and promote ways to effectively address this under-researched phenomenon both from a scientific and policy perspective. This interdisciplinary research project is conducted in the framework of a North-South research partnership, further supported by an international group of policymakers and experts with in-depthknowledge of commodity trading and IFFs. The project addresses the following research questions:

  1. What are the strengths and weaknesses of existing methods to ascertain the volume and channels of IFFs related to commodity trade, and how to complement existing data and strengthen methodological approaches to get precise IFF estimates?
  2. What are the main incentives and legal/regulatory issues involved in trade-related IFFs?
  3. What are the roles, responsibilities and capacities of key stakeholders along the value chain to effectively curb IFFs?
  4. What are the most promising policy responses and what kind of cooperation frameworks should be strengthened or established at the national, regional and global levels to effectively address commodity trade-related IFFs?

Drawing on economics, law, political science, and political economy analysis, the project engages in intensive process-tracing across multiple sources of data. It seeks to uncover the key drivers behind IFFs in relation to both push factors (out of developing countries) and pull factors (into financial hubs). It examines the mechanisms, strategies and policy innovations through which commodity trade-related IFFs can effectively be curtailed with due regard to the specific institutional, political and economic conditions prevailing in diverse settings.

Phase one of the project (2017 – 2020) will create an analytical framework applied to two resource-rich developing countries (Ghana and Laos) in relation to two of the world’s largest commodity trading hubs (Geneva/Switzerland and London/UK). In a second phase (2020 – 2023), this research will expand to other contexts: two upper-middle income countries (Peru and South Africa), a post-conflict country (Sierra Leone), and regional grouping (ASEAN). The research teams, based in Switzerland, Ghana and Laos, engage key stakeholder at national, regional and global levels on a continuous basis. They are supported by an international advisory group that provides scientific and policy advice and assists the research consortium in reaching out to major policy fora and institutions.

For more information, please visit the project's website

 

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