Phase I has been completed and this project is now in Phase II, which will be completed at the end of 2023.
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), Vientiane, 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).
During the period referred to as "Phase 1" (2017-2020), the research teams carried out cutting-edge inter-disciplinary research to improve collective knowledge and understanding of illicit financial flows (IFFs). It was organized around three work packages (WPs): WP1 – generation and econometric analysis of original commodity trade data; WP2 –legal and regulatory analysis of IFF concepts and drivers; and WP3 – institutional and political economy analysis focusing on relevant key actors and value chains at national and international level. National workshops and continuous engagement with experts and policy makers, including their high-level multi-stakeholder Advisory Group and R4D review panel, ensured outreach to (and substantive feedbacks from) scholars and policymakers.
The project is now well anchored within ongoing national and international academic and policy debates on IFFs. The initial findings have been inserted into – and we have been invited to contribute to – flagship reports of international organizations such as UNCTAD and to discussions on specific SDG targets such as SDG 16.4 on reducing illicit financial flows and SDG 17.1 on increasing domestic resource mobilization. Apart from these direct links, curbing IFFs contributes to advancing SDG 8 (economic growth) through increased public investment and consumption, SDG 16 (peaceful societies) through reduced grievances and SDG 17 (partnerships for the Goals) through greater co-operation between producer and trading partner countries as well as state and non-state actors.
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-depth knowledge of commodity trading and IFFs.
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?
What are the main incentives and legal/regulatory issues involved in trade-related IFFs?
What are the roles, responsibilities and capacities of key stakeholders along the value chain to effectively curb IFFs?
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?
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.
