By Leslie Doyle | 03/04/2025
Many countries struggle with the problem of illicit money. For example, Ghana's mining industry is rife with corruption, ranging from tax evasion to smuggling. These strictly illegal activities hinder Ghana’s economic and social development, draining financial resources that are desperately needed for services such as healthcare.
However, Ghana is far from being the only country struggling with illicit financial flows (IFFs). Global Financial Integrity (GFI) and the Integrated Social Development Centre are working to raise the alarm about this worldwide problem.
What Are Illicit Financial Flows?
Illicit financial flows involve the movement of illegally earned, illegally transferred, or illegally used money across borders. Examples of IFFs include:
- A company hiding money offshore as part of a tax avoidance scheme
- A criminal enterprise laundering money made by importing drugs
- An individual transferring money out of a country to fund a terror organization
What Causes Illicit Financial Flows?
Lack of proper governance creates an environment where illicit activity flourishes. Lax money laundering and tax evasion laws draw the attention of criminals looking to finance their criminal enterprises.
The Financial Accountability and Corporate Transparency (FACT) Coalition reports that the U.S. has become a “safe haven for illicit financial flows from environmental crimes.” Gaps in anti-money laundering regulations make it easy for environmental criminals to hide the source of their financial gains.
According to the FACT Coalition’s report, one company laundered more than $1 billion of gold illegally mined in Columbia. The gold was then exported to two refineries in the U.S., which did not investigate the source of the gold.
Also, environmental crimes such as illegal logging and mining not only deplete natural resources, but they have a financial cost. Illegal proceeds that are linked to environmental crimes account for $281 billion a year, according to estimates from Interpol.
The Impact of Illicit Financial Flows
Tax evasion and other criminal activity causes significant harm, particularly in developing countries. Lost tax revenues divert capital from critical programs, depress economic growth, and cause political instability.
The impacts of IFFs are wide-reaching. For instance:
- A United Nations report found that IFFs diminish foreign exchange reserves, destabilizing the economies of developing countries.
- IFFs deplete financial resources that could be invested in sustainable development.
- Market volatility is another consequence of IFFs. Price manipulation, for example, disrupts fair economic competition.
IFFs and Other Financial Problems in Developing Nations
Developing nations are hard hit by IFFs. The money that goes to IFFs is sorely needed for food security, health, education, and infrastructure programs.
Capital flight – when companies falsify the price of goods on import or export invoices to move capital and avoid paying taxes – is also an ongoing problem in the finances of developing nations. Trade misinvoicing and related actions undermine a country's ability to secure tax revenues and destabilize its exchange rate.
Combating Money Laundering and Other Related Crimes
The United Nations has led discussions among member countries about potential policy changes to address IFFs. Suggested strategies include:
- Investing in capacity planning to strengthen policies and practices
- Dedicating resources to create rapid response teams that focus on anti-corruption solutions
- Developing proposals that would make it easier for countries to curb tax abuses
- Creating guidelines for measuring tax and commercial IFFs
The International Monetary Fund has also worked for decades to develop global policies to thwart terrorism financing.
Much attention and increased governance is needed to stop IFFs from occurring. Stronger regulations, increased transparency, and international cooperation will go a long way toward forecasting security threats and fighting this financial global threat.
Intelligence Studies Degrees at American Military University
For adult students interested in studying illicit financial flows, international crime, intelligence analysis, and other topics related to intelligence activities, American Military University (AMU) offers two degrees:
Courses in these degree programs include the U.S. Intelligence Community, threat analysis, intelligence operations, and intelligence analysis. Concentration courses further address organized crime, transnational crime and narcotics, and cyber intelligence.
For more information about these degrees, visit AMU’s intelligence degrees program page.
