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This paper examines trends in illicit financial flows (IFFs) across eight pre-selected focus countries in Asia: Kyrgyzstan; Tajikistan; Afghanistan; Pakistan; India; Nepal; Bangladesh; and Myanmar. For the purposes of this research, IFFs are defined as ‘money illegally earned, transferred, or used that crosses borders’. The study provides an assessment of routes, actors and sources of IFFs in and between these Asian countries.
IFFs are complex. They can stem from flows of illicit goods (such as narcotics and counterfeit money), but they also include illicit finance generated from legitimate or legal trade, including jade, gold and white goods. IFFs are often facilitated by a range of actors, with collusion between public and private, legal and illegal, and criminal and political. With this in mind, identifying trends related to products is not as useful as better understanding the individual flows related to certain business practices or commodities. A key finding from this study was that the term ‘illicit financial flows’ is often misunderstood and confused by governments working on the issue for those activities that are implicated in IFFs, such as corruption or money laundering.
As a result, IFFs are under-researched. Through an examination of both the national and international risks facing certain countries in Asia, which continues to have the highest levels of illicit outflows in dollars in the developing world, this paper should act as a gateway for wider and more in-depth research into IFFs.
The main objective of this paper is to better understand how IFFs work from and between the focus countries, as well as how they link to financial centres elsewhere. The paper aims to inform development agencies and international donors, particularly the Department for International Development (DfID), on how to improve their interventions to combat IFFs. The research for this paper is based on desk research carried out by RUSI’s regional and thematic experts, as well as two in-country workshops (in New Delhi and Bishkek) and remote telephone interviews carried out over six months. The two regional workshops brought together experts and officials from the focus countries to explore regional factors in more depth.
This paper offers a number of recommendations to tackle IFFs in Asia:
- Increase understanding of IFFs in relation to the focus countries through supporting IFF-specific research centres (for example, analytical fusion centres) at the national and multinational levels, involving both the public and private sectors. While connections need to be made between countries, this paper demonstrates that each state must carefully consider the individual criminal infrastructure within their own borders that facilitate IFFs. This paper found that there is no core funding for such research and that the funding that does exist is inconsistent.
- Form a better understanding of the role that the private sector plays in IFFs. For example, there was not much data about the role that the Tajik or Kyrgyz real-estate sectors might play in money laundering and broader IFFs.
- Update knowledge on informal money transfer systems, such as hawala and hundi. More research should also be carried out on emerging technologies that facilitate payments, such as bitcoin.
- A possible extension to this project could be to explore the role of countries in Southeast Asia as destinations, sources and transit countries in the illicit flows between China and the rest of Asia.
- Support should be given, where possible, to improving existing border crossings and creating new ones in areas where there is a high level of informal crossing. Note that the success of such crossings will depend on there being the political will to implement and manage them properly.
- Donor interventions must take into account economically viable alternatives to illicit sources of income where relevant. For example, the destruction of Afghanistan’s poppy fields in a bid to get rid of the narcotics trade was detrimental for the local economy because a substitute crop of similar value was not identified. Lessons can be drawn from the UN Office on Drugs and Crime’s (UNODC) alternative development approach.
- Support should be given to those donor interventions that enhance the integrity of the formal banking system in order to increase financial inclusion and draw money from the shadow economy into the formal system. Helping to bridge civil society engagement with financial regulatory bodies would help to achieve this.
- More work should be done to engage with major financial centres, such as Dubai, Singapore, China and the UK, as well as offshore jurisdictions, to investigate the operational and intelligence gaps that prevent investigation and prosecution where appropriate in relation to IFFs.
- International donors should look to support anti-IFF civil society groups that include private and public sector expertise, as well as investigative and analytical capacity. More support should also be given to business-oriented civil society organisations that are committed to promoting prosperity through business sector reforms.
- Support more in-depth analysis – both in government structures and at civil society level – of the data that new laws or systems produce (such as declaration of income for government officials). This will not only improve the effectiveness of systems, but also provide non-governmental actors with an evidence base with which to hold government to account.
- International donors need to pre-empt the potential abuse of international aid through corruption and embezzlement. This can be done through putting conditions on the aid given, such as audits at international standards that are verified by independent third parties.
- International donor organisations should also collaberate more and better coordinate their efforts to avoid duplication and improve the effectiveness of interventions.
About the Authors
Sarah Lain is Research Advisor at the Centre for Humanitarian Dialogue, Kiev. She was formerly a Research Fellow within RUSI’s International Security Studies department, where her research focused on post-Soviet foreign policy, in particular Russia and Central Asia. She also ran a Russia-UK ‘Track 2’ security bilateral dialogue, which brought together think tank experts and academics from Russia and the UK to discuss security challenges in the bilateral relationship. In 2016, she served as specialist adviser to the UK Parliament’s Foreign Affairs Committee, assisting them on their inquiry into UK–Russia bilateral relations.
Haylea Campbell is a Research Analyst at RUSI within the Centre for Financial Crime and Security Studies. She joined RUSI in September 2016, following time spent in Brussels working as an analyst on the Syrian conflict. Haylea holds an LLM in International Law and Security from the University of Glasgow. She also holds an LLB from Glasgow Caledonian University. Her research interests include interdisciplinary responses to financial crime and terrorist finance, the UK anti-money-laundering framework and how it intersects with international illicit financial flows.
Anton Moiseienko is a Research Assistant at RUSI within the Centre for Financial Crime and Security Studies. His focus is economic crime, especially corruption and money laundering. He is currently working towards his PhD at the Criminal Justice Centre, Queen Mary University of London, and holds a Master’s degree in law from the University of Cambridge.
Veerle Nouwens is a Research Analyst at RUSI within the International Security Studies department, focusing on geopolitical relations in the Asia-Pacific region. Her research interests include China’s foreign policy, cross-strait relations, maritime security and ASEAN. Veerle holds an MPhil in Modern Chinese Studies from the University of Oxford, an MA in International Relations and Diplomacy from Leiden University, and a BA in International Relations from Macquarie University. She has attended semester programs at both Peking University and Tsinghua University and has lived and travelled across Asia.
Inês Sofia de Oliveira is a researcher and analyst on financial crime. As a RUSI Associate Fellow, Inês contributes to the work of the Centre for Financial Crime and Security Studies (CFCS) with analysis on issues pertaining to anti-money laundering, profiting from organised crime, illict trade and corruption. Inês is currently a Senior Legal Officer with the Portuguese Central Bank. Until 2017, Inês was a Research Fellow with CFCS at RUSI, where her work focused on information sharing, data protection and the impact of new technologies on financial crime. Inês holds a PhD in Politics from the University of Edinburgh. Her thesis, ‘Anti-Money Laundering: the conditions for global governance and harmonisation’, focused on the FATF 40 Recommendations and the influence of global actors. She holds an LLM in International Law from the University of Edinburgh, a degree in International Relations from the University of Coimbra, Portugal, and a diploma in European Studies from The Hague University of Applied Sciences in the Netherlands.