draining development.pdf - Khazar University

5Illicit Capital Flows and MoneyLaundering in ColombiaFrancisco E. Thoumi and Marcela AnzolaAbstractIn Colombia, the need to send capital abroad to avoid anti–money laundering(AML) controls is not particularly great. During the last fewdecades, the domestic risk has been low, and so has the incentive for outflows.This phenomenon has been associated with Colombian institutionalcharacteristics: the conflict between the formal (legal) and informal(social) norms that characterizes the country and that serves as abreeding ground for illegal economic activities there. Geography hasbeen a huge obstacle to economic integration and modernization and amain obstacle to effective central state presence in large parts of the country.The country has a large informal economy; financial sector servicesare expensive and cover only a minority of the population; illegal economicactivities are widespread; and violence is frequently used to achieveeconomic goals. This environment has been fertile for the establishmentof the illegal drug industry and provided good support for this industry’sresiliency. Law enforcement is a constant struggle. This explains why,although the country’s AML legislation is one of the most advanced inthe world, the results have been meager. In Colombia, controlling internaland external illegal capital flows presents a daunting policy problem.145