draining development.pdf - Khazar University

Policy and Research Implications of Illicit Flows 487precondition to cutting illicit flows, flows that some see as having amoral legitimacy lacked by the regime, which, among other excesses, isunfairly rewarding its supporters. In effect, the argument is that IFFs canonly be reduced domestically by actions that will also reduce the underlyingdistortions that fuel the flows in the first place.There is also the question of whether the political resources freed upfor reform are best spent addressing the IFFs as opposed to the rootcauses. At the international level, there is only a limited amount ofenergy available for these kinds of efforts, which require commitmentsof time by heads of state and other senior policy makers. At this level,IFFs score well. They represent a target that can be dealt with throughwell- established entities such as the Financial Action Task Force (FATF),which has managed to obtain at least formal compliance in manynations through the establishment of specialized governmental agenciesor through forums such as the G-8 and G-20. 3Nonetheless, the fundamental problems are essentially domestic.There is not much that outsiders, even major international financialinstitutions such as the International Monetary Fund or the World Bank,can do to address corruption, tax evasion, or criminal markets. The failureof the coalition supporting the government of Afghanistan is anextreme illustration of the limits of interventions on these matters: even150,000 troops do not make much difference with respect to heroin productionand broadbased corruption in that country (Caulkins, Kleiman,and Kulick 2010).One of the benefits of focusing on the flows is that the developedworld can play a direct role. These funds do not mysteriously disappearfrom developing countries. In large part, they flow into legitimate and,often, even highly respected financial institutions in the developedworld. Thus, governments of the rich countries that serve as the domicilefor many of the recipient banks can, through legislation, more forcefullypush the institutions to ensure they are not taking in illicit flows.Controlling the FlowsNumerous proposals aim at reducing the flows rather than targeting thefundamentals. Many of these are associated with nongovernmental organizationssuch as the Tax Justice Network, Global Financial Integrity, and