Welcome to UNCTAD SDG Pulse 2024

UNCTAD SDG Pulse 2024

UNCTAD SDG Pulse 2024 provides an update on the evolution of a selection of official SDG indicators and complementary data and statistics about the 2030 Agenda and the SDGs.

Development finance Goal 16: Peace, justice and strong institutions 

Efforts to track illicit financial flows need scaling up

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SDG indicators
Goal 16: Peace, justice and strong institutions

SDG target 16.4: By 2030, significantly reduce illicit financial and arms flows, strengthen the recovery and return of stolen assets and combat all forms of organized crime
SDG indicator 16.4.1: Total value of inward and outward illicit financial flows (in current United States dollars) (Tier II)

In Bridgetown, member States -—
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—- expressed their great concern over the negative impact of IFFs on sustainable development, especially in developing countries. Beyond the half-way point to 2030 and in the conditions of compounding crises, it is more urgent than ever to pursue SDG target 16.4 to significantly reduce illicit financial (and arms) flows by 2030, strengthen the recovery and return of stolen assets, and combat all forms of organized crime. UNCTAD, as a custodian of SDG indicator 16.4.1 on the “total value of inward and outward illicit financial flows” with UNODC, supports member States’ efforts to track and curb IFFs.

IFFs are believed to cause the loss of staggering amounts of global wealth to corruption, illicit activities and tax evasion, transnational organized crime and money laundering, but official estimates have been largely missing. If redirected to the official economy, illicit flows could serve as a vital source of funding for sustainable development initiatives, helping to bridge the financing gap -—
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—-. IFFs drain resources not only when they leave a country (outflows), but also when they enter a country (inflows) by fuelling money laundering and corruption and thus undermining the rule of law and the stability.

Thanks to capacity support by UNCTAD and UNODC, jointly with the UN Regional Commissions, the first official estimates of IFFs were released in 2023 by -—
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—-, in the SDG Pulse -—
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—- and Global SDG Indicators Database -—
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—-.1 To date, only a handful of economies report data on IFFs globally. This reflects the need for support to countries in applying the recommended methodologies, guidance and tools. To date, 22 countries on three continents have tested the measurement of IFFs and compiled their first national IFF estimates by analysing existing datasets on customs transactions, tax and law enforcement authorities’ records, and other sources. At the start of the process in 2017, there was no agreed definition of IFFs, or any agreed data sources or robust methodologies. Progress achieved shows the impact of international cooperation of experts, in a country-led process, to agree on concepts and develop methods so that now IFFs can be measured.

Furthermore, the United Nations General Assembly -—
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—- (A/RES/78/140) recognized this significant progress and availability of concepts and tested methods to measure IFFs. They noted the outcomes of pilot studies across three continents showing that measurement of these flows is possible, while challenging, and requires strengthened support, and called for increased transparency, and the strengthening of efforts to enhance the capacity of national authorities for data collection and analysis to combat illicit financial flows with more informed and targeted policy efforts.

The General Assembly invited UNCTAD and UNODC to leverage and continue developing concepts and refine methods developed to date and to provide stronger support to national authorities and invites all member States to engage with the custodian agencies towards reporting data on the indicator, and invited all institutions involved in measuring and reporting on illicit financial flows to use the statistical concepts and methods, adopted by the UN Statistical Commission. In the negotiations for the Pact for the Future in 2024 member States requested increasing investment in sustainable development by strengthening ongoing efforts to combat illicit financial flows.

In view of these developments, UNCTAD and UNODC are developing a compendium of recommended methods and practical guidance for countries for measuring tax, commercial, and crime-related IFFs. A global project led by ECA, implemented with all UN Regional Commissions, and supported substantively by the co-custodians, works with nine countries in enhancing IFF measurement. This technical support empowers national authorities with the tools and methods to analyse existing datasets to track IFFs, according to national priorities, and design more effective policies to curb them.

As noted by member States, immediate action and increased investments are needed to enable similar analytics and targeted policy action in all interested countries globally.

A UN Statistical Framework to step up national analytical capacities

Compiling statistics on IFFs is challenging because these activities are hidden and involve confidentiality, security, and ethical issues, much like other indicators under Goal 16. Even when baseline statistics are available, specific methods need to be applied to track signs of IFFs. Data needed to estimate IFFs are scattered across different agencies, and data exchange requires mechanisms for national and international cooperation and political support for measurement. Crime and justice statistics often lack funding and resources, especially in developing countries. While measuring IFFs may in some cases be possible by assessing existing specific datasets, without additional data collection, current investments in these statistics and international support for country-led efforts are insufficient.

Concerted efforts needed to report data on SDG indicator 16.4.1 with harmonised methods.

Despite these challenges, there has been significant progress since 2017, as recognized by member States. Countries can now use globally agreed definitions and tested methods, with UNCTAD leading methodological and capacity support on tax and commercial IFFs, and UNODC on crime-related IFFs. Early expert consultations and a dedicated international Task Force2 led to the development of the -—
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—- Conceptual Framework for the Statistical Measurement of IFFs which was endorsed by all member States at the UN Statistical Commission in March 2022 -—
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—-. The Framework defines IFFs as financial flows that are illicit in origin, transfer or use, that reflect an exchange of value, and that cross country borders.

In 2021, UNCTAD published methodological guidelines to measure tax and commercial IFFs for pilot testing -—
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—-, and released in 2023 refined methodological guidance -—
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—- based on feedback from the pilots -—
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—-. Countries have been reporting estimates of various IFFs subtypes (e.g., tax evasion, trade misinvoicing, illegal market activities and exploitation-type activities) using different methodologies. However, these estimates may not be easily summed up into one total estimate due to incomplete data and the risk of double counting.

To address this, UNCTAD and UNODC are developing a comprehensive Statistical Framework to compile estimates for total inward and outward IFFs, aligning with SDG indicator 16.4.1. This involves classifying IFFs and creating methods to aggregate them into a single indicator. The Task Force is exploring a matrix approach to identify and minimize overlaps between different methods and IFF types.

Table 1 presents a conceptual matrix linking tax and commercial practices with measurement methods, considering IFFs relating to both income generation and income management.3

Table 1. Addressing potential overlaps in IFFs measurement Table 1. Addressing potential overlaps in IFFs measurement
Flows and activitiesIG-IM FrameworkMethods
Income generationIncome management
M1M2M3M4M7M5M6M8
Partner country method PlusPrice filtering method PlusGlobal distribution of profits and corporate taxesMNEs vs. comparable non-MNEsBottom-up methods for crime-related activitiesUndeclared offshore wealth indicatorOffshore financial wealth by countryIndirect method to measure IM IFFs from income determined in IG
F1Transfer of wealthIM
F2Trade misinvoicingIG/IM
F3Transfer mispricingIG/IM
F4Debt shiftingIG/IM
F5Assets and intellectual property shiftingIG/IM
I1Illegal marketsIG/IM
I2CorruptionIG/IM
I3Exploitation and terrorism financingIG/IM

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Note: Cells highlighted in purple are the cases in which methods M1 to M6 can measure different typologies of tax and commercial IFFs. In blue, the cases in which methods M7 and M8 may measure different typologies of crime-related IFFs. In yellow, the cases in which there is a risk of an overlap (double counting) between the origin of IFFs (tax and commercial vs. crime-related) and the method that are proposed to measure the related amount of IFFs. Highlighted in grey are methods not suitable for analysis of those specific flows, in the sense that these combinations cannot occur in practice, such as estimating income generation for (F1) transfer of wealth. Crime-related aspect, i.e., I1-I3 and M7-M8 reflect preliminary deliberations based on previous pilot testing and pending further research and validation.

Reading table 1 by row, one can identify methods to measure income generation and management related IFFs for each IFFs-generating activity, highlighting possible overlaps when aggregating estimates from different methods. This allows for selecting the most suitable method for measuring related IFFs.

IFFs are a complex and sensitive issue, which is why their estimates require careful interpretation. Therefore, IFF reports must be comprehensive and include detailed metadata, and be accessible and understandable to all citizens, without requiring specialised statistical knowledge.

The risk of illicit financial flows high in critical minerals and drug trafficking

As of now, 22 countries have piloted IFF measurement. Among them, 14 countries (12 in Africa and two in Asia) have tested methods to measure tax and commercial IFFs using customs and tax datasets. Nine countries have tested measuring IFFs from illegal market (drug trafficking, smuggling of migrants, wildlife trafficking) and exploitation activities (trafficking in persons).

In 2022, six African countries shared preliminary unofficial estimates of tax and commercial IFFs -—
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—-. Most identified extractive industries (e.g., mining of gold, diamonds, or copper; oil industry) as particularly prone to IFFs through trade misinvoicing and MNE profit shifting. For example, Burkina Faso found IFFs in the gold sector with illicit transactions involving Uganda and Switzerland. Nigeria examined MNE profit shifting in the petroleum sector, revealing flows to tax havens.

Statistics on SDG indicator 16.4.1 are published.

On crime-related IFFs, countries reported their first estimates to the Global SDG Indicators Database -—
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—- with drug trafficking as a major source. For instance, Bangladesh estimated outward IFFs at $480.7 million annually from the trafficking in drugs such as heroin, yaba (methamphetamine tablets), phensidyl and buprenorphine, between 2017 and 2021 -—
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—-. In Colombia, cocaine trafficking generated annually inward IFFs between $1.2 and $8.6 billion from 2015 to 2019 (from 3 per cent to 23 per cent of legal commodity exports)4. Peru estimated cocaine trafficking-related inward IFFs at $1.3 billion to $1.7 billion every year, accounting for 3.5 to 4.5 per cent of total legal commodities exports5. Illicit drug exports, driving inwards IFFs, significantly fund criminal activities, promoting violence and corruption, and undermining financial market integrity and economic stability.

To bolster countries’ reporting on IFFs and refine methods, the co-custodian agencies are supporting countries' IFFs measurement efforts. UNCTAD and UNODC support a global United Nations Development Account project, spanning 2023-2026,6 in coordination by ECA and implemented with the other UN Regional Commissions, enhancing statistical capacities in nine developing countries across to measure and curb IFFs. This initiative also aims to enhance investigative and analytical capacities and to improve domestic resource mobilization to support the 2030 Agenda.

In parallel, UNCTAD is assisting Ghana, Namibia and Zambia in a project7 funded by the Open Society Foundation in refining their preliminary estimates on tax and commercial IFFs for reporting on SDG indicator 16.4.1. These efforts are crucial in informing policy formulation and action to address IFFs more effectively at the national level.

Both projects are now integrated into policy formulation processes, recognizing that effective policies require reliable national data. Access to accurate IFF estimates empowers policymakers, supports research and analysis, and enables civil society and governments to work towards a more just and prosperous society. Without reliable data, government efforts risk remaining ineffective or inadequate. The concepts and methods, developed by UNCTAD and UNODC, equip national authorities to analyse data they have and step up their analytical capacity for better policy.

Map 1. 22 countries have studied the measurement of IFFs in 2018-2022 and twelve countries will do so between 2023 and 2026 Map 1. 22 countries have studied the measurement of IFFs in 2018-2022 and twelve countries will do so between 2023 and 2026

Source: UNCTAD and UNODC

Note: Situation reflected on the map as of April 2024

★ UNCTAD in Action ★

Ghana, Namibia and Zambia show illicit flows can be measured without new data collection

Ghana, Namibia and Zambia participated in a United Nations Development Account project8 led by UNCTAD and ECA on the statistical measurement of IFFs, along with eight other African countries. We will discuss these country experience to inspire similar work in other countries.

Each of the three countries established a technical working group to achieve a whole-of-government approach, comprising relevant national agencies, such as the central bank, ministry of finance, revenue and customs offices, tax authorities, statistical office, relevant ministries, financial intelligence units, and sometimes engaging with civil society organizations, etc. Each agency brings its unique expertise and mandates to the table, including insights into key data gaps relating to IFFs.

The national statistical office or another agency can coordinate the technical working group with the aim to consolidate data dispersed across national institutions to estimate IFFs effectively. Data sources for capturing criminal activities vary, including for instance data from police departments, ministries of justice, financial intelligence units and other agencies involved in collecting information on seizures and criminal offences. Tax authorities have data relevant to assessing the tax gap, potentially including country-by-country reporting reflecting MNE activities, while customs compile statistics on international trade in goods and services, aiding in understanding commercial IFFs.

To date, 88 national experts, including 25 women, were trained in these three countries alone. This training focused on refining estimates, detailed guidance on methods, and linking data with policy initiatives, thereby initiating national efforts to measure and combat IFFs effectively.

Country level work started by a review of national circumstances in the form of an IFF self-assessment, followed by a mapping of relevant national stakeholders. This is the basis for building a whole-of-government approach by setting up the technical working group to review data availability and quality. Based on the findings, the working group selected the most suitable method, prepared a measurement plan and carried out the compilation of IFF estimates with the selected methods.

Figure 1. Recommended steps to launch measurement of IFFs in countries Figure 1. Recommended steps to launch measurement of IFFs in countries

Source: Authors’ deliberations

All three countries produced unofficial preliminary estimates and shared lessons learned as explained below (table 2).

Table 2. Experience in Ghana, Namibia, and Zambia show that strong interagency collaboration, support and resources are crucial in measuring illicit financial flows Table 2. Experience in Ghana, Namibia, and Zambia show that strong interagency collaboration, support and resources are crucial in measuring illicit financial flows
GhanaNamibiaZambia
Technical Working GroupLead: Ghana Statistical Service
Composed of seven national authorities providing data, and institutions from the Academia and Civil society.		Lead: Bank of Namibia (central bank)
Composed of eleven national authorities.		Lead: Zambia Statistics Authority, support from Zambia Revenue Authority
Composed of ten national authorities.
Preliminary resultsFor 2000-2012, preliminary estimates between Ghana, the US and the EU, inward and outward IFFs amounted to US$8.44 billion.
IFFs were mostly found in cocoa, gold and other minerals exports and machinery, as well as high end products such as airplane parts imports.		For 2018-2020, preliminary estimates of inward IFFs of about US$5 billion, and outward IFFs up to US$34 billion.
Substantial amount of IFFs leaving and entering the country related to six selected commodities: diamonds, diesel, petrol, gold, uranium, and fish.		The preliminary findings based on seven major trading partners, show that US$44.9 billion was potentially misinvoiced during the period 2012-2020.
Challenges and lessons learntTrade data unavailable
Lack of capacity building
Inadequate resources		Coordinating the sharing of information between authorities within countries is critical.
Sharing information among countries is critical to understand the risks and trade data disparities which are important to inform institutional interventions for curbing IFFs.		Unavailable data
Allocating time of members of technical working group to tasks
National engagement and supportWork generated significant interest among Government officials, policy makers and academics.Setting up a national office on IFFs at the Bank of Namibia.
Adding four new national agencies: the Namibia Competition Commission, the Business and Intellectual Property Authority, the Ministry of Industrialization and Trade, and the Institute for Public Policy (Civil Society).		The members of the Technical Working Group were all appointed by the Secretary to the Treasury
Further workAlso apply on profit shifting and get data on MNEs from the transfer pricing unit of the Ghana Revenue Authority.
The dissemination and reporting of validated estimates planned for second quarter of 2025.
Use of estimates for policy analysis (review of existing relevant policies, regulations and laws to identify gaps and enablers of IFFs; formulate recommendations to curb IFFs).		Bank of Namibia has a new tool, a Trade verification system acting as a digital platform monitoring cross-border transactions.
Detailed application of methods.
The dissemination and reporting of validated estimates planned for second quarter of 2025.
Formulate policy responses based on nationally compiled official estimates of IFFs.		Deepen the analysis by exploring the use of data sharing within the Group and further analysis at the firm level for the production of reliable estimates on trade misinvoicing, as well as establish a mechanism for better tracking the destination of Zambian exports.
The dissemination and reporting of validated estimates planned for second quarter of 2025.
Formulate policy responses based on nationally compiled official estimates of IFFs.

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Data can unlock progress to curb illicit finance

Dialogue between statisticians and policy makers is key to raising awareness of the possibilities of IFF estimates in informing policy action. The benefits of measuring IFFs go beyond data, e.g., Egypt established a new department for the measurement of IFFs within Customs to ensure regular information for policy, Southern African countries engage in bilateral meetings to find the best mechanisms to correctly record commodity trade and more accurately identify illicit flows, Zambia established a mechanism to track destinations of their copper exports, and Angola seeks financing for better education and health by curbing IFFs.

2/3 of countries ask for support to measure illicit financial flows.

In a 2023 survey by UNCTAD and UNODC, with a total of 63 country responses, 65 per cent asked for statistical capacity building, such as technical training, tools and resources, methodological guidelines, and sharing of experience, to enable IFF measurement and reporting of data on SDG 16.4.1. More than half of the countries saw tax and commercial activities, including aggressive tax avoidance, and illegal market activities as major sources of IFFs. Importantly, financial support would be needed to properly set up and carry out estimation processes, highlighting a widespread resource gap in this area. The survey reveals a high interest in collaborating with UNCTAD and UNODC in the statistical measurement of IFFs (in 65 per cent of responding countries). It also shows that countries supported by the co-custodians and UN Regional Commissions are ready to report earlier than others, especially in Africa and Asia.

Currently, 3 projects support 12 countries9 on four continents to measure IFFs with the aim of reporting data to the Global SDG Indicators Database and informing national policy. The national official estimates, enabling a better understanding of the flows leaving the country, will also help design appropriate policy actions to identify and address IFFs to achieve sustainable development for all. UNCTAD hosted the kick-off workshop of the global UN Development Account project in September 2023 in Geneva, bringing together 66 experts (30 women), and work continues currently to support each country bilaterally.

Tax evasion, aggressive tax avoidance and other mechanisms depriving countries’ tax revenues put at risk the achievement of human rights, especially affecting vulnerable groups, including women, children and people with disabilities. Deprivation of developing countries’ public assets is an immense development problem. Hence, the recovery of illicit financial flows and stolen assets is essential for increasing domestic resource availability for sustainable development. IFF estimates shed light on loopholes that need to be closed to redirect flows to the official economy.

Figure 2. UNCTAD and UNODC have engaged in close collaboration with partners to advance work on SDG indicator 16.4.1 Figure 2. UNCTAD and UNODC have engaged in close collaboration with partners to advance work on SDG indicator 16.4.1

Source: UNCTAD and UNODC

Global and concerted action is needed: to all countries and international organizations, start by reviewing available resources10 and stay tuned for future activities and updated figures from countries working jointly with UNCTAD and UNODC. The 2030 Agenda is a global commitment by all, and we all need to step up and scale up our joint work on measuring and curbing IFFs.

Notes

  1. Selecting data series to reflect SDG indicator 16.4.1 on SDG Indicators Database: https://unstats.un.org/sdgs/dataportal/database returns Indicator 16.4.1 series: Total value of inward illicit financial flows (DI_ILL_IN) and Total value of outward illicit financial flows (DI_ILL_OUT).
  2. The Task Force is composed of statistical experts from Brazil, Finland, Italy, Peru, South Africa and the United Kingdom. The Task Force also includes experts from international organisations with recognised expertise in this field: ECA, ECLAC, ESCAP, Eurostat, IMF, OECD, UNSD, WCO, UNCTAD and UNODC.
  3. IFFs linked to income generation are the set of cross-border transactions that are performed in the context of the production of illicit goods and services or the set of cross-border operations that directly generate illicit income for an actor during a non-productive illicit activity. IFFs linked to income management are the set of cross-border transactions finalized to use the (illicit) income for investment in (legal or illicit) financial and non-financial assets or for consuming (legal or illegal) goods and services -—
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  4. Pilot estimates conducted by UNODC Colombia Country Office. See also -—
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  5. Data sourced from UNODC work in Peru -—
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  6. Project “Measuring and curbing illicit financial flows”, 2023-2026, https://unctad.org/project/measuring-and-curbing-illicit-financial-flows
  7. Project “Statistical measurement of illicit financial flows to enable more targeted policy action”, 2024-2026, https://unctad.org/project/statistical-measurement-tax-and-commercial-illicit-financial-flows-enable-more-targeted
  8. Project “Defining, estimating and disseminating statistics on illicit financial flows in Africa”, 2018-2021, https://unctad.org/project/defining-estimating-and-disseminating-statistics-illicit-financial-flows-africa
  9. UN Development Account project lead by ECA, in collaboration with Regional Commissions, and with technical assistance from UNCTAD and UNODC supporting eight countries: Bangladesh, Burkina Faso, Egypt, Gabon, Kyrgyzstan, Mexico, Nigeria, Senegal and Uzbekistan; UNCTAD project funded by the Open Society Foundation supporting three countries: Ghana, Namibia and Zambia; UNODC supporting Costa Rica.
  10. UNCTAD website on IFFs: https://unctad.org/statistics/illicit-financial-flows

References

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