UNCTAD leads global efforts to measure illicit financial flows jointly with UNODC

UNCTAD supports member States to strengthen their statistical capacity to define, measure and disseminate statistics on IFFsIllicit financial flow as a custodian of SDGSustainable Development Goal indicator 16.4.1 on IFFs with UNODCUnited Nations Office on Drugs and Crime. This work contributes to SDG 16 (peace, justice and strong institutions) and its 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”. The global role was assigned to UNCTAD and UNODC by the General Assembly -—
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—-, as part of the approval of the SDG indicator framework in 2017 -—
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—-. UNCTAD’s mandate is to develop statistical concepts and methodologies for global use in reporting on SDG 16.4.1 and build countries’ capacity to monitor trade and tax-related IFFs, while UNODC focuses on crime-related IFFs. This chapter mainly focuses on UNCTAD’s work with member States to measure tax and trade-related IFFs. This work supports countries in developing their data infrastructure for the monitoring of progress towards the 2030 Agenda and towards meeting the commitments of the Addis Ababa Action Agenda -—
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In addition to target 16.4 these activities support target 16.5 “substantially reduce corruption and bribery in all their forms”. They also contribute to SDG 17 (partnerships for the SDGsSustainable Development Goal) and its target 17.1 “strengthen domestic resource mobilization, including through international support to developing countries, to improve domestic capacity for tax and other revenue collection”.

Concepts and methods to measure illicit financial flows developed in global collaboration

Since UNCTAD and UNODC were assigned indicator custodians in July 2017, they have engaged in close collaboration with partners to advance work on SDG indicator 16.4.1, achieving the following milestones:

• In 2017-2018, jointly held wide expert consultations on the SDG indicator and the scope of IFFs.
• In 2018-2020, UNODC carried out early pilots on measurement of crime related IFFs in four countries of Latin America, namely, Mexico, Peru, Colombia and Ecuador -—
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• In January 2019, UNCTAD and UNODC set up a global Task Force on statistical measurement of IFFs.
• In October 2019, member States in the IAEG-SDGsInter-Agency and Expert Group on Sustainable Development Goals indicators approved the methodology proposal by UNCTAD and UNODC and reclassified SDG indicator 16.4.1 as Tier IISDG indicator that is conceptually clear, has an internationally established methodology and standards are available, but data are not regularly produced by countries -—
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  —-. from Tier IIISDG indicator for which there is no internationally established methodology or standards yet available, but methodology or standards are being (or will be) developed or tested -—
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• In October 2020, UNCTAD and UNODC released a Conceptual Framework for the Statistical Measurement of Illicit Financial Flows -—
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  —-, developed in consultation with the Task Force.
• In 2020 – 2023, UNCTAD and UNODC engaged with ESCAPUnited Nations Economic and Social Commission for Asia and the Pacific to build the capacity of Asian countries to measure IFFs¹ (see map 1).
• In 2021 – 2022, UNCTAD collaborated with the Government of Egypt to measure IFFs and develop methods to estimate the SDG financing gap².
• In May 2021, UNCTAD released the first draft of Methodological Guidelines for the Measurement of Tax and Commercial IFFs for pilot testing -—
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• In June 2021 – June 2022, UNCTAD and UNECAUnited Nations Economic Commission for Africa supported 11 countries to pilot test the measurement of IFFs in Africa³ (see map 1).
• In March 2022, Member States and international organizations endorsed the Conceptual Framework for Statistical Measurement of Illicit Financial Flows at the 53^rd session United Nations Statistical Commission -—
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• In 2023 - 2026, UNCTAD and UNODC will provide methodological and statistical support as well as guidance for capacity development as part of a global project to track and curb IFFs, implemented by UNECA jointly with other UN Regional Commissions.

Between 2017 and 2022, UNCTAD and UNODC held 19 meetings to develop methodologies to measure IFFs. Of these, four were expert consultations on the scope and measurement of IFFs (see table 1). Additionally, from January 2019 to June 2022, the Task Force on statistical measurement of IFFs⁴ has met 15 times, once in person, and continues to meet several times per year to refine methodologies. The above-mentioned Conceptual Framework and the Methodological Guidelines were developed in consultation with the Task Force. In addition to events listed in table 1, UNCTAD and UNODC contributed to several meetings of stakeholders to share information on common standards and methods to measure IFFs (e.g., World Statistics Congress by the International Statistics Institute and the Pan African Conference on IFFs and Taxation).

UNCTAD works with twelve pioneering countries in Africa and two in Asia

In 2021, UNCTAD, in collaboration with partners, conducted two regional and one national capacity development project aimed at enhancing national statistical capacities to measure IFFs and support evidence-based policy formulation. These projects included:

• The United Nations Development Account project on Defining, estimating and disseminating statistics on illicit financial flows in Africa, with eleven countries⁵ and co-led by UNECA;
• The United Nations Joint Fund Support on Integrated SDGs Financing with Egypt and,
• The United Nations development account project on Statistics and data for measuring illicit financial flows in the Asia-Pacific region with two countries⁶measuring tax and commercial IFFs and four countries crime-related IFFs. This project is implemented with ESCAP and UNODC.

The two regional projects aim at sharing knowledge on IFFIllicit financial flow concepts, methods, and policy actions; the Egypt project also aims to identify financing opportunities, through better availability and quality of data, in particular on IFFs. Due to the COVID-19COVID-19 is an infectious disease caused by the strain of coronavirus SARS-CoV-2 discovered in December 2019. Coronaviruses are a large family of viruses which may cause illness in animals or humans. In humans, several coronaviruses are known to cause respiratory infections ranging from the common cold to more severe diseases such as Middle East Respiratory Syndrome (MERS) and Severe Acute Respiratory Syndrome (SARS). The most recently discovered coronavirus causes coronavirus disease COVID-19 -—
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—-. pandemicCommonly described by the WHO as ‘the worldwide spread of a new disease’, no strict definition is provided. In 2009, they set out the basic requirements for a pandemic: • New virus emerges in humans
• Minimal or no population immunity
• Causes serious illness; high morbidity/mortality
• Spreads easily from person to person
• Global outbreak of disease.
The US Centre for Disease Control uses a similar approach, but with a reduced set of criteria. It is very difficult to gauge whether the spread of a disease should be termed an outbreak, epidemic or pandemic. In other words, when to declare a pandemic isn’t a black and white decision -—
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—-., many virtual training events were held instead of in-person events. UNCTAD made video materials available to enable learning by all experts and countries interested in measuring IFFs and reporting on SDG indicator 16.4.1 -—
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UNCTAD Guidelines offer a suite of six statistical methods for countries

The guidelines -—
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—- provide a set of six methods for pilot testing the measurement of three main types of tax and commercial IFFs:

1. Trade misinvoicing by entities
• Method #1 – Partner Country Method +
• Method #2 – Price Filter Method +
2. Aggressive tax avoidance or profit shifting by MNEsMultinational enterprise group
• Method #3 – Global distribution of MNEs’ profits and corporate taxes
• Method #4 – MNEMultinational enterprise group vs comparable non-MNE profit shifting
3. Transfer of wealth to evade taxes by individuals
• Method #5 – Flows of undeclared offshore assets indicator
• Method #6 – Flows of offshore financial wealth by country

UNCTAD invited pioneering countries to test one or two methods to measure IFFs. All 14 pioneering countries tested Method #1 – ‘Partner Country Method +’ and 10 countries tested Method #2 – ‘Price Filter Method +’ to measure trade misinvoicing (see figure 1). The selection of methods is based on data available for national institutions. Four countries tested Method #3 or two countries Method #4 to measure aggressive tax avoidance by MNEs. Method #6 on offshore financial wealth was tested by two countries. Most countries are interested to pilot test other methods in their follow up work. The first findings show that the methods on tax evasion by individuals are the most challenging methods as they require better availability of granular data. All participating countries prepared national action plans to guide further work and donor support; and the feedback will help UNCTAD refine the methodological guidelines for global use.

Almost 800 experts trained in UNCTAD’s training to measure tax and trade-related IFFs

UNCTAD has organized 33 workshops to enhance national capacity to measure IFFs within three projects with the partner organizations. In total, 1561 participants attended these capacity-enhancement activities. These include three regional workshops -—
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—-, eleven national kick-off events and 18 national training workshops -—
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—- as well as one six-day interregional methodological training workshop (see training videos) -—
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—- for Africa and Asia (see table 2).

Between September 2021 and May 2022, UNCTAD held 30 national workshops in African and Asian project countries. The national training events took place mostly in-person, the COVID-19 pandemic permitting. Combining all methodological trainings and excluding any potential double-counting of follow-up events, 781 different individuals were trained, of whom approximately one quarter female.

The feedback from participants of the inter-regional training events revealed that 72 per cent considered knowledge gained in the workshop useful for their work and more than 90 per cent found that the resource persons demonstrated mastery of their respective subjects. These findings confirmed the high level of professionalism in the delivery of the workshop by UNCTAD and involved experts. Repeated requests for national and country-specific training have been voiced, indicating the need for UNCTAD’s ongoing support to member states.

National institutions track illicit finance together

Each pilot country has formed a Technical Working Group consisting of the relevant stakeholders either from the perspective of data, technical expertise or knowledge to address IFFs. These Inter-Agency Groups often consist of the national statistical office, central bank, revenue and customs offices, tax authorities, relevant ministries, financial intelligence units etc. The composition depends on the national institutional set-up. IFFs leave traces in many administrative and statistical records. The data scattered across various institutions need to be pooled together to estimate IFFs. To ensure provision of objective and neutral information for SDG indicator 16.4.1 on IFFs, reporting on SDG indicators is coordinated by the national statistical office of each country in line with the General Assembly resolution A/RES/71/313 and the Fundamental Principles of Official Statistics -—
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—-. The coordination role of the national statistical office enables national institutions to come together and collaborate in a coordinated manner to compile comprehensive, reliable and high-quality statistics on IFFs. Figure 2 reflects the institutions involved in the IFF measurement pilots.

Six countries have calculated first estimates of tax and commercial IFFs

Countries are moving at different pace in the implementation of pilot studies, with eleven countries in Africa mainly finalising their work in June 2022, whereas countries in the other two projects planning to conclude their activities in December 2022. In June 2022, six countries had already finalised the application of selected methods to measure IFFs with seven more still compiling their estimates. Two countries had already finalised their national action plans for regular measurement of IFFs in the future, while six were in the process of drafting those plans (see figure 3). The action plans will inform and engage the national authorities in tracking IFFs, and inform international organizations and donors of support needed.

The lessons learned and early findings of pilot studies will be shared at the closing event of the project in Africa in June 2022. The event will include discussions on the process, the challenges and successes, interagency collaboration, the compilation and use of IFF estimates, and how these will enhance national policy efforts to curb IFFs. The countries will also provide feedback into refining methodological guidance for the measurement of tax and commercial IFFs globally.

Collaboration on illicit financial flows with Egypt

The previous statistics also reflect progress achieved by Egypt in a joint INFFIntegrated National Financing Framework project, where UNCTAD is actively engaged in supporting measurement of IFFs in Egypt. INFF is a UN joint programme in partnership with UNDP, UNICEF, UN WomenUN Women is the United Nations entity dedicated to gender equality and the empowerment of women (UN Women). and ILOInternational Labour Organization, and coordinated by the MPED in Egypt to develop capacities and put in place systems to track, map and assess financing flows needed to achieve the SDGs. This project also aims at identifying financing opportunities, through better evidence, in particular on IFFs. Egypt is measuring IFFs in line with the UNCTAD Methodological Guidelines and UNODC’s assistance on measuring drug trafficking and smuggling of migrants. As a result, in 2022, Egypt became the first pioneering country to measure IFFs in both realms towards reporting on SDG indicator 16.4.1 in the future. The method for costing achievement of SDGs, developed with Egypt, is also likely to be of interest to a number of other countries.

Kyrgyzstan and Uzbekistan to measure tax and commercial IFFs among countries in Asia

The previous statistics also highlight work by Kyrgyzstan and Uzbekistan to measure tax and commercial IFFs within the project in Asia-Pacific with the support by ESCAP, UNCTAD and UNODC. Both countries have opted to primarily apply Method#1 and Method#2, and also address the issue of aggressive tax avoidance through Method #4, as well as estimation of offshore financial wealth through Method#6. In addition, alternative methods for measuring particular trade-related IFFs and illicit remittancesThe term remittances can refer to three concepts, each encompassing the previous one. “Personal remittances” are defined as current and capital transfers in cash or in kind between resident households and non-resident households, plus net compensation of employees working abroad. “Total remittances” include personal remittances plus social benefits from abroad, such as benefits payable under social security or pension funds. “Total remittances and transfers to non-profit institutions serving households (NPISHs)” includes all cross-borders transfers benefiting household directly (total remittances) or indirectly (through NPISHs) -—
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—-. are considered and will be shared with other pioneering countries. Preliminary results are expected in summer 2022 and final reports and action plans in the autumn. In-person meetings to discuss the findings, the COVID-19 pandemic permitting, are planned for autumn 2022.

Notes

1. More about this project on IFFs in Asia can be found at its website here: https://unctad.org/project/statistics-and-data-measuring-illicit-financial-flows-asia-pacific-region.
2. More about the project on measuring IFFs in Egypt can be found at the project’s website here: https://unctad.org/project/united-nations-joint-fund-support-egypt-integrated-sdgs-financing.
3. Project on IFFs in Africa is described here: https://stats.unctad.org/iffs.
4. The Task Force is composed of statistical experts from Brazil, Finland, Ireland, Italy, Peru, South Africa and the United Kingdom, representing national statistical offices, central banks, customs or tax authorities. The Task Force also includes experts from international organisations with recognised expertise in this field. ECLACUnited Nations Economic Commission for Latin America and the Caribbean, ESCAP, Eurostat, IMFInternational Monetary Fund, OECDOrganization for Economic Cooperation and Development, UNECA, UNSDUnited Nations Statistics Division, UNCTAD and UNODC are represented.
5. Angola, Benin, Burkina Faso, Gabon, Ghana, Mozambique, Namibia, Nigeria, Senegal, South Africa, Zambia. See map 1.
6. Kyrgyzstan and Uzbekistan. See map 1.

References

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