Strategies for effective anti-IFF efforts

Policymakers need not lose hope if their analysis shows that substantial political or structural changes are a prerequisite to change. Rather, they should use this knowledge to revise their strategy. Photo: Mike Petrucci CC BY-SA 2.0

Putting the IFF agenda into action at the country level. Part 5 of 9

Illicit financial flows (IFF) became an international concern in the late 2000s and are now an established policy concern in the development context. Still, policy makers have yet to address important questions about putting anti-IFF programmes into practice. This fifth blog post discusses the relationship between anti-IFF strategies and the type of problem IFF is at country level.

Other posts in this series

  1. IFF definitions–crucial questions
  2. IFF: What losses for international development?
  3. IFF and country level legitimacy
  4. The blind spots in anti-IFF strategies
  5. This post: Strategies for effective anti-IFF efforts
  6. Coordinating an attack on secrecy
  7. Rethinking policies to remove secrecy
  8. Expanding the role of corruption in IFF
  9. Country-level IFF research for counter-IFF support

Fredrik Eriksson is a lawyer with extensive experience from private sector research, policy analysis, evaluations, strategy development, and consultancy work — mostly on anti-corruption and governance issues. He leads the U4 Innovation Lab and private sector research.


What type of problem?

A strategy is a detailed plan for achieving success. It involves measures for moving from the status quo to a desired state of affairs. A good strategy also takes into account how the current context will bear on that shift. In the political sphere, developing strategies often have limited value, since political contexts often change quickly. From that perspective, implemention of a new policy strategy has similarities with dairy; it has a short expiration date.

A systemic problem consists of interrelated and interdependent parts.

The timeline for implementing a strategy depends largely on the problem to be addressed. Some problems are simple in the sense that they are easily defined, and the relevant influencing factors and dynamics surrounding its resolution are clear. Another way to describe a simple problem is to refer to it as having easily distinguishable cause and effect. Resolving the problem does not require systemic changes affecting many other policy areas. Building a bridge to resolve a logistical problem is one example. Vaccinating children to address the risk of serious illnesses is another. Changing consumption patterns to avoid contributing to demand for products that are environmentally unfriendly is yet another example.

To remove a systemic problem, addressing only one part of the system may be futile.

In contrast, a systemic problem consists of interrelated and interdependent parts. It is defined by its boundaries and it is more than the sum of its parts. Changing one part of the system affects other parts and the whole system to various degrees. To remove a systemic problem, addressing only one part of the system may be futile if other parts of the system are strong enough to keep the problem in place (Ricigliano and Chinas; Dépelteau and Powell; Hummelbrunner and Williams). Reversely, to address certain parts of the system may be very effective if they are central components of what maintains it. Systemic problems can therefore be described as complex and more resilient than simple problems (Hummelbrunner and Williams).

Comparing a common problem across contexts

Consider the problem of IFF in two countries with the opposite governance characteristics. In both countries, IFF have been found to be most serious in relation to illicit trade. Goods that are illegal to sell, or that are sold in breach of legal requirements, generate funds that are transferred through legal or illegal means across the borders (see post on IFF definitions). To hide the origins of the funds, money laundering techniques are used to transfer the funds, facilitated by the services of financial institutions, auditors, lawyers and other service providers.

Strong governance

In a country with strong rule of law, efficiency in the administration and political will to reduce the problem in the political sphere, the problem could quickly be reduced. For example, the government could improve the control over identified trade routes, improve investigative techniques and collaboration, increase budgetary allocations to law enforcement of illicit trade-related offences, and strengthen regulation and control of facilitators.

Political patrons in government depend on the support of their clients to access and maintain power.

Weak governance

Now consider those policy options in the opposite governance context. Person-based rules emanating from patrons dominate over impersonal formal rules, contrary to the rule of law. In other words, adherence to professional standards of civil servants depend on their patrons’ endorsement of them. In turn, political patrons in government depend on the support of their clients to access and maintain power. This means patrons need economic and political support from powerful societal actors, as well as from tax collection. In return for support, patrons need to distribute benefits of various kinds to those actors (Cruz and Keefer; Khan; Grindle; Booth et al.; Mungiu-Pippidi).

Expectations and social control

As this ordering of power relationships is the real and established situation, societal expectations on wielders of power are adjusted accordingly. In a social context, stable patterns of behaviour influence other actors and the environment in which they live (Dépelteau and Powell; Abbot; Crossley; Bicchieri). Failing to meet social expectations are met with social control responses (Pound; Rusche and Kirchheimer).

There is a web of relationships that maintain IFF at country level.

Stuck in a web

Suppose the powerful societal actors that patrons at some level of government are indebted to are involved in illicit trade and IFF. Considering the dominant political, administrative and social relations, it is clear the problem of IFF looks very different in this context. We can see that there is a web of relationships that maintain it at country level. But it is fully possible to add facilitating factors, dynamics and actors also at international level, further expanding the system that links to the problem of IFF.

A “modest” suggestion is that none of the policy options would be effective.

So how would the policy response in the opposite context fit in this different context? A “modest” suggestion is that none of the policy options would be effective as none of them appear to align with the interests or logic that maintain the system which IFF is part of.

Strength of the web

There is no simple way to cut these different relationships off and say that only certain parts of the system are part of what causes IFF. Actors like politicians, criminals, lawyers, financial institutions, auditors, SMEs and MNCs can all have strong vested interest in maintaining status quo.

We can expect actors to have both economic, technical, legal and political resources to resist change.

If we consider their professional capacities alone, we can expect them to have both economic, technical, legal and political resources to resist change (Cruz and Keefer; Mungiu-Pippidi). This means removing the enablers of IFF cannot happen when actors that represent such resources are strong enough and oppose it (Khan).

Identifying the IFF problem

IFF are not isolated, local problems. They are a systemic problem at both national and international levels. Local systems in countries both transmitting and receiving IFF play an important role in their control, as do international forces. The IFF system thrives because it satisfies political and economic interests in the countries involved. A coherent anti-IFF strategy must therefore account for both the political and economic contexts at national and international level.

Social and economic reform does not normally follow linear scripts, or parsimonious formula.

A policy advocate may find it simple to identify the aim of an anti-IFF strategy (Murphy). But a practitioner trying to achieve change needs much more than normative ideals. Identifying the conditions needed for change is the most difficult part of governance reform. Social and economic reform does not normally follow linear scripts, or parsimonious formula. They require an understanding of the problems to address and possible solutions in context (Akmeemana et al.).

Regardless of the level of development and governance in a country, fighting a systemic problem is hard.

The International Monetary Fund (IMF) has recognised this challenge to systematic reform in the tax area. It found that weak tax system performance is grounded in many factors, including weak technical capacity, corruption, and the tax payer-government relationship (IMF et al.). The Financial Action Task Force (FATF) has found that developing countries have serious technical obstacles to anti-money laundering reform and few resources to overcome those hurdles (FATF(a)). Yet even OECD countries, which have greater capacity and stronger rule of law, struggle to effectively implement FATF recommendations (FATF(b)), and indeed other IFF-related regulations (OECD(a)). Regardless of the level of development and governance in a country, fighting a systemic problem is hard.

It is fascinating how very absent a discussion on the nature of the problems that maintain IFF is in certain quarters.

Different governments face different hurdles to anti-IFF reform (World Bank(a)). As the table below suggests, in some countries, stakeholders need to establish rule of law before they can at all implement anti-IFF policies (World Justice Project; OECD(b)). Other countries may struggle to hold corrupt politicians accountable. If a kleptocrat controls the state, he or she does not need to steal; he or she can simply pass a law to legally access public resources (Bhorat et al.; Hart). Fighting entrenched political corruption requires addressing the mode of government itself (Heywood; Mungiu-Pippidi). Taking all this into account, it is fascinating how very absent a discussion on the nature of the problems that maintain IFF is in certain quarters (OECD(a); OECD(b); Spanjers and Salomon). Innumerous international normative instruments exist that have yet to see effective implementation, and even more so as regards effective coordination. Strategies to achieve formal policy coherence between international normative instruments as well as between international and domestic regulations serve no purpose when regulations are not implemented in the first place (Mungiu-Pippidi). Neverthless, form still predominantly takes priority over function.

Once a clearer picture of the governance regime type has been established, the anti-IFF strategy questions can be answered

Navigating context for anti-IFF strategies

To help overcome part of the difficulty in navigating contexts, the table below is an instrument to assess what type of governance regime that prevails in a certain context. In reality, there are likely to be variations rather than any precise fit with the various governance regime types. Once a clearer picture of the governance regime type has been established, the anti-IFF strategy questions can be answered. Those answers will provide practical input for the contents of the policies that form part of a strategy to move from status quo to an improved situation. As a practical tool, it helps bring greater clarity to the needed theory of change (Guijt et al.).

Addressing context

In summary, a country’s context is a critical part of designing effective anti-IFF strategies. Anti-corruption and governance policy makers have learned through trial and error the importance of taking the local political and economic context into account (Akmeemana et al.; Heywood; Mungiu-Pippidi; World Bank(a)). It would be unfortunate if the current anti-IFF movement did not learn from these experiences.

If policy makers rely on acute contextual knowledge to develop anti-IFF strategies, the result will be better calibrated anti-IFF measures.

If policy makers rely on acute contextual knowledge to develop anti-IFF strategies, the result will be better calibrated anti-IFF measures. At a minimum, policy makers should consider the following:

Policy makers need not lose hope if the analysis of these factors shows that substantial political or structural changes are a prerequisite to real local or international level change. Rather, they should use this knowledge to revise their strategy.

Developing anti-IFF strategies

Strategies to address IFF will need to consider whether IFF exist in systems rather than assuming it is a simple problem (Rogge and Reichardt). This includes considering how various policies interact (see previous post), but also how political and economic circumstances bear on the issue. For this reason, some IFF researchers emphasise the need to look at a country’s political economy when addressing IFF (Reuter). Yet organisations such as the World Bank, OECD, and Global Financial Integrity rarely include the political and economic context in their policy recommendations and certainly not the systemic perspective (World Bank(b); OECD(a); Spanjers and Salomon).

The political and economic context or the systemic perspective are rarely visible in policy recommendations.

Previous attempts of bilateral as well as multilateral development cooperation agencies to implement political economy analysis fell short due to structural constraints (Hout). Perhaps because of that, policy makers and donors may find greater success by identifying and addressing critical components of the system that link various parts together, or so called “nodes” (Hummelbrunner and Williams). The benefits are several: Firstly, by addressing critical nodes, each and every outgrowth of those nodes do not need to be addressed. Secondly, should those critical nodes be perceived as insignificant threats to vested interest in maintaining IFF, progressive governments facing strong opposition may have a way forward.

To use various types of policy processes to address systemic problems is important, and various policy mixes also have different effects on systemic problems.

To use various types of policy processes to address systemic problems is important, and various policy mixes also have different effects on systemic problems (Rogge and Reichardt). Those findings suggest a need to be very clear about the constraints of various actors when trying to find solutions to systemic problems.

Other recent thinking has turned the systemic and converging causes of a problem on its head by developing systemic solution ecosystems. By abandoning traditional ways of thinking, it is also possible to leave siloed policy areas, research disciplines and limited problem-understanding behind. By connecting concerned citizens about IFF, a market demand may grow for components of a solution (spurred on by complementary policies — see Coordinating an attack on secrecy). In turn, that allows entrepreneurial contributors to join forces to fill a gap. Eventually, the approach allows entire problem-solving ecosystems to develop around problems (Eggers and Macmillan).

Important actors from different sectors and those with lived experiences commit to a common agenda for solving a specific social problem.

Another approach builds on a realisation that to understand the extent of a systemic or complex problem, important actors from different sectors and those with lived experiences need to be brought together. Equally, complex problems cannot be solved by any single organisation or sector alone as they do not have sufficient influence to address it. In collective impact approaches, a group of important actors from different sectors and those with lived experiences commit to a common agenda for solving a specific social problem (Kania et al.)

Behavioural design applies the model of engineering and scientific progress to try and find policy measures to make advancements.

A fifth alternative to address systemic governance problems builds on putting behavioural science and impact evaluation together, a methodology called behavioural design. Behavioural science is used to develop ideas that are more likely to work than those relying entirely on intuition. Ideas are then tested to determine which ones actually work. This approach applies the model of engineering and scientific progress to try and find policy measures to make advancements that would otherwise not be possible (Tantia).

These are just five examples of tested and more reflective approaches that appear valuable to arrive at country level anti-IFF strategies. In other words, an effective strategy is built around a deeper insight of the nature of the problem(s) to address, by drawing on a multitude of actors having complementary knowledge and experiences, or by combining the models of engineering and scientific progress. It focuses on the critical components that maintain the problem without ever losing sight of what is feasible in the context.


Next blog post

The next blog post discusses the relationship between coordination, strategy and policy coherence to advance the IFF agenda. Specifically, new ideas on coordinating an attack on secrecy are explored.

Other posts in this series

  1. IFF definitions–crucial questions
  2. IFF: What losses for international development?
  3. IFF and country level legitimacy
  4. The blind spots in anti-IFF strategies
  5. This post: Strategies for effective anti-IFF efforts
  6. Coordinating an attack on secrecy
  7. Rethinking policies to remove secrecy
  8. Expanding the role of corruption in IFF
  9. Country-level IFF research for counter-IFF support

References

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Akmeemana, S; Booth, D.; Brown, D.; Cammack, D.; Foresti, M.; Garber, L.; Green, D.; Hudson, D.; Kossof, S.; Marquette, H.; McCulloch, N.; Menocal, A. R.; O’Keefe, M.; Parks, T.; Teskey, G.; Unsworth, S.; Whaites, A.; and L. Williams, “The Case for Thinking and Working Politically: The Implications of ‘Doing Development Differently’”, DCD/DAC/GOVNET/RD(2015)3/RDI (Paris: OECD, 2015).

Bhorat, H.; Buthelezi, M.; Chipkin, I.; Duma, S.; Mondi, L.; Peter, C.; Gobo, M.; Swilling, M. and Friedenstein, H., Betrayal of the Promise: How South Africa is Being Stolen (Johannesburg: Public Affairs Research Institute, 2017).

Bicchieri, C., The Grammar of Society: The Nature and Dynamics of Social Norms (Cambridge: Cambridge University Press, 2006)

Booth, D., Development as a Collective Action Problem: Addressing the Real Challenges of African Governance, Synthesis report of the Africa Power and Politics Programme (London: ODI, 2012).

Cruz, C. and Keefer, P., “Political Parties, Clientelism, and Bureaucratic Reform,” Comparative Political Studies 48, no. 14 (2015): 1942–1973

Crossley, N., Towards Relational Sociology (Abingdon: Rutledge, 2012)

Dépelteau, F. and Powell, C., Conceptualizing Relational Sociology -Ontological and Theoretical Issues (Basingstoke: Palgrave Macmillan, 2013)

Eggers, W. D. and Macmillan, P., The Solution Revolution: How Business, Government, and Social Enterprises Are Teaming Up to Solve Society’s Toughest Problems (Cambridge, MA: Harvard Business Review, 2013).

FATF(a), “High-risk and non-cooperative jurisdictions,” FATF website (2017)

FATF(b), “Mutual Evaluations,” FATF website (2017)

Grindle, M.S., Jobs for the Boys: Patronage and the State in Comparative Perspective (Cambridge, M.A.: Harvard University Press, 2012)

Guijit, I.; van Es, M. and Vogel, I., Theory of Change Thinking in Practice (The Hague: HIVOS, 2015)

Hart, H.L.A., The Concept Of Law. Third Edition (Oxford: Oxford University Press, 2012)

Heywood, P.M., “Rethinking Corruption: Hocus-Pocus, Locus and Focus,The Slavonic and East European Review 95, no. 1 (2017): 21–48

Hout, W., “The Anti-Politics of Development: donor agencies and the political economy of governance,” Third World Quarterly 33, no. 3 (2012)

Hummelbrunner, R. and Williams, B., Systems Concepts in Action (Stanford: Stanford University Press, 2010).

Kania, J., Hanleybrown, F. and Splansky Juster, J., “Essential Mindset Shifts for Collective Impact,” Stanford Social Innovation Review (Fall 2014)

Khan, M., “Political Settlements and the Governance of Growth-Enhancing Institutions” (London: SOAS, 2010)

Mungiu-Pippidi, A., The Quest for Good Governance: How Societies Develop Control of Corruption (Cambridge, UK: Cambridge University Press, 2015)

OECD(a), Illicit Financial Flows from Developing Countries: Measuring OECD Responses, at 16 (Paris: OECD, 2014)

OECD(b), “Annotations,” OECD website (2017)

Pound, R. Social control through law (New Brunswick, NJ: Transaction, 1996)

Reuter, P., Draining Development? Controlling Flows of Illicit Funds from Developing Countries (Washington, DC: World Bank, 2012)

Rogge, K.S. and Reichardt, K., “Policy mixes for sustainability transitions: An extended concept and framework for analysis,” Research Policy 45, no. 8 (2016): 1620–1635

Ricigliano, Robert, and Diana Chigas, with AMEX International. Systems Thinking in Conflict Assessment: Concepts and Applications. (Washington, DC: USAID, 2011)

Rusche, G. and Kirchheimer, O. (eds.), Punishment and social structure (New Brunswick, NJ: Transaction, 2003)

Spanjers, J. and Salomon, M., Illicit Financial Flows to and from Developing Countries: 2005–2014 (Washington, DC: Global Financial Integrity, 2017)

Tantia, P., “The New Science of Designing for Humans,” Stanford Social Innovation Review (Spring 2017)

World Bank(a), World Development Report 2017: Governance and the Law (Washington, DC: World Bank, 2017): 65–71, 196–224

World Bank(b), “Illicit Financial Flows (IFF),” Brief (Washington, DC: World Bank, 2017)

World Justice Project, “WJP Rule of Law Index 2016,” website (2017)


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