The global consequences of financial crime

The consequences of leaving financial crime unchecked are significant.  Corruption undermines the rule of law, it impacts the delivery of public services and creates inequalities in society. For example, if a foreign company entered your country to obtain mining licences and they decide to bribe a local official rather than obtaining the permit through a normal government process, who benefits?  1-2 politicians in-country may benefit but the population suffers from a loss of revenue for the mining permit. If the police are prepared to take bribe payments, how can we ensure a fair process of investigation? What about the justice system – can you think about how the justice system is impacted if the judges would accept bribe payments for a pre-determined outcome for a legal case?

Question: What other impacts does corruption have on the national population?

Illicit financial flows result in a loss of government revenues to provide public goods. This can include lost licensing fees as per our mining example, it can also be lost tax revenues that could have been used to invest in the local economy, create jobs and reduce poverty for example.

While much attention is given to the problem of illicit capital outflows, the problem of illicit financial inflows is also a serious issue. Common reasons for illicit inflows are tax evasion and for financing the illegal activities of international criminal networks engaged in human trafficking and smuggling of arms, drugs and valuable minerals. Both illicit outflows and inflows result in the same problem: taxes not being paid to governments.

Transition Statement: The global costs of not combatting illicit financial flows and various financial crimes are high. In the next section, we examine how tax crimes fit into the wider financial crime and illicit financial flows picture.