Photo credit: Alexander Grey

Researchers at the University of Sussex have today (Wednesday 11 December) launched a new open access resource which, for the first time, looks at how rules and regulations around the world have changed over time to tackle illicit financial flows (IFFs), such as money laundering, terrorist financing, and sanctions evasion.   

The Regulation of Illicit Financial Flows (RIFF) dataset, created by researchers in the School of Global Studies and the Centre for the Study of Corruption, is the first of its kind to provide a long-term picture of historical regulatory change around the world in this area, and highlights important challenges and regulatory gaps.  

It shows that while countries have made major strides in in the policing of illicit financial flows, this is still being undermined by secrecy laws and a lack of transparency in specific areas such as banking and company ownership reporting. It also shows that the most serious regulatory and transparency problems now seem to be located in the world’s largest economies, and especially the United States and China. However, Britain’s Overseas Territories and Crown Dependencies also have specific transparency gaps that continue to shelter large flows of corrupt money.  

The researchers are urging developed countries, and above all the USA, Britain, and EU countries, to take the lead in setting a global standard for financial transparency to close the gaps that weaken efforts to stop illicit financial flows.  

Dr Dan Haberly, Senior Lecturer in Human Geography and lead author of the dataset, said:  

"For decades, global efforts have aimed to combat illicit financial flows—spanning areas including drug trafficking, terrorism, corruption, and sanctions evasion—but no one has systematically documented the long-term global development of these regulations. This dataset provides such a detailed view, from the early years of international efforts to crack down on illicit finance, to the present day.   

"The study shows that the richest countries must lead in making global finance more transparent, as their financial hubs often handle money linked to corruption and crime in poorer nations, fuelling economic and political harm.  

 "Equally importantly though, reforms are crucial to protecting democracy and fair governance within developed countries, whose own institutions face growing strain at home. Acting now to increase financial transparency is essential to safeguarding open and accountable societies."  

The research shows that offshore financial hubs, including UK Overseas Territories and Crown Dependencies in the Caribbean, have become better at following rules to prevent money laundering and funding for terrorism. The biggest gaps in these rules now seem to be located in the world’s two biggest economies, the USA and China, even as the USA has cracked down on illicit financial flows and anti-money laundering deficiencies abroad.  

The USA has also refused to adopt the Common Reporting Standard - a global framework for exchanging financial account information between countries to combat tax evasion -- that has been adopted by all other major countries, with research by the team suggesting that it may have now replaced Switzerland as the international banking centre of choice for corrupt transactions. Other key illicit finance trouble spots include the “Dubai-Kong axis”, which the research team has shown now plays the leading role in international sanctions evasion. 

The research highlights another key problem: international rules for fighting illicit financial flows focus mainly on giving governments access to financial data, leaving out important groups like journalists and civil society organisations. These groups, which research consistently shows play a vital role in tracking down dirty money and holding governments accountable, are often excluded from the global systems set up to tackle IFFs.  

The UK Overseas Territories and Crown Dependencies, for example, continue to have large gaps in public financial transparency—failing to adopt the UK’s own standards in areas such as the public reporting of company ownership—even as they have tightened their anti-money laundering and terrorist financing rules. This has likely contributed to their continued leading role as hubs for corruption linked shell companies.    

To fix these problems, the study suggests a new approach that emphasises public financial transparency and includes non-governmental journalists and citizens as partners in uncovering and stopping illicit financial flows. It also calls on the richest and most influential countries to lead by example in making these changes both at home, and in other jurisdictions that they control.  

The RIFF dataset has been launched along with a new working paper discussing the trends that it reveals, and will be available for policymakers, researchers, and advocates seeking to strengthen global financial integrity.