4.9 – Grand Corruption, Illicit Trade, Money Laundering, Financial Offshoring, and Corporate Accountability

Cracks in our fragmented global system enable international transactions of many kinds that are illegal in most countries. Examples include human trafficking and black market trades in human organs, weapons, antiquities, gold, endangered species, protected natural resources such as timber, illegal drugs, stolen and counterfeit goods, and pirated intellectual property (e.g. movies, music, software or pharmaceuticals). Multinational corporations often exploit these cracks to violate international sanctions, and, in some cases, play a role in the perpetration of core international crimes in conflict zones. 

Money laundering, a financial crime in which money is moved or exchanged to hide its original illicit source, is similarly enabled by global fragmentation. Money laundering enables grand corruption – the abuse of high-level public power for private gain at the expense of the public good – in every global region, and vice versa. Grand corruption distorts markets, undermines public trust in governance, and siphons off vast quantities of assets from public coffers into the pockets of kleptocrats and the transnational money laundering networks that conspire with them.

As detailed by Moisés Naím, a former World Bank director and former minister of trade and industry and central bank director for Venezuela, in his book Illicit, these activities are extensively intertwined with the world’s legitimate economy and entail devastating human costs, undermine legitimate businesses, incentivize government corruption, finance organized crime and terrorist networks, and erode nation-based sovereignty and governance.

Global illicit financial flows are difficult to measure given the secret nature of related crimes and the ease with which the proceeds of crime can be obscured by complex legal and financial structures. In 2020, a high-level UN panel credibly estimated that money laundering alone accounts for $1.6 trillion of illicit financial flows per year, or 2.7% of global GDP. The same UN panel report further indicates that $7 trillion in private wealth is hidden in haven countries, with 10% of world GDP held offshore. Estimates by Global Financial Integrity (GFI) that are derived solely from examining international commercial trade data indicate that developing regions lose ten times more to illicit financial flows than they receive in foreign assistance. They found that illicit outflows of trade related funds often total more than $800 billion per year and occasionally top $1 trillion per year. GFI makes its estimates using the magnitude of trade misinvoicing – one of the largest components of measurable illicit financial flows. Discrepancies in bilateral trade reflect both legitimate and illicit factors, but GFI’s estimates are still likely to be understated rather than overstated, because they do not account for activity related to the service trade or other types of financial flows.

The Panama papers, published in 2016, offered further insight, revealing a “global array of crime and corruption” enabled via a network of more than 200,000 offshore shell companies, including accounts linked to heads of state, Brazil’s largest criminal organization, and “at least 33 people and companies blacklisted by the U.S. government because of evidence that they’d been involved in wrongdoing, such as doing business with Mexican drug lords, terrorist organizations like Hezbollah or rogue nations like North Korea and Iran.”  More than $1.3 billion in fines and recovered taxes have been collected following these revelations.

Previously, in 2015, the “Swiss leaks” of account records from just one bank, HSBC, revealed more than $100 billion “in accounts linked to arms dealers, dictators and tax evaders.” More recent leaks, including the 2021 Pandora Papers, show that these dynamics continue unabated and may be growing. 

Obviously, these disclosures indicate serious structural gaps in our current global patchwork of regulatory and enforcement mechanisms. 

To remedy these flaws, scholars have proposed more robust global governance in a variety of forms, including harmonizing and updating national laws, strengthening transnational institutions, and reducing economic disparities. They have also advocated for public-private partnerships for ethical supply chain tracking, enhanced international law enforcement with intelligence sharing, and improved financial regulations and monitoring to stem illicit cash flows.

Sadly, our current mechanisms fall short of what is needed. Interpol is the closest entity we have to a global police force, comprising 196 member countries which collaborate primarily through information sharing and issuing alerts such as “red notices” calling for the arrest of individuals, rather than fielding its own personnel. Unfortunately, there have been abuses of these alerts to prosecute civil society activists and human rights defenders, contributing to mistrust between member countries. That, along with divergent national policies on data protection, has inhibited the exchange of information, thereby limiting Interpol’s effectiveness. Other initiatives like the International Police Executive Symposium have also been key for researching and publishing strategies for improving law enforcement strategy at a global level.

Another helpful, but limited, measure is Magnitsky legislation, passed first in the US and subsequently in Canada, Australia, and several European countries, plus the EU. The legislation authorizes national governments “to impose visa bans and targeted sanctions on individuals, anywhere in the world, responsible for committing human rights violations or acts of significant corruption.” Unfortunately, its deterrent and preventive power have so far been limited by shortages in both multilateral coordination and enforcement resources, among other factors.

Criminal prosecution is an emerging tool in corporate accountability, with cases targeting companies like Sweden’s Lundin Oil for aiding crimes in Sudan, France’s Lafarge for financing ISIS in Syria, and European gold traders linked to abuses in the Democratic Republic of the Congo. While promising, this approach remains costly, time-consuming, and in its early stages — requiring significant scaling to deter corporate complicity in international crimes effectively.

The United Nations has adopted treaties pertaining to various categories of transnational crime. Treaties address Organized Crime (in effect since 2000, ratified by 192 countries), Human Trafficking (2003, 180 countries), the Smuggling of Migrants (2004, 151 countries), Trafficking in Firearms (2005, 122 countries, not including the US, Russia, or China), the Arms Trade (2014, 116 countries, not including the US, Russia, or India), Drugs (1990, 191 countries), the Financing of Terrorism (2002, 189 countries), and Corruption (2005, 186 countries).

Not all international efforts to stem illicit trade and financial flows operate under UN auspices. For example, the Convention on International Trade in Endangered Species of Wild Fauna and Flora (CITES) was adopted in 1963 at a meeting of the International Union for the Conservation of Nature, with 185 countries participating. National laws, such as the Lacey Act in the US, which prohibits illicit trade in wildlife, fish, and plants, often augment such global efforts.

Another example, not treaty-based, is the Financial Transparency Coalition, a civil society organisation that takes “action against illicit financial flows, while advocating for a more transparent financial system.” 

Unfortunately, all these important efforts are undermined by the gaps between them, which enable enormous illicit trade and financial flows as we’ve seen above. Responding to this need, the Global Initiative against Transnational Organized Crime (GI-TOC) is a civil society organization through which law-enforcement, governance and development leaders work together to develop “an inclusive global strategy against organized crime.”

The campaign for an International Anti-Corruption Court (IACC) could have an important impact on many global issues generally and grand corruption and organized crime more specifically. The UN Convention Against Corruption (UNCAC) requires the 191 countries that are parties to it to criminalize several major forms of corrupt conduct including money laundering, bribery of public officials, embezzlement and other misappropriations of public resources. The problem is that in too many countries, the corrupt are able to abuse the administration of justice to create impunity for their crimes. Led by the NGOs Integrity Initiatives International (III) and Integrity Initiatives International Europe (III Europe), a growing coalition of governments, civil society, and experts is working to create the Court. These groups have made rapid progress since 2024, drafting an IACC treaty that states can use as the basis for multilateral negotiations to create the Court. Doing so would not be the only measure to combat corruption, but the IACC campaign aims to have catalytic, transformative effects across the international system, and the Court would be a key innovation that would complement and augment a range of other solutions, including the work pursued by Transparency International, the Financial Transparency Coalition and the GI-TOC. It would help disrupt, dismantle, and deter grand corruption and its constituent crimes, including money laundering, and it would provide an improved means to recover and return illicit assets to benefit the public good.

More robust global governance will be needed to truly solve these problems.