1 of 58

The Regulation of Illicit Financial Flows Dataset: A new world map of 30-years of financial secrecy and anti-money laundering reforms

Daniel Haberly, University of Sussex

Valentina Gullo, University of Sussex

Tom Shipley, University of Sussex

Tomas Boukal, Charles University Prague

Miroslav Palansky, Charles University Prague and Tax Justice Network

Robert Barrington, University of Sussex

2 of 58

  • Over the past few decades there have been intensifying international and national reform initiatives (e.g. coordinated by EU, OECD, FATF, US, UK) aimed at policing IFFs—from AML/CFT, to anti-tax evasion & avoidance

Empirically assessing IFF regulatory impacts

3 of 58

  • Over the past few decades there have been intensifying international and national reform initiatives (e.g. coordinated by EU, OECD, FATF, US, UK) aimed at policing IFFs—from AML/CFT, to anti-tax evasion & avoidance
    • Particular focus on curtailing abuses of offshore jurisdictions

Empirically assessing IFF regulatory impacts

4 of 58

  • Over the past few decades there have been intensifying international and national reform initiatives (e.g. coordinated by EU, OECD, FATF, US, UK) aimed at policing IFFs—from AML/CFT, to anti-tax evasion & avoidance
    • Particular focus on curtailing abuses of offshore jurisdictions
  • BUT, limited understanding of actual impact of policy changes on illicit financial activities and flows
    • Shortage of quantitative empirical evidence

Empirically assessing IFF regulatory impacts

5 of 58

Two basic challenges in quantitively assessing IFF regulatory impacts:

​

​

​

Empirically assessing IFF regulatory impacts

6 of 58

Two basic challenges in quantitively assessing IFF regulatory impacts:

  1. Constructing the dependent variable—i.e. measuring / estimating / proxying IFFs

​

​

​

Empirically assessing IFF regulatory impacts

7 of 58

Two basic challenges in quantitively assessing IFF regulatory impacts:

  1. Constructing the dependent variable—i.e. measuring / estimating / proxying IFFs
  2. Constructing the independent variable—i.e. historical change in the global IFF regulatory landscape, at the jurisdiction level

​

​

​

Empirically assessing IFF regulatory impacts

8 of 58

Two basic challenges in quantitively assessing IFF regulatory impacts:

  1. Constructing the dependent variable—i.e. measuring / estimating / proxying IFFs
  2. Constructing the independent variable—i.e. historical change in the global IFF regulatory landscape, at the jurisdiction level
    • Some enormous IFF regulatory datasets (e.g. FATF, TJN FSI), but none is designed to support time series statistical analysis of the impact of long-term IFF regulatory change across multiple domains

​

​

Empirically assessing IFF regulatory impacts

9 of 58

Two basic challenges in quantitively assessing IFF regulatory impacts:

  1. Constructing the dependent variable—i.e. measuring / estimating / proxying IFFs
  2. Constructing the independent variable—i.e. historical change in the global IFF regulatory landscape, at the jurisdiction level
    • Some enormous IFF regulatory datasets (e.g. FATF, TJN FSI), but none is designed to support time series statistical analysis of the impact of long-term IFF regulatory change across multiple domains
    • Need a combination of large-scale geographic and long-term temporal coverage, high temporal resolution, and methodological continuity, for a large number of different regulatory indicators

​

​

​

Empirically assessing IFF regulatory impacts

10 of 58

Two basic challenges in quantitively assessing IFF regulatory impacts:

  1. Constructing the dependent variable—i.e. measuring / estimating / proxying IFFs
  2. Constructing the independent variable—i.e. historical change in the global IFF regulatory landscape, at the jurisdiction level
    • Some enormous IFF regulatory datasets (e.g. FATF, TJN FSI), but none is designed to support time series statistical analysis of the impact of long-term IFF regulatory change across multiple domains
    • Need a combination of large-scale geographic and long-term temporal coverage, high temporal resolution, and methodological continuity, for a large number of different regulatory indicators

​

​

​

Regulation of Illicit Financial Flows (RIFF) dataset is designed to fill this gap

Empirically assessing IFF regulatory impacts

11 of 58

Australia

South Africa

Mauritius

Seychelles

Indonesia

Singapore

Malaysia

Brunei

Hong Kong

Philippines

Thailand

Marshall I.

New

Zealand

Cook I.

Niue

Vanuatu

Samoa

China

UAE

Bahrain

Egypt

Jordan

Lebanon

Israel

Cyprus

Barbados

St. Lucia

BVI

Anguilla

Bermuda

Bahamas

Caymans

Colombia

Brazil

Uruguay

Panama

Costa Rica

Guatemala

Belize

Malta

Gibraltar

USA

Canada

Spain

Portugal

Mon.

Ro.

Hu.

Li.

Ch.

France

Je.

Guernsey

Lu.

Be.

Nl.

Germany

UK

Manx

Ireland

Taiwan

Regulation of Illicit Financial Flows (RIFF) dataset

61 jurisdictions – prioritized based on combination of OFC / tax haven lists, TJN evaluations, importance in international financial markets, and importance in ICIJ data

23 policy indicators – defined based on combination of importance and data availability

30 years (1990-2020) – annual time resolution of data

12 of 58

Australia

South Africa

Mauritius

Seychelles

Indonesia

Singapore

Malaysia

Brunei

Hong Kong

Philippines

Thailand

Marshall I.

New

Zealand

Cook I.

Niue

Vanuatu

Samoa

China

UAE

Bahrain

Egypt

Jordan

Lebanon

Israel

Cyprus

Barbados

St. Lucia

BVI

Anguilla

Bermuda

Bahamas

Caymans

Colombia

Brazil

Uruguay

Panama

Costa Rica

Guatemala

Belize

Malta

Gibraltar

USA

Canada

Spain

Portugal

Mon.

Ro.

Hu.

Li.

Ch.

France

Je.

Guernsey

Lu.

Be.

Nl.

Germany

UK

Manx

Ireland

Taiwan

Regulation of Illicit Financial Flows (RIFF) dataset

61 jurisdictions – prioritized based on combination of OFC / tax haven lists, TJN evaluations, importance in international financial markets, and importance in ICIJ data

23 policy indicators – defined based on combination of importance and data availability

30 years (1990-2020) – annual time resolution of data

Focus on time series continuity and consistency

13 of 58

Australia

South Africa

Mauritius

Seychelles

Indonesia

Singapore

Malaysia

Brunei

Hong Kong

Philippines

Thailand

Marshall I.

New

Zealand

Cook I.

Niue

Vanuatu

Samoa

China

UAE

Bahrain

Egypt

Jordan

Lebanon

Israel

Cyprus

Barbados

St. Lucia

BVI

Anguilla

Bermuda

Bahamas

Caymans

Colombia

Brazil

Uruguay

Panama

Costa Rica

Guatemala

Belize

Malta

Gibraltar

USA

Canada

Spain

Portugal

Mon.

Ro.

Hu.

Li.

Ch.

France

Je.

Guernsey

Lu.

Be.

Nl.

Germany

UK

Manx

Ireland

Taiwan

Regulation of Illicit Financial Flows (RIFF) dataset

61 jurisdictions – prioritized based on combination of OFC / tax haven lists, TJN evaluations, importance in international financial markets, and importance in ICIJ data

23 policy indicators – defined based on combination of importance and data availability

30 years (1990-2020) – annual time resolution of data

Developed with support from Tax Justice Network

Focus on time series continuity and consistency

14 of 58

What does the RIFF tell us about the changing world map of IFF regulation, 1990-2020?

15 of 58

RIFF Composite Regulatory Score

Scored based on factor analysis of 11 (of 23) indicators selected to minimize missing data;

first factor explains 51% of total variance

Includes beneficial ownership registration, bearer shares ban/immobilization, suspicious

transaction whistleblower protections, suspicious transaction reporting obligations, client tip-off

restrictions, automatic exchange of information, client due diligence (general), PEPs enhanced

due diligence, ML criminalization drugs, ML criminalization other, financial intelligence unit)

​

16 of 58

RIFF Composite Regulatory Score

Scored based on factor analysis of 11 (of 23) indicators selected to minimize missing data;

first factor explains 51% of total variance

Includes beneficial ownership registration, bearer shares ban/immobilization, suspicious

transaction whistleblower protections, suspicious transaction reporting obligations, client tip-off

restrictions, automatic exchange of information, client due diligence (general), PEPs enhanced

due diligence, ML criminalization drugs, ML criminalization other, financial intelligence unit)

​

17 of 58

RIFF Composite Regulatory Score

Scored based on factor analysis of 11 (of 23) indicators selected to minimize missing data;

first factor explains 51% of total variance

Includes beneficial ownership registration, bearer shares ban/immobilization, suspicious

transaction whistleblower protections, suspicious transaction reporting obligations, client tip-off

restrictions, automatic exchange of information, client due diligence (general), PEPs enhanced

due diligence, ML criminalization drugs, ML criminalization other, financial intelligence unit)

​

18 of 58

RIFF Composite Regulatory Score

Scored based on factor analysis of 11 (of 23) indicators selected to minimize missing data;

first factor explains 51% of total variance

Includes beneficial ownership registration, bearer shares ban/immobilization, suspicious

transaction whistleblower protections, suspicious transaction reporting obligations, client tip-off

restrictions, automatic exchange of information, client due diligence (general), PEPs enhanced

due diligence, ML criminalization drugs, ML criminalization other, financial intelligence unit)

​

19 of 58

RIFF Composite Regulatory Score

Scored based on factor analysis of 11 (of 23) indicators selected to minimize missing data;

first factor explains 51% of total variance

Includes beneficial ownership registration, bearer shares ban/immobilization, suspicious

transaction whistleblower protections, suspicious transaction reporting obligations, client tip-off

restrictions, automatic exchange of information, client due diligence (general), PEPs enhanced

due diligence, ML criminalization drugs, ML criminalization other, financial intelligence unit)

​

20 of 58

RIFF Composite Regulatory Score

Scored based on factor analysis of 11 (of 23) indicators selected to minimize missing data;

first factor explains 51% of total variance

Includes beneficial ownership registration, bearer shares ban/immobilization, suspicious

transaction whistleblower protections, suspicious transaction reporting obligations, client tip-off

restrictions, automatic exchange of information, client due diligence (general), PEPs enhanced

due diligence, ML criminalization drugs, ML criminalization other, financial intelligence unit)

​

21 of 58

RIFF Composite Regulatory Score

Scored based on factor analysis of 11 (of 23) indicators selected to minimize missing data;

first factor explains 51% of total variance

Includes beneficial ownership registration, bearer shares ban/immobilization, suspicious

transaction whistleblower protections, suspicious transaction reporting obligations, client tip-off

restrictions, automatic exchange of information, client due diligence (general), PEPs enhanced

due diligence, ML criminalization drugs, ML criminalization other, financial intelligence unit)

​

22 of 58

Offshore-onshore regulatory convergence?

Offshore-OECD composite

regulatory gap

0

23 of 58

Offshore-onshore regulatory convergence?

Offshore-OECD composite

regulatory gap

0

Offshore jurisdictions look even better with respect to AML regulatory implementation at the service provider level

​

24 of 58

Relationship between 2010 RIFF composite regulatory scores,

and Global Shell Games service provider compliance scores*

*from Findley, Nielson, and Sharman 2012

25 of 58

Offshore-onshore regulatory convergence?

Offshore-OECD composite

regulatory gap

0

Offshore jurisdictions look even better with respect to AML regulatory implementation at the service provider level

​

26 of 58

Offshore-onshore regulatory convergence?

Offshore-OECD composite

regulatory gap

0

Offshore jurisdictions look even better with respect to AML regulatory implementation at the service provider level

However, key areas of offshore financial transparency still lag…

27 of 58

(AML/CFT)

AML/CFT regulation versus financial transparency,

2018/2020

28 of 58

(AML/CFT)

AML/CFT regulation versus financial transparency,

2018/2020

Good AML/CFT score

…but low transparency

29 of 58

Offshore-onshore regulatory convergence?

Offshore-OECD composite

regulatory gap

0

30 of 58

Offshore-onshore regulatory convergence?

Offshore-OECD composite

regulatory gap

Offshore-OECD banking

secrecy gap

0

0

31 of 58

Banking Secrecy

32 of 58

Banking Secrecy

33 of 58

Also a widening offshore-onshore gap in beneficial ownership register transparency

Offshore-onshore regulatory convergence?

34 of 58

Also a widening offshore-onshore gap in beneficial ownership register transparency

…and scope

Offshore-onshore regulatory convergence?

35 of 58

The significance of financial transparency

36 of 58

Gap between trust versus company beneficial ownership registration creates potential for secrecy-seeking arbitrage

​

The significance of financial transparency

37 of 58

Gap between trust versus company beneficial ownership registration creates potential for secrecy-seeking arbitrage

However, why does the statutory banking secrecy and beneficial ownership register transparency gap matter?

  • Service providers and governments are collecting more and more client data, and sharing it with one another

​

The significance of financial transparency

38 of 58

39 of 58

Question: Why does the statutory banking secrecy and beneficial ownership register transparency gap matter?

  • Service providers and governments are collecting more and more client data, and sharing it with one another

​

The significance of financial transparency

40 of 58

Question: Why does the statutory banking secrecy and beneficial ownership register transparency gap matter?

  • Service providers and governments are collecting more and more client data, and sharing it with one another

Answer: The main initiative in many IFF investigations—particularly in relation to corruption—frequently doesn’t come from governments. It comes from journalists and civil society organizations.

​

The significance of financial transparency

41 of 58

Question: Why does the statutory banking secrecy and beneficial ownership register transparency gap matter?

  • Service providers and governments are collecting more and more client data, and sharing it with one another

Answer: The main initiative in many IFF investigations—particularly in relation to corruption—frequently doesn’t come from governments. It comes from journalists and civil society organizations.

  • Banking secrecy laws can be used to criminalize journalism and whistleblowing, even if governments adopt information exchange mechanisms that override secrecy

​

The significance of financial transparency

42 of 58

Question: Why does the statutory banking secrecy and beneficial ownership register transparency gap matter?

  • Service providers and governments are collecting more and more client data, and sharing it with one another

Answer: The main initiative in many IFF investigations—particularly in relation to corruption—frequently doesn’t come from governments. It comes from journalists and civil society organizations.

  • Banking secrecy laws can be used to criminalize journalism and whistleblowing, even if governments adopt information exchange mechanisms that override secrecy
  • Beneficial ownership registers need to be freely accessible to non-governmental actors

​

The significance of financial transparency

43 of 58

Question: Why does the statutory banking secrecy and beneficial ownership register transparency gap matter?

  • Service providers and governments are collecting more and more client data, and sharing it with one another

Answer: The main initiative in many IFF investigations—particularly in relation to corruption—frequently doesn’t come from governments. It comes from journalists and civil society organizations.

  • Banking secrecy laws can be used to criminalize journalism and whistleblowing, even if governments adopt information exchange mechanisms that override secrecy
  • Beneficial ownership registers need to be freely accessible to non-governmental actors
  • Non-governmental anti-corruption investigators shouldn’t have to rely on sporadic leaks of data

​

The significance of financial transparency

44 of 58

  • The global IFF regulatory landscape, and OECD-offshore divide, has become much more complex in the past 30-years

Conclusions and Implications

45 of 58

  • The global IFF regulatory landscape, and OECD-offshore divide, has become much more complex in the past 30-years
  • In the 1990s-early 2000s:
    • Standards were poor everywhere by present-day standards

Conclusions and Implications

46 of 58

  • The global IFF regulatory landscape, and OECD-offshore divide, has become much more complex in the past 30-years
  • In the 1990s-early 2000s:
    • Standards were poor everywhere by present-day standards
    • International regulatory variation was one-dimensional—non-OECD offshore jurisdictions generally scored worse in everything than OECD states.

Conclusions and Implications

47 of 58

  • The global IFF regulatory landscape, and OECD-offshore divide, has become much more complex in the past 30-years
  • In the 1990s-early 2000s:
    • Standards were poor everywhere by present-day standards
    • International regulatory variation was one-dimensional—non-OECD offshore jurisdictions generally scored worse in everything than OECD states.
  • Late 2010s-2020:
    • Broad international regulatory progress and convergence
    • International regulatory variation, and the OECD-offshore divide, is now multi-dimensional

Conclusions and Implications

48 of 58

  • The global IFF regulatory landscape, and OECD-offshore divide, has become much more complex in the past 30-years
  • In the 1990s-early 2000s:
    • Standards were poor everywhere by present-day standards
    • International regulatory variation was one-dimensional—non-OECD offshore jurisdictions generally scored worse in everything than OECD states.
  • Late 2010s-2020:
    • Broad international regulatory progress and convergence
    • International regulatory variation, and the OECD-offshore divide, is now multi-dimensional
      • Non-OECD offshore jurisdictions seem to equal or even outperform OECD, on average, in key areas of AML/CFT (particularly CDD)

Conclusions and Implications

49 of 58

  • The global IFF regulatory landscape, and OECD-offshore divide, has become much more complex in the past 30-years
  • In the 1990s-early 2000s:
    • Standards were poor everywhere by present-day standards
    • International regulatory variation was one-dimensional—non-OECD offshore jurisdictions generally scored worse in everything than OECD states.
  • Late 2010s-2020:
    • Broad international regulatory progress and convergence
    • International regulatory variation, and the OECD-offshore divide, is now multi-dimensional
      • Non-OECD offshore jurisdictions seem to equal or even outperform OECD, on average, in key areas of AML/CFT (particularly CDD)
      • However, offshore jurisdictions still tend to lag in financial transparency, and in particular public financial transparency

Conclusions and Implications

50 of 58

  • There’s a mismatch between the focus of the international IFF-regulatory framework (as led by FATF, OECD, etc.), and the requirements of anti-corruption accountability, in particular

Conclusions and Implications

51 of 58

  • There’s a mismatch between the focus of the international IFF-regulatory framework (as led by FATF, OECD, etc.), and the requirements of anti-corruption accountability, in particular
    • The primary emphasis of the IFF regulatory framework is on ensuring that governments have access to client data, and can share this internationally
    • BUT, the primary initiative behind anti-corruption (and many other IFF-related) investigations usually comes from non-governmental actors—journalists, civil society organizations, etc.

​

Conclusions and Implications

52 of 58

  • There’s a mismatch between the focus of the international IFF-regulatory framework (as led by FATF, OECD, etc.), and the requirements of anti-corruption accountability, in particular
    • The primary emphasis of the IFF regulatory framework is on ensuring that governments have access to client data, and can share this internationally
    • BUT, the primary initiative behind anti-corruption (and many other IFF-related) investigations usually comes from non-governmental actors—journalists, civil society organizations, etc.
  • The scope of the international IFF regulatory framework needs to be redefined to acknowledge and enable the broad public foundations of government accountability
    • Public accessibility of data & vigilance about non-governmental financial secrecy

Conclusions and Implications

53 of 58

  • Despite ongoing issues with transparency and public financial transparency in offshore jurisdictions, they are not the most acute or important underperformers in this area.

​

Conclusions and Implications

54 of 58

(AML/CFT)

AML/CFT regulation versus financial transparency,

2018/2020

55 of 58

(AML/CFT)

AML/CFT regulation versus financial transparency,

2018/2020

56 of 58

  • Despite ongoing issues with transparency and public financial transparency in offshore jurisdictions, they are not the most acute or important underperformers in this area.

​

​

Conclusions and Implications

57 of 58

  • Despite ongoing issues with transparency and public financial transparency in offshore jurisdictions, they are not the most acute or important underperformers in this area.
  • The most powerful countries with the largest economies need to lead by example

​

​

Conclusions and Implications

58 of 58

Thank You!

Dan Haberly, d.haberly@sussex.ac.uk

Valentina Gullo, gullodv@gmail.com

Tom Shipley, t.shipley@sussex.ac.uk

Tomas Boukal, tomas.boukal@fsv.cuni.cz

Miroslav Palansky, miroslav.palansky@gmail.com

Robert Barrington, r.barrington@sussex.ac.uk