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U4 Helpdesk Answer

Illicit financial flows, fragility and conflict

The relationship between “fragility” and IFFs is complex, given that both are composite umbrella terms that encompass a wide range of characteristics and behaviours. Moreover, the direct impact of IFFs on fragile and conflict-affected states (FCS) is difficult to quantify. Nonetheless, there is robust empirical evidence that each of the four main sources of IFFs (tax abuse, illegal markets, corruption and the proceeds of crime) have significant detrimental impacts on FCS. The ability to transfer illicit finance across borders is likely to strengthen the position of corrupt and criminal actors who undermine the rule of law and security in IFF source countries. In turn, this can fuel divestment and capital flight, reducing the capacity of state and society to tackle underdevelopment, inequality and political instability.

28 January 2024
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Illicit financial flows, fragility and conflict

Main points

  • In financial terms, economists concur that IFFs inhibit domestic capital accumulation, reduce productivity, discourage investment, and erode government revenue
  • Countries are deprived of much-needed funds that could fund the provision of social welfare and spur the kind of economic growth that could help societies escape the “fragility trap”
  • States with high levels of capital flight spend an average of 25% less on health and 58% less on education than countries with low levels of capital flight
  • IFFs have negative ramifications beyond the economic sphere, undermining the quality of political institutions, reducing social cohesion, increasing inequality, accelerating environmental degradation and fuelling armed conflicts
  • IFFs exacerbate drivers of fragility that, in turn, create conditions conducive to further illicit outflows, indicating a mutually-reinforcing “circular relationship between IFFs, development-inhibiting economic policy environments and weak political institutions”

Cite this publication

Jenkins, M.; (2024) Illicit financial flows, fragility and conflict. Bergen: U4 Anti-Corruption Resource Centre, Chr. Michelsen Institute (U4 Helpdesk Answer 2024:7)

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About the author

Matt Jenkins is a Research and Knowledge Manager at Transparency International, where he runs the Anti-Corruption Helpdesk, an on-demand bespoke research service for civil society activists and development practitioners. Jenkins specialises in anti-corruption evaluations and evidence reviews, he has produced studies for the OECD and the GIZ, and has worked at the European Commission and think tanks in Berlin and Hyderabad.


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This work is licenced under a Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International licence (CC BY-NC-ND 4.0)