Illicit Financial Flows (IFF)

What it is

"Illicit Financial Flows" is the umbrella term for cross-border or economy-wide movements of value that are illegal in origin, illegal in transfer, or illegal in use. It is broader than money laundering: AML focuses on the proceeds of past predicate offences, while IFF also covers commercial manipulation, tax abuse and structural opacity that enables value to be moved away from where it would be visible to public oversight.

Two main categories

The widely used framework — drawn from work by UNODC, UNCTAD and Global Financial Integrity — splits IFF into two strands:

• Crime-related IFF. Flows arising from or supporting predicate offences: fraud, drug and human trafficking, tax-crime proceeds, corruption, terrorism financing, sanctions evasion, cybercrime proceeds.
• Tax- and commercial-related IFF. Trade mispricing and invoice manipulation, transfer pricing abuse, shell-company concealment of beneficial ownership, conduit-entity profit shifting, commodity-trading corruption schemes.

Why it is hard to measure

By construction, IFF is the part of the financial system that is not visible. Estimates therefore rely on indirect methods — trade-data mismatches, balance-of-payments anomalies, leaked records, enforcement statistics. UNODC's working estimate is that 2–5% of global GDP is laundered annually, of which less than 1% is intercepted.