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Illicit financial flows in the region

A recent study (November 24, 2017) provides an assessment of routes, actors and sources of Illicit Financial Flows (IFFs) and corruption in and between Kyrgyzstan, Tajikistan, Afghanistan, Pakistan, India, Nepal, Bangladesh, and Myanmar.

According to the study (prepared by Sarah Lain, Haylea Campbell, Anton Moiseienko, Veerle Nouwens and Inês Sofia de Oliveira) for the Centre for Financial Crime and Security Studies for International Security Studies, Central and South Asia, the IFFs can stem from flows of illicit goods (such as narcotics and counterfeit money), but they also include illicit finance generated from legitimate or legal trade, including jade, gold and white goods.

IFFs are often facilitated by a range of actors, with collusion between public and private, legal and illegal, and criminal and political.

Contained in the Occasional Papers the results are based on desk research carried out by regional and thematic experts of RUSI (UK’s Royal United Services Institute) as well as two in-country workshops (in New Delhi and Bishkek, Kyrgyzstan) and remote telephone interviews carried out over six months.

There is said to be often a nexus between political, criminal, civilian and private sector actors involved in IFFs, and during the workshops some commonalities in the dynamic between some countries were identified.

Bribery and corruption are said to be key facilitators among those involved in IFFs. This may include the direct involvement of state actors (such as members of the political elite, law enforcement, border force and administrative authorities) in generating or profiting from the illicit finance. It may also be expressed as compensation to those actors for turning a blind eye to illegal activity.

It may be the fixing of a state or private sector procurement tender, or a failure to provide transparent reporting on projects that mask the movement of illicit funds.

The World Bank estimates the amount of annual bribery worldwide at $1 trillion. The UN Economic and Social Council noted in 2005 that “capital flight through corruption is one of the main causes of poverty in the South, i.e., the developing countries. More than half of the southern countries’ debts are in the form of private capital deposited in tax havens controlled by banks of the North [the developed world].”

Reducing bribery and corruption is key to addressing illicit financial flows. Bribery and corruption are particularly challenging, as they require political will to tackle.

A repeated theme throughout the research and both workshops has been that there is not enough political will to sincerely tackle corruption, in particular due to the vested interests among political elites.

This does make interventions challenging, but the paper seeks to base recommendations on the assumption that the political will is unlikely to change unless aid donors put more pressure on this issue.

Corruption among the political elites plays a significant role in IFFs in the focus countries, while the role that the central government plays differs. It can be relatively centralised and directed from the very top, as in Tajikistan, or, in contrast, the prevalence of IFFs can be enabled by a central government that is too weak to challenge the decentralised power elites who generate and benefit from IFFs, such as in Afghanistan and Myanmar.

The central government can institute seemingly strong legislation, but suffer from a lack of political will and technical expertise to enforce it, as in Kyrgyzstan. And it may occupy various stages in between, as in Bangladesh, India, Nepal and Pakistan.

In Tajikistan, political and economic control is often a family affair. President Emomali Rahmon’s friends and associates reputedly control most of the valuable businesses in what has been called a “family state.”

The customs sector, in turn, is generally the most lucrative of the public sector departments. As regards drug trafficking in particular, it has been reported that “not a single drug trafficking group is able to operate without support from high-ranking officials.”

Administrative bodies, such as customs and tax authorities, and law enforcement agencies, such as the border force and police, play a pivotal role in IFFs in most focus countries.

Officials on both the India-Bangladesh and Bangladesh-Myanmar borders are reported to be corrupt, with one report claiming that officials collude to enable human traffickers (a source of IFFs) evade arrest. Senior officers at the Indian Border Security Force admit corruption among their ranks, but also maintain that the chief problem in combating this issue is the lack of manpower and lethal weapons which would deter smugglers, particularly those smuggling cattle.

Corruption also persists on the India-Nepal border. According to a study based on interviews with Nepalese border officers, some of them bribe their superiors in order to be hired, and officials who try to dismiss corrupt subordinates can themselves be fired.

Apart from land borders, corruption and complicity also facilitate the physical movement of cash by air. An NGO expert based in Pakistan said that couriers often take cash from the drug trade out of the country by air, allegedly with the collusion of customs officials and airport security. This is in line with the US Department of State’s assessment that corruption hinders effective drugs control in Pakistan. As already mentioned, there have also been reports of moving cash, with the collusion of officials, by air out of Kabul International Airport.

Weak taxation systems produce a vicious circle because in the absence of funds it is difficult for the state to fulfil its functions and gain legitimacy in the eyes of the public. This issue is closely related to the problems of corruption and the shadow economy.

Clearly, criminal groups have a role in IFFs, although this varies depending on the specific context of the focus country. Afghanistan is probably the most extreme case in terms of the blurring of lines between official, warlord, criminal and civilian groups involved in the key sources of illicit funds in the drug trade.

An expert working on border issues in Tajikistan said that apart from the Taliban in Afghanistan, a key player in the drugs trade, a ‘plethora’ of organised criminal groups are involved, some of which are affiliated with Daesh. Another expert, based in northern Afghanistan, noted that poppy cultivation may also be conducted by local farmers, civilians, opposition groups and government.

The difficulty of the fight against illicit trafficking in Afghanistan has been compounded by the inclusion in central government of former warlords and strongmen, as well as the ability of government actors to act seemingly with impunity.

For instance, the help reportedly given by Colonel Abdul Raziq (the provincial police chief allegedly involved in human rights abuses as well as drug trafficking, although he denies the allegations) was instrumental in ensuring support for Ashraf Ghani in Kandahar, the winner of the 2014 presidential elections. The Afghan government’s inclusion of local elites and warlords means that the impact of anti-corruption and anti-trafficking measures is bound to be limited.

The convergence between political parties, especially at the local level, and criminal groups is often a way to fill gaps in formal political governance, as in Nepal. Two studies in 2012 and 2013 reported that ‘Nepali citizens rely on a range of informal arrangements to fill the void created by a weak state’. Although Nepalese organised crime groups are not particularly well organised or powerful in their own right, political parties rely on them for money and muscle in exchange.

Consequently, crimes such as drug smuggling, illegal logging, and wildlife and human trafficking remain unaddressed.

Quasi-criminal strongmen – known as mastaan in Bangladesh, often serve as a link between criminal groups, politicians, and local businesses.

A recent study based on the survey of 340 Bangladeshi journalists highlighted the dual role of the mastaan, who engage in crimes for profit (especially land-grabbing, drug trafficking and extortion), but also contract out their services to politicians during periods of electoral violence.

At times, the political acceptance of illicit activity differs at the federal versus regional level. In India, political interests of regional leadership often override nationwide legalisation in a bid for re-election, as every politician has a financial backer, whose influence redirects political interests.

In the New Delhi workshop, participants regularly noted that ‘the law on paper was different from the law on the ground’. A regular example was the illegal smuggling of cattle from India into Bangladesh for slaughter, which runs counter to national legislation but is permitted at the state-level as it acquiesces to the demands of various local ethnic groups which drive the demand for beef.

In Kyrgyzstan, there has historically been some interplay between politics and criminal groups.

Writing in 2014, academic Alexander Kupatadze contends that “[a] number of MPs are semi-legalized criminals that sought immunity and access to decision-making through elections but continue to protect criminals or engage in criminal activity themselves.” However, Kupatadze notes that the inter-penetration of crime and politics was at its highest before 2010, indicating that there has been some improvement since President Kurmanbek Bakiyev was ousted in April of that year.

As with Tajikistan, there appears to have been some crossover between political and criminal activity in the drugs trade. One notorious example is the wrestler-turned-MP Baymann Erkinbaev, who allegedly engaged in drug trafficking before being killed in 2005. After that, his business was reportedly taken over by another MP and martial arts champion, Sanjar Kadiraliev, who in turn was killed in 2009.

There is some evidence of this also in Pakistan’s border areas, with most evidence pointing to human trafficking as the criminal source of funds. Although not cited by respondents throughout the research for this paper, it illustrates the nexus between political players and criminals. A Trafficking in Persons report notes that “Pakistan is a source, transit, and destination country for men, women, and children subjected to forced labour and sex trafficking.”

According to the same report, some persons involved in human trafficking are associated with political parties or even hold public office, which they use to protect their criminal business, up to the point that when victims attempt to escape, the police return them to their traffickers.

There have been other examples of drug lords financing local politicians’ election campaigns, for example, “Imam Bheel, who was named by President Obama in 2009 as a Significant Foreign Narcotics Trafficker, is believed to be a key financier of a leading political party in Balochistan.”

M Ziauddin, "Illicit financial flows in the region," Business Recorder. 2017-12-07.
Keywords: Social sciences , Social security , Illicit goods , Illicit finance , International security , Customs administration , Crime victims , MP , US , IFF

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