This toolkit is designed to support civil society and the media to help understand, measure and monitor the effectiveness of responses in the WB6 countries in curbing illicit financial flows (IFFs).
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The study of IFFs seeks to look at criminal activity through the lens of movements of the value of underlying (or ‘predicate’) crimes. We are ‘following the money’ to assess and help curb the criminal enterprises that profit from illegal trade, trafficking and exploitation.
Money is defined as a medium of exchange, store of value and unit of account and must be: acceptable, portable, divisible, durable, homogenous and recognizable. Money exists across a spectrum of liquidity from notes and coins, through money vested in bank accounts to time deposits (less liquid) to assets such as land (least liquid). Any analysis of illicit financial flows must therefore concern itself with any store of value that can be transferred.
Core to the discussion on IFFs is the recognition that the terms ‘illicit’ and ‘illegal’ are not interchangeable. Across the world, we observe that the majority of IFFs are not illegal but instead benefit from policies designed to create loopholes for the wealthy elites, to grow their wealth free of taxation and oversight. Thus, they may not be illegal but remain illicit — wrong by the norms of democratic governance.
Although there is no universal definition for the wide concept of illicit financial flows, this toolkit follows the definition by the United Nations Office on Drugs and Crime in its Conceptual Framework in 2020. Illicit financial flows:
Are illicit in origin, transfer,
or use
Represent an exchange of
value, not only a financial
transfer
Cover a flow of value
over time
Cross an international
border
Thus, this highlights that IFFs emerge at two different stages:
Illicit income generation, which happens in the process of producing illicit goods or services
Illicit income management, which covers cross-border transactions that use illicitly derived money for investment, goods or services
While a common component of definitions of IFFs is that they must be cross-border transactions, we feel that limiting the analysis to flows across borders often neglects to account for flows generated and spent domestically. This is especially the case in the informal economy, in countries where this sector is large and formal oversight is challenging, but also when proceeds of corruption or organized crime are generated and spent locally, without crossing of international borders.
This toolkit follows a bottom-up approach for analyzing IFFs. It takes the key predicate crimes, assesses each, and aggregates them. This is challenging, as IFFs are deliberately hidden but we use a wide range of publicly available data, including national accounts, statistics from police authorities, academic research and media investigations.
The GI-TOC has identified three channels through which IFFs move value across borders: the financial system; trade; and informality. These form the hierarchy of the ‘IFFs pyramid’ shown here. Rather than focusing on the distribution of flows, the pyramid indicates how certain parts of society positioned at the bottom are excluded from the formal financial system and rely on informality, while those at the top have access to global financial mechanisms. The pyramid is thus vertically integrated, showing how elites can access money from IFFs through the financial system for economic self-gain, while those at a lower level use, for example, bribery.
The Financial Action Task Force (FATF) is leading a global action in design and promotion of policies and standards (Recommendations) to combat Money Laundering, Terrorist Financing and Proliferation of Weapons of Mass Destruction.
The FATF, in support of regional organizations such as the Committee of Experts on the Evaluation of Anti-Money Laundering Measures and the Financing of Terrorism, regularly compiles Mutual Evaluation Reports (MERs), which give a good overview of key vulnerabilities in each country and track the implementation and effectiveness of government measures through 11 immediate outcomes (IOs). While the FATF and the MERs look at...
The IOs have been adapted for the purpose of this toolkit to improve the understanding of the media and show how civil society and media in the Western Balkans can contribute to raising awareness on IFFs.
Understanding the risk
This section looks at how the risks and impact of IFFs are identified, assessed and understood in each country and across the region.
International cooperation
This section explores joint regional and international initiatives that deal with topics related to IFFs and maps donors in the Western Balkans that work on curbing IFFs.
Supervision
This section maps the supervisory authorities in each country and their role in the supervision and monitoring of anti-money laundering and counter-terrorism financing compliance of financial institutions, designated non-financial businesses and professions, and virtual asset service providers.
Prevention
In this section, the toolkit provides an overview of the analysis of available legislation, and general preventive efforts conducted by civil society, government and the private sector to prevent IFFs on a national level, and to which degree international standards are implemented by key stakeholders (government, the private sector [especially financial institutions], civil society, etc.).
Private sector
This section analyzes the role of the private sector both in preventing and facilitating IFFs. Among other aspects, it maps the types of businesses and financial institutions where money is vulnerable to misuse in each country and looks at their understanding of the risks associated with IFFs.
Financial intelligence
This section looks at the role of data in addressing IFFs. For example, what type of data is gathered by which national authority and how regularly? How and where is it made available?
Investigations
This section looks at how, by whom (e.g. law enforcement, the judiciary, investigative media) and how often financial investigations are conducted. What are some good practices from Western Balkan countries that could be used?
Confiscation
This section looks at the laws and regulations of confiscation and social reuse of assets at a national level, and to which degree they are implemented in the countries across the region.
Non-profit organizations in the prevention of IFFs
This section explores how non-profit organizations (NPOs) are defined in the country, what are the risks of NPOs being misused for money laundering and terrorist financing, and how can NPOs contribute to combat IFFs.
The damaging impact of illicit financial flows (IFFs) on the Western Balkans is a well-documented and long-standing phenomenon. Recent assessments of IFFs in the Western Balkans by the Global Initiative Against Transnational Organized Crime (GI-TOC) confirm how widespread corruption in the region, the growth of criminal organizations and tax evasion continue to facilitate IFFs. Forms of transferring and investing the proceeds of illicit activities are numerous, and studies suggest that methods are becoming increasingly sophisticated.
The key purpose of this toolkit is to enable civil society, the public and the international community to monitor a country’s performance in combating illicit financial flows, and ultimately to empower civil society in its crucial contribution to the fight against organized crime.
The toolkit follows the structure of the Financial Action Task Force’s (FATF) immediate outcomes (IOs). IOs are used to assesses the effectiveness of government measures aimed at preventing and responding to IFFs through 11 indicators. The IOs have been adapted in order to enable easier understanding and engagement with the topic by civil society.
The toolkit comprises six country profiles of the Western Balkan states. These draw on information provided in the FATF/MONEYVAL Mutual Evaluation Reports; national risk assessments; and GI-TOC reports on IFFs covering the region — Albania, Kosovo, North Macedonia and Bosnia and Herzegovina, Montenegro and Serbia. It is also informed by interviews with representatives from all stakeholders.
This online toolkit is an output of the GI-TOC's Observatory of Illicit Economies in South Eastern Europe, which connects and empowers civil society actors in Albania, Bosnia and Herzegovina, Kosovo, Montenegro, North Macedonia and Serbia. The observatory aims to enable civil society to identify, analyze and map criminal trends, and their impact on illicit flows, governance, development, inter-ethnic relations, security and the rule of law. It also supports civil society in its monitoring of national dynamics and broader regional and international organized crime trends.
The toolkit's content is based on qualitative data and analysis collected through interviews with key experts from public institutions, non-profit organizations, th private sector and the other stakeholders. We would like to thank all interviewees for their valuable insights and contributions.
We wish to acknowledge the significant contributions made by selected experts, in particular those who prepared the country baseline assessments. We would like to thank Anesa Agovic (Bosnia and Herzegovina), Dardan Kocani (Kosovo), Ivica Simonovski (North Macedonia), Milunka Savic (Serbia), Sokol Toska (Albania) and Vuk Maras (Montenegro). Special thanks to Fatjona Mejdini, Vanja Petrovic, Tuesday Reitano Kristina Amerhauser Sasa Djordjevic and Merxhan Daci for their feedback in preparing the toolkit and its content.
This toolkit was produced with support from the Global Programme ‘Combating Illicit Financial Flows’ implemented by the German Agency for International Cooperation (GIZ) and financially supported by the German Federal Ministry of Economic Cooperation and Development and the Norwegian Ministry of Foreign Affairs. Its contents are the sole responsibility of GI-TOC and do not necessarily reflect the views of the GIZ, the German Federal Ministry of Economic Cooperation and Development and the Norwegian Ministry of Foreign Affairs.
