Summary

The issue of illicit financial flows came to prominence as a public policy issue with the publication of Raymond Baker's Capitalism's Achilles Heel in 2005, but it is striking that today we know little more about the issue. Moreover, all the current estimates of such flows are based on those of Global Financial Integrity, set up by Baker after his book was published, and use a single methodology. The state of the art on IFFs is essentially prescience, with no empirical basis for assessing the effectiveness of proposed policies. Nevertheless, Cobham does much to improve on the High- Level Panel's proposed objective. His goals are precise and, although ambitious, are not wholly unfeasible.

One way to look at the possible consequences for IFFs is to examine the international money laundering control regime, aimed at many IFFrelated phenomena. This is a relatively wellresourced and high-profile effort, with all but a handful of countries claiming to have implemented the recommendations of the OECDaffiliated Financial Action Task Force (FATF). However, in practice it is striking how few countries, even among those that were progenitors of the system, such as the United States, France, and the UK, have close to a perfect scorecard. Nevertheless, the FATF can and does put countries on a “blacklist” for noncompliance and there is evidence that countries care about this.

The FATF regime has led to important changes in the routines of the financial sector. Nonetheless, there is little evidence that opportunities for money laundering have been restricted. Indeed, one astonishing feature is that many major international banks flagrantly flout the regime. The Anti-Money Laundering (AML) system is a carefully designed and universally accepted framework to control an important method of protecting the fruits of crimes, but no one can show any evidence that it has had its intended effect of reducing the level of such crimes.

What Cobham proposes is in effect a vast extension of the AML system, covering much more than criminally generated revenues, because it would also strike at that which is illicit, such as transfer pricing abuses, as well as the purely illegal. Although AML measures are inherently complex and varied, Cobham's three proposed rules seem much easier to design, implement, and monitor. Still, the AML experience is instructive in considering how the transparency requirements might be met.