Low and middle-income countries must mobilise domestic resources to finance sustainable development and address growing social and environmental challenges in the face of shrinking foreign aid. Yet, illicit financial flows (IFFs) erode their tax base. For commodity-dependent countries, trade mispricing is a major problem that prevents them from benefitting fairly from the sale of their natural resources. It was against this backdrop that researchers from Switzerland, Ghana and Laos engaged in a six-year interdisciplinary research to study the IFFs associated with commodity trade mispricing and tax evasion. The Ghanaian filmmaker Fiifi Koomsom retraces this research collaboration in “Missing Dollars”, a documentary that plunges viewers into the heart of global trade issues. Gilles Carbonnier, Professor at the Geneva Graduate Institute and project leader, puts this six-year adventure into context.
Before talking about the documentary, can you explain what IFFs are and why they are problematic?
Illicit financial flows (IFFs) are cross-border money flows that are illegally earned, transferred or utilised. Trade mispricing has been singled out a major cause of IFFs, whereby exporters and importers under-invoice or over-invoice trade in goods and services to evade or avoid paying taxes. Such practices deprive resource-rich developing countries from fiscal revenues, which reduces their capacity to invest in health, education, infrastructure, climate adaptation and other development priorities.
The ambitious institutional set-up of this project (North-South partnership, multi-disciplinarity, financing of several institutions, etc.) is one of its originalities. How did it contribute to the quality of the results?
We benefited from the “Research for Development” programme funded by the Swiss National Science Foundation and Development and Cooperation agency to promote effective and equitable North-South research partnership. With funding made available from the outset to us and our partners in Ghana and Laos, we have been able to jointly design our study based on the realities of commodity-exporting countries, which differ from the conditions found in a trading hub such as Switzerland. This has enabled us to focus on both push factors in developing countries and pull factors in financial centres and tax havens.
More importantly perhaps, this has allowed our research consortium to involve from day one the relevant policymakers, government officials, business and trading entities as well as civil society leaders. This greatly facilitated access to relevant data, effective reality checks and data triangulation. Working from the outset on a regular basis with key stakeholders in Ghana, Laos and Switzerland allowed us to inject research findings in real time into policy debates and actual reforms, which was particularly effective in commodity-exporting countries.
Based on your findings, how do you see this issue developing and what solutions are underway?
The current drive to reform the global governance of taxation offers unique opportunities. Establishing a more equitable and transparent framework for commodity trade and taxation is crucial to enable exporting states to mobilise domestic resources for sustainable development. The stakes are also high for the future of multilateralism in the context of heightened North-South polarisation and calls for deeper decolonisation.
Concretely, resource-rich developing countries can implement a range of policies and technological innovations to curb commodity trade mispricing. But this will not suffice. States hosting major trading and financial hubs must simultaneously address regulatory loopholes and unfair pull factors. At the global level, ongoing efforts to reform taxation are critical and must involve developing countries on equal footing. Commodity-exporting states must be given the policy space for tailored solutions consistent with their evolving administrative and institutional capacities.
“Missing Dollars” covers the topic you are working on. Why this documentary? And what can it contribute to research?
As the documentary was directed by a Ghanaian filmmaker, it provides a perspective from West Africa, from a country that exports vast quantities of commodities such as gold and cocoa. Fiifi Koomsom started shooting in Ghana and then conducted interviews in Switzerland to uncover how policy debates here relate to the situation in his own country.
What is the value added? As researchers, we published research findings in scientific journals including a forthcoming special issue of International Development Policy https://journals.openedition.org/poldev/. We have also organised policy workshops and conferences with the key actors in Laos, Ghana and Switzerland, reaching out to the media as well. This documentary brings another and additional perspective which shall foster greater awareness and wider outreach on illicit financial flows – a critical issue to combat double standards in international economic relations and enable poorer countries to move beyond aid.
The IFFs research project (2017–2023) was funded by the Swiss Programme for Research on Global Issues for Development (R4D.ch) and led by
- Gilles Carbonnier (Centre on Conflict, Development and Peacebuilding, Geneva Graduate Institute)
- Fritz Brugger (NADEL Center for Development and Cooperation, ETH Zürich)
- Elisabeth Bürgi Bonanomi (Centre for Development and Environment, University of Bern)
- Fred Mawunyo Dzanku (Institute of Statistical, Social and Economic Research, University of Ghana, Accra)
- Sthabandith Insisienmay (Center for Macroeconomic Policy and Economic Restructuring, National Institute for Economic Research, Vientiane, Laos)
Interview by Marc Galvin, Research Office at the Geneva Graduate Institute
Gilles Carbonnier is also the Academic Advisor of the new Executive Certificate in Nature-Positive Economy starting on 24 June 2024.
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