The IMF’s anti-money laundering strategy review is promising, but it all comes down to implementation

After consulting with civil society organisations and other stakeholders, the IMF published late last year its new strategy focusing on anti-money laundering and combating the financing of terrorism  (AML/CFT). This will underpin its engagement with countries across all of the IMF’s functions: surveillance, financial sector assessment programs, lending and capacity development. The publication of the new strategy was accompanied by five analytical papers that provided a deep dive into issues such as illicit financial flows and financial stability, along with the launch of an IMF website on anti-money laundering, and a blog arguing that financial crimes hurt economies and must be better understood and curbed. 

The Tax Justice Network engaged extensively in the consultation process that led to the adoption of the new strategy, and advocated for ambitious policies at various panels during the 2023 IMF/WB Spring and Annual meetings. Here are our key takeaways: 

Positive developments 

Focusing on big financial centres 

One of the key highlights of the new strategy is that the IMF aims to take more advantage of its strengths and its mandate in approaching its anti-money laundering goals. It will “emphasise the macroeconomic implications of financial crimes on the fiscal, monetary, financial system, and structural channels including from cross-border illicit financial flows and related spillovers”. This hopefully means that, rather than following the bias of other organisations that go hard on low income countries and easy on large financial centres, the IMF would now be expected to look more seriously at tax havens and secrecy jurisdictions that channel illicit financial flows through their conduit vehicles (eg British Virgin Isles shell companies) as well those destination jurisdictions where illicit financial flows end up being hidden to escape local and foreign authorities (eg Swiss and American banks, UK and Dubai real estate, Cayman hedge funds, etc). This is a success of our advocacy with the IMF, to follow the approaches of our Financial Secrecy Index and Corporate Tax Haven Index which also point fingers at the major financial centres that are among the worst offenders in terms of facilitating illicit financial flows. 

Disregarding typical “grey” and “blacklists” which target developing countries  

Another highlight is the idea of “avoiding cross-conditionality” in the measures the IMF recommends to countries. This suggests a departure from the typical assessments based on the findings of the Financial Action Task Force (FATF), which fall short on targeting safe havens for money launderers and criminals. This means that the IMF would exercise its own judgment based on macro-criticality and not automatically be triggered by the Financial Action Task Force’s “grey” or “black” lists in its decision-making processes. This is another example of our advocacy to counter the narrative on those who are most responsible for illicit financial flows. 

Further opportunities for improvement 

The need to be explicit on beneficial ownership transparency 

The IMF should go beyond the Financial Action Task Force’s loopholes and ask for public access to beneficial ownership information and registration of trusts , especially where the jurisdiction in question plays a large enough role that their opacity poses a global risk. While the IMF has already started demanding public access to information on beneficial ownership in the context of COVID-19 procurement, the expectation is that full public access for at least high-risk sectors (eg extractive industry, real estate) will also become policy at the IMF. Effective beneficial ownership transparency is the best way to tackle the spillover effects of financial secrecy.  

Local cooperation and synergies (eg tax and anti-money laundering) 

Another relevant issue is to keep pushing for synergies among local authorities, especially between tax and anti-money laundering authorities, or for countries to take a whole-of-government approach to beneficial ownership transparency, automatic exchange of information, etc. 

Keep consulting with civil society when developing international standards 

When the IMF provides feedback to other international organisations on international standards, it should push for more ambitious norms. To do so effectively, it will be essential for the IMF to continue engaging with civil society organisations. 

Move to viewing tax avoidance as an abusive practice 

The new anti-money laundering strategy should have explicitly covered cases of tax abuse (eg via Dutch, Irish or Luxembourg vehicles). Unfortunately, the IMF background paper on illicit financial flows appears to take a flawed narrow OECD approach, which – contrary to the formal statistical definition adopted by the UN, which hosts the global target to reduce illicit flows – excludes tax avoidance by multinational corporations.¹  While we welcome a renewed engagement from the IMF on illicit financial flows and encourage further work in this area, it would be important for the IMF to follow the UN approach. This means that any upcoming IMF policy on illicit financial flows would also cover tax abuse (that is, both tax evasion and tax avoidance by multinationals, the latter of which is sometimes legal and sometimes not), while also pushing for transparency in this regard. 

Conclusion 

The IMF’s new anti-money laundering strategy is promising – and the fact that the IMF engaged extensively with civil society in developing it is a particularly positive and welcomed development.  

The real test will lie in effective implementation. The IMF is a big, global institution. Changing the mindset of staff will be a challenge, especially for economists more worried about dated notions of “competitiveness” than the fight against money laundering and other illicit financial flows. One idea could be to take the transparency of country conditionalities which the IMF is already practicing one step further. While conditionalities are already published in the specific country documents, the centrally enlisted repository is not as user-friendly, making research about the IMF’s impact and consistent monitoring for civil society organisations rather challenging. With a small change of external presentation of already existing data, significant progress could be made. In addition, the IMF should discuss proposed conditionalities with key stakeholders, including non-governmental ones, in advance of negotiations with countries. This would strengthen democratic processes by ensuring the potential for broader political engagement on key government decisions, and also protect the IMF itself from being wrongly made a scapegoat for unpopular policies.  

As the IMF has recognised, the cost of failure is too high. The Tax Justice Network will continue to seek opportunities for engagement and knowledge sharing, and will keep a close eye on how the IMF implements and delivers its new anti-money laundering strategy.