In case you haven't noticed, there is little enthusiasm left for sending money to the governments of developing countries as a means of digging their economies out of extreme poverty. In part, that's because some emerging-market countries (think China and India) are growing nicely without aid, while some big recipients (think Tanzania and Pakistan) have largely squandered it. Worse, aid programs are dogged by scandal, as corrupt elites appropriate the goodies -- and in some ironic cases, return the loot to their own bank accounts in donor countries.
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Indeed, if these wayward funds could be redirected into productive uses in recipient countries, it could replace a good chunk of the aid that now comes from governments. Reducing the portion of the dollars that arrive as foreign aid and flow out as predators' assets would also help rebuild the discredited case for official development assistance. Hence the new interest in measuring (and containing) illicit cash crossing borders.
Illicit fund flows (IFFs for short) come from many sources. But the most prominent have been infamous kleptocrats -- among them Gen. Sani Abacha of Nigeria, Vladimiro Montesinos, the former head of Peru's secret police, and, most recently, Hosni Mubarak of Egypt. All three dipped freely into their countries' treasuries, parking much of their booty overseas in the form of luxury houses in the south of France or London, or as bank deposits in Jersey or Switzerland. The problem is so large that the World Bank and the United Nations started a program called the Stolen Asset Recovery Initiative (StAR) in 2007 to help victimized governments recover assets.
Kleptocracy is by no means the only source of IFFs, though. Tax evasion is almost ubiquitous in the developing world (at least among the wealthy), and it is likely that much of this money also ends up in deposits overseas. Trade mispricing - e.g. exporting goods for less than they're worth and collecting a kickback at the other end -- is a major channel for moving corporate profits overseas into less heavily taxed jurisdiction.
Some observers believe that criminal markets, such as drugs and human trafficking, are also important sources of illicit flows. But it is more likely that, on balance, they generate illicit inflows: Colombian drug dealers have wanted to repatriate enough of their earnings abroad that, in periods of currency restrictions, the official rate for Colombian pesos has been below that in the black market.
Note, moreover, that "illicit" is not the same as "illegal." When Ugandan officials negotiate sweetheart oil leases with side payments to their personal accounts, one consequence is higher revenues flowing out in the form of oil company profits. Those profits may be legal; but as the result of the corrupt negotiations, a share might reasonably be called illicit. The Extractive Industries Transparency Initiative, created in 2002 as a cooperative effort of 35 resource-rich countries, aims to prevent such corrupt contracting. But even if successful, existing contracts will be generating illicit flows for the foreseeable future -- no reason, after all, to waste a good bribe on a short-term deal.
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