This Anti-Corruption Helpdesk brief was produced in response to a query from a U4 Partner Agency. The U4 Helpdesk is operated by Transparency International in collaboration with the U4 Anti-Corruption Resource Centre based at the Chr. Michelsen Institute.
Query
Please provide an overview of the relationship between illicit financial flows (IFFs) and development in Latin America with a focus on Colombia, Guatemala and Cuba.
Summary
Illicit financial flows (IFFs) stemming from illegal activities in Latin America are primarily driven by illegal gold mining, drug trafficking and corruption, which are closely intertwined and often enabled by state-embedded actors. IFFs reduce the public revenue available for health, education and other services, sustain armed and criminal groups, weaken institutions and contribute to environmental damage, including deforestation and mercury contamination. Their effects fall disproportionately on poor, indigenous and rural communities. In Colombia, Guatemala and Cuba, anti-money laundering frameworks have improved, but implementation remains weak, and responses focus on the formal financial sector rather than on trade-based and informal laundering channels.
Main points
- Non-tax IFFs in Latin America stem mainly from illegal markets and corruption. Illegal mining is now estimated to generate more criminal proceeds than drug trafficking, and gold has reportedly become the "new cocaine". Drug trafficking nonetheless remains a major source of IFFs and the illegal profits it generates are frequently reinvested in other criminal activity, such as illegal mining, human trafficking and illegal logging.
- Corruption is both a source and an enabler of IFFs. Grand corruption schemes such as Lava Jato move bribes through shell companies and offshore accounts, while bribery of customs, border, environmental and port officials enables illegally mined gold to reach international markets. Extortion by organised crime groups is pervasive in the region and can overlap with corruption where state agents are involved.
- Illicit funds are moved and concealed through shell and front companies, third-party “mule” accounts, trade mis-invoicing, virtual assets and complicit professionals, as well as informal channels such as black market currency brokers and bulk cash smuggling. Illegally mined gold is laundered chiefly by falsifying its origin.
- Evidence on the direct impact of IFFs on human development in the region is limited, but the harms of the underlying illicit activities are well documented. These include public funds diverted from health, education and water services, armed groups financed by drug and gold proceeds, environmental damage and human rights abuses.
- Anti-money laundering systems across the region remain weak in practice. According to GAFILAT, most countries score only “moderate” or “low” on effectiveness, with persistent gaps in the supervision of non-financial businesses and virtual asset providers (DNFBPs), beneficial ownership transparency and asset recovery.
- Country experiences vary. Colombia has a capable financial intelligence unit and asset forfeiture regime, but prosecutions focus predominantly on drug related laundering. Guatemala’s 2026 AML law closes long-standing regulatory gaps, but the capture of the judiciary and prosecution service threatens enforcement. Cuba is less exposed to conventional IFFs, but recent cases point to growing risks.
- Donor supported programmes are numerous but often shaped by donors’ own priorities, target senior officials rather than technical staff, and pay too little attention to the trade-based, informal and cross-border flows that dominate the region.
Contents
- Introduction
- Regional overview: principal IFF challenges in the Latin American region
- Colombia
- Guatemala
- Cuba
- Mapping of ODA supported regional bodies and initiatives to curb IFFs in Latin America
- References
Caveat
It is often difficult to differentiate between illicit financial flows (IFFs), which are by definition cross-border, and illicit funds which may remain within a country’s borders. To the extent possible, this Helpdesk Answer focuses on the former, although when discussing the sources of funds, the distinction is not always clear.
It is also difficult to isolate the specific impacts of IFFs on human development from the impact of illicit finance, financial crime and corruption more broadly. Again, to the extent possible, this Helpdesk Answer concentrates on the former.
The report briefly considers the scale of tax related IFFs in the Latin America region, but in general the emphasis is on IFFs that result from non-tax sources, rather than tax evasion or avoidance.
Less attention is given to Cuba in the report given Transparency International’s recent (2025) report on corruption and anti-corruption in Cuba.
Authors
Andy McDevitt
Reviewers
Andrés Hernández (Transparencia por Colombia), César Vega (Acción Ciudadana), Matthew Jenkins (TI), Hugh Jorgensen (TI), Rosa Loureiro-Revilla (U4)
Date
30/10/2026
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