The effectiveness of illicit-finance related conditionality in IMF and World Bank arrangements.

Query

What is the effectiveness of illicit-finance related conditionality in IMF and World Bank arrangements?

Summary

When the IMF and World Bank provide financial assistance to countries in need, fund disbursement is often made on the condition that recipient countries will introduce certain policy reforms. In recent years, both institutions have expanded the use of conditions that target illicit finance, despite unclear evidence about their effectiveness in driving meaningful policy change in the recipient countries. This Helpdesk Answer considers the ways in which illicit-finance related conditionality might be considered effective or not and draws upon insights from three case studies

Main Points

— The IMF and World Bank have increased their use of illicit-finance related conditions in loan-based arrangements with recipient countries.

— Potential data inconsistencies and gaps aside, their available data suggest that countries succeed in meeting many of these conditions.

— Nevertheless, critics within the literature argue these conditions prioritise technical compliance, especially with standards set by the Financial Action Task Force (FATF), over effective implementation.

— Identified factors hindering effectiveness can include a lack of political will or capacity challenges in the recipient countries, and the possible offsetting effects of other conditions.

— The cases of Pakistan, Panama and pandemic-related beneficial ownership conditions provide some evidence of effective illicit-finance related conditions, albeit with limitations.

— Available evidence indicates the international finance institutions, especially the IMF, are attentive to these challenges, giving scope for more effective application of illicit-finance related conditionality in the future.

Contents

1. Introduction
2. The IMF and the World Bank’s approaches to illicit-finance related conditionality
3. The effectiveness of illicit-finance related conditionality in IMF and World Bank arrangements.
4. Case studies
   1. IMF beneficial ownership c0nditions
   2. Pakistan
   3. Panama
5. Conclusions

Authors

Jamie Bergin (TI)

[email protected]

Reviewed by

Rosa Loureiro-Revilla (U4)

Hugh Jorgensen (TI)

Date

11/03/2024

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