By 2030, significantly reduce illicit financial and arms flows, strengthen the recovery and return of stolen assets and combat all forms of organized crime

There are many themes under Target 16.4 that are substantial and substantive in their own right. While it may not seem clear at first glance, these themes also have a significant impact on a business’ operations and relationships across a variety of sectors and, in some cases, affect all sectors of the business community. And while this target is relevant to a number of other targets across the SDGs, it is inextricably connected to and should be read together with Target 16.5 on the “substantial reduction of corruption and bribery in all their forms”, Target 16.2 to “end abuse, exploitation, trafficking...of children” and Target 16.1 to “significantly reduce all forms of violence and related deaths”.

According to the International Monetary Fund (IMF) as discussed in The IMF and the Fight Against Illicit Financial Flows, illicit financial flows (IFFs) are defined as “the movement of money across borders that is illegal in its source, its transfer or its use”. These flows move through bribery and corruption, money laundering, tax evasion and financing of terrorism or other forms of organized crime including illegal arms flows, sex trade and drug trade, human trafficking and wildlife trafficking (SDG 15: Life on Land). Global Financial Integrity estimates that IFFs account for an estimated $1 trillion in stolen revenue globally each year. This is particularly harmful to disenfranchised and vulnerable populations as it undermines efforts for a given country to invest in essential public services, economic and social development and the SDGs more broadly. It also undermines access to justice and the rule of law (Target 16.3), trust in public and private institutions (Target 16.6) and political stability (Target 16.7).  

In 2021, the UN High-Level Panel on International Financial Accountability, Transparency and Integrity (FACTI) released its Financial Integrity for Sustainable Development Report, which provides comprehensive findings and a list of recommendations addressing the aforementioned challenges and more. At its core, the report calls for “[a]n entire ecosystem approach to address the shortcomings of the present patchwork of structures and adapt them to ever-evolving risks. It should have a unified aim: to foster integrity for sustainable development. This will require three types of actions: reinforcing values for integrity, strengthening policy frameworks and redesigning institutions”. While this recommendation relates mostly to public institutions and officials, as noted in Financial Times Moral Money, it is also relevant to businesses and those who advise them. Their objective should be to restore integrity and trust by not engaging in corporate profit-sharing, opaque corporate structures and tax avoidance schemes. 

Indeed, businesses may find themselves at the center of such activities in a variety of ways — whether as direct beneficiaries or as “professional gatekeepers” (see example below). For instance, while tax evasion is illegal, businesses will often seek ways to reduce their tax obligations through aggressive tax avoidance schemes and complex corporate structures that are legal. These practices have come under increasing scrutiny in recent years with calls from responsible businesses and civil society for ultimate beneficial ownership transparency and the adoption of responsible taxation principles. Additionally, the Organisation for Economic Co-operation and Development (OECD), along with over 135 countries, has developed the base erosion and profit sharing (BEPS) framework, which seeks to put an end to tax avoidance strategies that exploit gaps and mismatches in tax rules to avoid paying tax. In this context, among a variety of others, businesses and their legal advisers — within companies and firms — are strongly encouraged to consider the question: even if there is the legal right to do something, is it the right thing to do?

Global scandals such as the Panama Papers and Paradise Papers recently highlighted the fact that certain professions inadvertently or overtly serve as “professional gatekeepers”. The term refers to those industries and professions that may assist businesses, Government officials and other (often prominent) individuals to facilitate the transfer of illicitly obtained assets and financial flows or to otherwise avoid or evade taxes. Such industries and professions include in-house accountants and accounting firms; arts and antiquities dealers; banking and financial services; in-house lawyers and law firms; notaries and real estate agents; and other management and professional services firms. 

The World Bank and UN Office on Drugs and Crime (UNODC) have joined forces to establish the Stolen Asset Recovery Initiative (StAR) to support international efforts to end safe havens, prevent money laundering and recover stolen assets. Notably, organizations such as Transparency International and the World Economic Forum are raising awareness among, and are working with, professional gatekeepers to be part of the solution.

The term “organized crime” may not be seen as immediately relevant to businesses; however, upon further inspection, this aspect of this target is highly relevant to a business’ operations and supply chains. This relationship is especially true with respect to human trafficking across many sectors and, to a lesser extent, arms flows, drug and sex trade and wildlife trafficking as it relates to specific industries such as defence and security, ports and shipping and other modes of transportation. Organized crime can also include cybercrime, counterfeiting and contraband and asset misappropriation, all of which have a financial impact on the private sector.

The scourge and scope of organized crime are pernicious and persistent — and almost always out of plain sight. It is for this reason that businesses must ensure they are conducting the necessary environmental and human rights due diligence and implementing other risk mitigation measures to ensure they are not directly connected or complicit in such activities. 

The business community benefits tremendously from equitable and transparent tax and trade policies as well as from consistent and inclusive regulatory environments more broadly. Businesses and professional gatekeepers could and should play a critical role in subverting illicit financial flows and illicit transfer of assets and in combating all forms of organized crime. This focus includes establishing voluntary standards across certain professions/sectors; implementing robust anti-corruption and human rights due diligence policies and practices; and collaborating with relevant law enforcement authorities in the prevention and remedy of these illicit and illegal activities.   

Moreover, businesses are encouraged to support Governments in developing and maintaining responsible business environments. Businesses can do their part in building trust by focusing on ethical compliance and conduct, particularly in jurisdictions where governance institutions are weak. They can be more transparent in their practices and paying their fair share in taxes. Notably, The B-Team released A New Bar for Responsible Tax: The B-Team Tax Principles, which were developed through dialogue with a group of leading companies with contributions from civil society, institutional investors and international institution representatives. These principles aim to establish the principles and an approach to taxation that businesses can endorse to demonstrate responsibility and play their part in creating a stable, secure and sustainable society. In addition, the UN-supported Principles for Responsible Investment (PRI) released Evaluating and Engaging on Corporate Tax Transparency: An Investor Guide, which serves as an investor tool drawing on key trends and gaps observed in the current status of corporate income tax disclosure practices.

• There is arguably a special responsibility attributed to “professional gatekeepers” given the exposure and proximity to such illicit and illegal activities. Such gatekeepers include industries and professions such as in-house accountants and accounting firms; arts and antiquities dealers; banking and financial services; in-house lawyers and law firms; real estate agents; and other management and professional services firms.
• This target is also highly relevant across a number of industries that may directly or indirectly be affected by or involved in the facilitation of illicit financial flows, human trafficking and other forms of organized crime whether through their own operations or relationship with clients or suppliers. 

Inspired by the Ten Principles and UNGPs

Accountability, integrity and transparency, mandatory human rights due diligence, human trafficking/modern slavery, gender-based violence, child labour, exploitation of migrants and undocumented individuals and environmental protection, including biodiversity and wildlife.

Inspired by the Pathfinders SDG16+ Roadmap