Illicit financial flows (IFFs) drain state finances and economic vitality, with disproportionate impact on developing economies. IFFs—including money laundering, tax evasion, and tax avoidance—pose a transnational problem addressed so far through international regimes of coordination and cooperation. But meaningful reductions in IFFs require addressing the root of the problem: information asymmetries. Developed nations and tax havens know where money is hidden and profits are made, while developing nations do not. Since the international system of global finance creates the incentive structure and permissive environment for illicit flows, it is at this level that states must focus their policy-making attention. New information-sharing mechanisms, such as automatic exchange of tax information and public country-by-country tax reporting, can level the playing field and enable lower-income states to effectively address the IFF problem.
Taxing Income from Illegal Activity: The Kenyan Perspective