Illicit money flow from developing world surged to $1.1 tn in 2013, says GFI
WASHINGTON Illicit financial flows or black money from developing and emerging economies surged to US$1.1 trillion or a staggering 4 percent of the developing world’s GDP in 2013, according to a study released Wednesday by Global Financial Integrity (GFI), a Washington, DC-based research and advisory organization.
The cumulative illicit outflows between 2004 and 2013 from developing economies is estimated to be US$7.8 trillion, the last year for which data are available, states the report.
Titled “Illicit Financial Flows from Developing Countries: 2004-2013”, the study authored by GFI Chief Economist Dev Kar and GFI Junior Economist Joseph Spanjers, reveals that illicit financial flows first surpassed US$1 trillion in 2011, and have grown to US$1.1 trillion in 2013marking a dramatic increase from 2004, when illicit outflows totaled just US$465.3 billion.
China leads among top 20 sources of black money with US$139.23 billion avg. (US$1.39 trillion cumulative) followed by Russia US$104.98 billion avg. (US$1.05 trillion cumulative); Mexico US$52.84bn avg. (US$528.44bn cumulative); India US$51.03 billion avg. (US$510.29 billion cumulative); Malaysia US$41.85 billion avg. (US$418.54 billion cumulative) .
In seven of the ten years studied, global IFFs outpaced the total value of all foreign aid and foreign direct investment flowing into poor nations. Sub-Saharan Africa suffered the largest illicit financial outflowsaveraging 6.1 percent of GDPfollowed by Developing Europe (5.9 percent), Asia (3.8 percent), the Western Hemisphere (3.6 percent), and the Middle East, North Africa, Afghanistan, and Pakistan (MENAAP, 2.3 percent), states the study.
The IFF growth rate from 2004-2013 was 8.6 percent in Asia and 7 percent in Developing Europe as well as in the MENA and Asia-Pacific regions, states the study which is based on scrutiny of discrepancies in balance of payments data and direction of trade statistics (DOTS), as reported to the IMF, in order to detect flows of capital that are illegally earned, transferred, and/or utilized
“This study clearly demonstrates that illicit financial flows are the most damaging economic problem faced by the world’s developing and emerging economies,” said GFI President Raymond Baker, a longtime authority on financial crime.
“This year at the UN the mantra of ‘trillions not billions’ was continuously used to indicate the amount of funds needed to reach the Sustainable Development Goals (SDG). Significantly curtailing illicit flows is central to that effort.”
Goal 16.4 of the SDGs calls on countries to significantly reduce illicit financial flows by 2030. However, the international community has not yet agreed on goal indicators, the technical measurements to provide baselines and track progress made on underlying targets and, subsequently, the overall SDGs.
These indicators will not be finalized until March 2016.
The report recommends that world leaders focus on curbing opacity in the global financial system, which facilitates these outflows, and urges IMF to conduct an annual assessment.
Among major steps urged by GFI to curb illicit money flows is establishment of public registries of verified beneficial ownership information on all legal entities and also the true beneficial owner(s) of any bank account.
“Government authorities should adopt and fully implement all of the Financial Action Task Force’s (FATF) anti-money laundering recommendations; laws already in place should be strongly enforced. Policymakers should require multinational companies to publicly disclose their revenues, profits, losses, sales, taxes paid, subsidiaries, and staff levels on a country-by-country basis,” the report recommends.
Urging all countries to share tax information as endorsed by the OECD and the G20, the report states the customs agencies should treat trade transactions involving a tax haven with the highest level of scrutiny.
The GFI has also urged governments to significantly boost their customs enforcement by equipping and training officers to better detect intentional mis-invoicing of trade transactions, particularly through access to real-time world market pricing information at a detailed commodity level.
