Global Financial Integrity released the Global Illicit Financial Flows Report 2015

Global Financial IntegrityGlobal Financial Integrity (GFI) on 8 December 2015 released the Global Illicit Financial Flows Report 2015 entitled Illicit Financial Flows from the Developing Countries: 2004-2013.

This study is GFI’s 2015 annual global update on illicit financial flows from developing economies. It is the sixth annual update of GFI’s 2008 report-Illicit Financial Flows from Developing Countries 2002-2006.

The report found that developing and emerging economies lost 7.8 trillion US dollars in illicit financial flows from 2004 through 2013.
In the same period, illicit outflows increased at an average rate of 6.5 percent per year—nearly twice as fast as global GDP.

Among the 149 countries surveyed, India stood at the 4th position in terms of illicit financial flows between 2004 and 2013 with 51 billion US dollars.

Key findings of the report

• The top 5 countries with highest illicit financial flows- China (1), Russia (2), Mexico (3), India (4) and Malaysia (5).
• While illicit out flows from China, during 2004-13, was pegged at 139 billion US dollars, in case of Russia it was 104 billion US dollars.
• 1.1 trillion US dollars flowed illicitly out of developing and emerging economies in 2013 due to tax evasion, crime, corruption, and other illicit activity.
• The 1.1 trillion US dollars amount was greater than the combined total of foreign direct investment (FDI) and net official development assistance (ODA), which these economies received in 2013.
• Illicit outflows were roughly 1.3 times the 858 billion US dollars in total FDI and they were 11.1 times the 99.3 billion US dollars in ODA that these economies received in 2013.
• Asia remains the region of the developing world with the most significant volume of IFFs, comprising some 38.8 percent of the developing world total during 2004-13.
• As a percentage of GDP, Sub-Saharan Africa suffered the biggest loss of illicit capital. Illicit outflows from the region averaged 6.1 percent of GDP annually compared to global average of 4.0 percent.
• The fraudulent misinvoicing of trade transactions was revealed to be the largest component of illicit financial flows from developing countries, accounting for 83.4 percent of all illicit flows.

Recommendations to curb illicit outflows

• Beneficial Ownership: Governments should establish public registries of verified beneficial ownership information on all legal entities, and all banks should know the true beneficial owner(s) of any account opened in their financial institution.
• Anti-Money Laundering: Government authorities should adopt and fully implement all of the Financial Action Task Force’s anti-money laundering recommendations; laws already in place should be strongly enforced.
• Country-by-Country Reporting: 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.
• Tax Information Exchange: All countries should actively participate in the worldwide movement towards the automatic exchange of tax information as endorsed by the OECD and the G20.
• Trade Misinvoicing: Customs agencies should treat trade transactions involving a tax haven with the highest level of scrutiny.
• Sustainable Development: Governments should sign on to the Addis Tax Initiative to further support efforts to curb IFFs as a key component of the development agenda.