Financial Corruption costs developing world Trillions


Illicit Financial Flows From Developing Countries: 2001-2010

A new report by Global Financial Integrity, a Washington-based group that campaigns for financial accountability reports that crime, corruption and tax evasion have cost the developing world nearly $6 trillion over the past decade, and illicit funds keep growing, led by China which accounted for almost half of the $858.8 billion in dirty money that flowed into tax havens and Western banks in 2010, more than eight times the amounts for runners-up Malaysia and Mexico.

“Astronomical sums of dirty money continue to flow out of the developing world and into offshore tax havens and developed country banks, … Developing countries are hemorrhaging more and more money at a time when rich and poor nations alike are struggling to spur economic growth.” said Raymond Baker, director of GFI.

The sums are so huge that for every dollar in foreign direct aid, $10 leaves developing countries.

The report said the 10 countries with the highest measured illicit money outflows between 2001 and 2010 were, in order: China, Mexico, Malaysia, Saudi Arabia, Russia, Philippines, Nigeria, India, Indonesia, United Arab Emirates.

Primary Findings

The developing world lost US$859 billion in illicit outflows in 2010, an increase of 11% over 2009. The capital outflows stem from crime, corruption, tax evasion, and other illicit activity.

The report finds that illicit financial flows. From 2001 to 2010, developing countries lost US$5.86 trillion to illicit outflows.

Conservatively estimated, illicit financial flows have increased in every region of developing countries. Real growth of illicit flows by regions over study period is as follows:

  • Africa 23.8 percent,
  • Middle East and North Africa (MENA) 26.3 percent,
  • developing Europe 3.6 percent,
  • Asia 7.8 percent, and
  • Western Hemisphere 2.7 percent.

Top 10 countries with the highest measured cumulative illicit financial outflows between 2001 and 2010 were:

  1. China: US$2.74 trillion
  2. Mexico: US$476 billion
  3. Malaysia: US$285 billon
  4. Saudi Arabia: US$210 billion
  5. Russia: US$152 billion
  6. Philippines: US$138 billion
  7. Nigeria: US$129 billion
  8. India: US$123 billion
  9. Indonesia: US$109 billion
  10. United Arab Emirates: US$107 billion

New Methodology

The report presents four different methodologies for estimating illicit financial flows from developing countries, including the methodology used in Global Financial Integrity’s previous research, and encourages scholars and experts to weigh in which best estimates illicit financial flows.

All analysis unless otherwise noted refers to the GER+HMR method, which represents a highly conservative estimate for illicit financial outflows.

Under the previous GFI methodology, the developing world lost US$1.138 trillion in 2010, a 26% increase over 2009.

IFF Drivers & Trends

  • Trade mispricing was found to account for an average of 80 percent of cumulative illicit flows from developing countries over the period 2001-2010 and is the major channel for the transfer of illicit capital from China and Mexico.
  • China continued to lead the world in illicit outflows, losing $420.4 billion in 2010.
  • Bribery, kickbacks, and the proceeds of corruption continued to be the primary driver of illicit financial flows from the Middle East and North Africa, while trade mispricing was the primary driver of illicit financial flows in the other regions.
  • Qatar, Kuwait, Venezuela, and Poland were all displaced from the top-10 illicit financial flow rankng, and were replaced by the significantly poorer countries Philippines, India, Indonesia, and Nigeria.

Recommendations for achieving greater transparency

  • Addressing the problems posed by anonymous shell companies, foundations, and trusts by requiring confirmation
    of beneficial ownership in all banking and securities accounts, and demanding that information on the true, human
    owner of all corporations, trusts, and foundations be disclosed upon formation and be available to law enforcement;
  • Reforming customs and trade protocols to detect and curtail trade mispricing;
  • Requiring the country-by-country reporting of sales, profits and taxes paid by multinational corporations;
  • Requiring the automatic cross-border exchange of tax information on personal and business accounts;
  • Harmonizing predicate offenses under anti-money laundering laws across all Financial Action Task Force
    cooperating countries; and
  • Ensuring that the anti-money laundering regulations already on the books are strongly enforced.

Top 20 countries with the highest measured average annual illicit financial outflows between 2001 and 2010 were:

1. China ………….. $274bn average ($2.74tr cumulative)11. Iraq ……………. $10.6bn avg. ($63.6bn cum.)
2. Mexico ……………………. $47.6bn avg. ($476bn cum.)12. South Africa … $8.39bn avg. ($83.9bn cum.)
3. Malaysia …………………. $28.5bn avg. ($285bn cum.)13. Thailand ……… $6.43bn avg. ($64.3bn cum.)
4. Saudi Arabia ……………. $21.0bn avg. ($210bn cum.)14. Costa Rica …… $6.37bn avg. ($63.7bn cum.)
5. Russia …………………….. $15.2bn avg. ($152bn cum.)15. Qatar ………….. $5.61bn avg. ($56.1bn cum.)
6. Philippines ………………. $13.8bn avg. ($138bn cum.)16. Serbia …………. $5.14bn avg. ($51.4bn cum.)
7. Nigeria ……………………. $12.9bn avg. ($129bn cum.)17. Poland ………… $4.08bn avg. ($40.8bn cum.)
8. India ……………………….. $12.3bn avg. ($123bn cum.)18. Panama ………. $3.99bn avg. ($39.9bn cum.)
9. Indonesia ………………… $10.9bn avg. ($109bn cum.)19. Venezuela …… $3.79bn avg. ($37.9bn cum.)
10. United Arab Emirates .. $10.7bn avg. ($107bn cum.)20. Brunei ………… $3.70bn avg. ($37.0bn cum.)

Downloads

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PDF Download Full Report [High-Res] (4.7 MB)

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