$8.44 trillion flowed out of 157 different developing countries in the years 2000 to 2009 inclusive via crime, corruption and tax evasion, the report said
LONDON (TrustLaw) - Developing countries lost $903 billion in illicit financial flows in 2009, according to a report U.S.-based research and advocacy organisation Global Financial Integrity (GFI) published on Thursday.
And “Illicit Financial Flows from Developing Countries over the Decade Ending 2009” estimates that $8.44 trillion flowed out of 157 different developing countries in the years 2000 to 2009 inclusive via crime, corruption and tax evasion.
While the 2009 estimated loss of $903 billion is an improvement on the 2008 figure of $1.55 trillion, the difference was not related to any government action but rather due to reduced current-account surpluses and foreign direct investment as a result of the global economic slowdown, the report said.
“This is a breathtakingly large sum at a time when developing and developed countries alike are struggling to make ends meet,” said GFI director Raymond Baker in a statement.
“This report should be a wake-up call to world leaders that more must be done to address these harmful outflows,” Baker added.
The falsification of import/export invoices, known as trade mispricing, accounts for just over half of all illicit financial flows and is particularly prevalent in Asia and the West. Corruption – bribery, theft and kickbacks – accounts for the other half of illicit flows and dominate the Middle East, North Africa and developing Europe, the report said. According to the report, trade mispricing is generally falling as a percentage of total illicit flows, having reached a peak of 62.7 percent in 2002, it fell to 53.9 percent in 2009.
In the period 2000-2009, China lost $2.74 trillion in illicit financial outflows and was the developing country with the largest illicit outflows, according to a country ranking published in the report. Mexico ranked second, with $504 billion and Russia third with $501 billion. Oil-exporting countries feature heavily in the ranking, making up seven of the top 10 countries.
“The reason is that everybody knows the price of oil, it’s common knowledge. It’s very hard to misprice commodities for which prices are well-known,” Dev Kar, lead economist at GFI and one of the report’s co-authors told TrustLaw.
“You would not do it by manipulating the price, you’d do it by manipulating the quantity. When you manipulate the quantity, that’s a definite loss for the country and a gain for the exporters.”
Mexico was the only oil exporter where trade mispricing was the most common method of transferring illicit capital abroad.
Illicit financial flows increased in dollar terms by 14.9 percent from the start to the end of the ten-year period, with Africa seeing the largest percentage growth at 22.3 percent, followed closely by the broader Middle East and North Africa region at 19.6 percent and developing Europe at 17.4 percent.
While illicit financial flows in Asia grew just 6.2 percent over the period, the continent accounted for 44.9 percent of total illicit flow from the developing world, the report said.
(Editing by Rebekah Curtis)
For factbox click here
For Q+A click here
Our Standards: The Thomson Reuters Trust Principles.
