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Illicit Financial Flows from Developing Countries Over the Decade Ending 2009

A December 2011 Report from Global Financial Integrity

Overview (View Report Downloads, Data & Media Resources)


 

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Illicit Financial Flows Report Update: Updating its January 2011 report, GFI has expanded the range of years analyzed and updated existing figures based on the newest available data.

 

Report Background


In December 2008, Global Financial Integrity (GFI) released “Illicit Financial Flows from Developing Countries: 2002-2006,” a groundbreaking report which used World Bank and IMF data to estimate the quantity and patterns of illicit financial flows coming out of developing countries. The report found that illicit financial flows out of developing countries were approximately $1.06 trillion in 2006. This study is the second update of the original report.

 

About the Authors


The authors would like to thank intern Daniel Robinson for his assistance with data research as well as Raymond Baker and other staff at Global Financial Integrity (GFI) for helpful comments. Any errors that remain are the authors’ responsibility.

 

 

Dev Kar, formerly a Senior Economist at the International Monetary Fund (IMF), is Lead Economist at GFI.

 

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Sarah Freitas is an Economist at GFI.

 

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Primary Findings


The Developing World lost US$903 billion in illicit outflows in 2009, despite the massive financial crisis which rocked the global economy in late 2008. The capital outflows stem from crime, corruption, tax evasion, and other illicit activity.

 

The report finds that the the vast majority of the drop from US$1.55 trillion to US$903 billion was due to a decrease in volumes of international trade, foreign direct invest, and new external loans, rather than any government action. From 2000 to 2009, developing countries lost US$8.44 trillion to illicit outflows.

 

Conservatively estimated, Illicit flows increased in current dollar terms by 14.9 percent per annum from the beginning until the end of the decade. Real growth of illicit flows by regions over the nine years is as follows:

 

  • Africa 22.3 percent,
  • Middle East and North Africa (MENA) 19.6 percent,
  • developing Europe 17.4 percent,
  • Asia 6.2 percent, and
  • Western Hemisphere 4.4 percent.

Asia accounted for 44.9 percent of total illicit flows from the developing world followed by Middle East and North Africa (18.6 percent), developing Europe (16.7 percent), Western Hemisphere (15.3 percent), and Africa (4.5 percent).

 

Top 10 countries with the highest measured cumulative illicit financial outflows between 2000 and 2009 were:

 

  1. China: $2.74 trillion
  2. Mexico: $504 billion
  3. Russia: $501 billon
  4. Saudi Arabia: $380 billion
  5. Malaysia: $350 billion
  6. United Arab Emirates: $296 billion
  7. Kuwait: $271 billion
  8. Nigeria: $182 billion
  9. Venezuela: $179 billion
  10. Qatar: $130 billion

 

IFF Drivers & Trends


  • Trade mispricing was found to account for an average of 53.9 percent of cumulative illicit flows from developing countries over the period 2000-2008 and is the major channel for the transfer of illicit capital from China.
  • Despite the global financial crisis and overall decreased levels of illicit financial flows, several countries saw large increases in illicit financial flows. Among these, Poland, Saudi Arabia, Iran, Turkey and Panama each saw large increases in outflows.
  • China continued to lead the world in illicit outflows, losing US$291.8 billion in 2009.
  • Asia accounted for the largest portion of illicit financial flows from the developing world. Over the ten-year period examined, 90 percent, on average, of total illicit flows from Asia were transferred abroad through trade mispricing.
  • Over the decade, illicit outflows from Africa clearly out paced the rest of the world, with a growth rate of 32.5 percent between 2000 and 2009, compared with 9.7 percent for Europe and 7.7 percent for Asia, possibly due to weaker customs monitoring and enforcement regimes.
  • Bribery, kickbacks, and the proceeds of corruption continue to be the dominant channel for the transfer of illicit funds from MENA, developing Europe, while trade mispricing is the clear primary channel out of Asia and the Western Hemisphere.

 

 

   

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