Global Financial Integrity

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Illicit Financial Flows

The Adverse Economic Consequences of Capital Flight and Illicit Flows from Developing Countries

Several recent studies have indicated that capital flight (defined as outflows of licit and illicit capital from developing countries) has serious consequences for economic performance and well-being. For example, a 2012 IMF study based on a panel regression of 103 developing countries over 2001-07, found that country-specific factors such as institutional quality and domestic credit markets have little impact on a country’s ability to translate capital inflows into domestic investment.

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The Methodology behind Illicit Financial Flows from Developing Countries: 2004-2013

This reflects a refinement in how we calculated our estimates for 37 countries, including major emerging economies like Mexico, South Africa, and Turkey. These countries join 19 others for which we were able to use more detailed data to capture how much money flowed out illicitly. As a result, our estimate for 2013 was a total outflow of a staggering US$1.1 trillion—and the world actually crossed this trillion mark in 2011.

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Seeking Submissions for Work on Illicit Flows for Amartya Sen Prize Contest

Academics Stand Against Poverty, the Yale Global Justice Program, and Global Financial Integrity invite submissions of original essays of ca. 7,000 to 9,000 words on the intelligent use of incentives toward curtailing corporations’ use of tax evasion and avoidance, abusive transfer pricing and all forms of illicit financial flows. All prizes are named in honor of Amartya Sen, whose work has shown how the rigor of economic thinking can be brought to bear on normative and practical questions of great human significance. For more details, please see the contest web page.

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Illicit Flows in the Poorest of Places

Illicit Financial Flows Have a Devastating Impact on the Poorest Countries in the World

What do you do when “the big number,” used to estimate the global volume of illicit financial flows (IFFs), begins to lose its luster?

Over the past year or so, GFI has begun to hear—in various venues and by various people—the warning to audiences that they shouldn’t “focus on the big number.” A trillion dollars is a global number, these observers say, and can’t be used to assess the impact at the country level. Or, they contend, the trillion dollars in IFFs is from a cluster of emerging market countries and therefore is skewed to make it look as though all developing countries have huge problems when really only a few do. GFI decided to go back to the data to see if the criticisms were accurate.

As a result, this week we are publishing “Illicit Financial Flows and Development Indices: 2008–2012,” a study that looks at illicit flows from the poorest countries to determine the development impact in those places that do not appear on the top-10 list of IFF-source nations by gross volume. Rather than focus on the Chinas and Russias and Mexicos of the world, we examined IFFs in nations that appear, for example, on the Least Developed Countries list or the Highly Indebted Poor Countries list—82 countries in all were examined. What we found was simply alarming.

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FIFA: The Bribery Case with No Bribery Charge

This was a very exciting week for lawyers who are sports enthusiasts – the Department of Justice indicted fourteen FIFA officials, alleging that they are part of what one could conclude from reading the indictment is a massive, multifaceted, bribery ring. Informal allegations have been made before, and the whispers that FIFA is synonymous with bribery and corruption have been growing louder over the years. But this week the Department of Justice shouted it from the mountain top (or, perhaps more accurately, in front of a lot of the international press corps, which was probably more effective).

There are a number of interesting facets to the case that is now before us. The first is that for a case about bribery, a charge of bribery seems to be conspicuously absent. The Defendants were indicted for a “pattern of racketeering activity,” including charges of violating the Travel Act in aid of racketeering, money laundering, money laundering conspiracy, wire fraud, wire fraud conspiracy, and other charges that do not expressly include bribery. Why is that?

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Addressing Illicit Financial Flows in the FfD and SDG Processes

Shipping containers at the Port of Basel, Switzerland

The “Zero Draft” of the Financing for Development Conference Outcome Document Should be Improved to Aim to Halve Illicit Flows from Trade Misinvoicing

On Monday, the United Nations released a so-called “Zero Draft” of the Financing for Development (FfD) Conference Outcome Document. Simply stated, this draft lays out the current political consensus on a vast array of development issues including how to address the growing problem of illicit financial flows (IFFs). It is by no means the final word on IFFs—or any other issue for that matter—but it gives a good indication where things are heading.

The draft proposes three specific steps to address IFFs, including:

  • Developing “a proposal for an official definition of IFFs”,
  • Developing “a proposal to publish official estimates [of IFF] volumes and breakdown,” and
  • An international effort to “substantially reduce” the flow of IFFs.

These measures go a long way toward addressing a problem that has captured the attention of the development community over the last few years. For example, in 2013 the World Bank noted that “there is little doubt” that IFFs have a caustic effect on development, and last year the African Union noted that “it is imperative to curtail” illicit flows.

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Illicit Financial Flows a Drain on Development in Sub-Saharan Africa

A Market in Livingstone City, Zambia.

As a Percent of GDP, Sub-Saharan Africa Suffers the Largest Illicit Outflows of Any Region in the World

Global Financial Integrity’s (GFI) latest annual report on illicit financial flows–released just last month–estimates the volume of illicit financial outflows from the developing world from 2003 to 2012. It is the first report to estimate these flows for 2012, when they reached a record US$991.2 billion.

Already, this US$991.2 billion figure is being cited quite a bit; it is the main figure cited in many of the articles of we’ve seen on the report in the media. Take, for example, this story in The Guardian, this article from Reuters, or this piece in The Wall Street Journal. It’s the big, flashy, almost-trillion dollar number.

However, I’d like to draw your attention to a different figure, one that emphasizes even more clearly the implications of illicit financial flows on development: 5.5.

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Happy Holidays from Global Financial Integrity

Dear Friends,

Best wishes for a wonderful holiday season.

At Global Financial Integrity, we’ve had another tremendously successful year.  On the global stage, many countries are now planning to begin exchanging financial information automatically by the end of 2017 or 2018.  Just this week, the European Union agreed to end the incorporation of anonymous companies with the EU.  The global community is actively discussing whether a goal to reduce illicit financial flows should be included in the upcoming Sustainable Development Goals.

That said, as our flagship annual report—published this week—on illicit financial flows from developing countries shows, the developing world continues to lose US$1 trillion per year in illicit outflows, and they are growing at roughly twice the rate of global GDP. More must be done.

While GFI’s work has a tremendous impact, we have done all of this with only about 10 staff members and a very modest budget, which significantly hinders the impact that we can have.  Just imagine what we could do with a larger budget to leverage our groundbreaking global economic research and policy advisory work with governments.

Contribute Now to GFI

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