Global Financial Integrity

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.

Addressing Illicit Financial Flows in the FfD and SDG Processes

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.