In its fourth annual report, GFI says that from 2002 to 2011, developing countries lost US$5.9 trillion to “illicit outflows,” which they define as cross-border fund transfers that are illegally earned, transferred, or utilized. Illicit outflows also include funds from legitimate business ventures that are transferred in ways that violate capital controls and regulations.
According to GFI president Raymond Baker, “Anonymous shell companies, tax haven secrecy, and trade-based money laundering techniques drained nearly a trillion dollars from the world’s poorest in 2011, at a time when rich and poor nations alike are struggling to spur economic growth.”
According to the report, the three countries with the highest average illicit outflows from 2002-2011 were China (US$1.08 trillion) Russia (US$880.96 billion) and Mexico (US$461.86 billion).
Almost 80 percent of illicit outflows from developing countries during this period involved trade misinvoicing, in which exporters create fake invoices for their goods, setting the prices too low. When the goods are sold abroad at market prices, the exporters can bank the unreported profits abroad. Corruption, bribery, theft, and kickbacks accounted for the other 20 percent of illicit outflows over the decade, GFI says.
The new report highlights the growth of illicit fund transfers in developing countries. According to the report, illicit outflows have increased about 10 percent every year from 2002-2011—even when taking inflation into account. According to GFI, this percentage increase is greater than GDP growth for the developing world.
In addition, GFI reports that the amount of funds funneled through illicit outflows is ten times greater than the amount of international aid sent to developing countries.
Illicit outflows for 2011 were also the highest on record for the decade.
“It’s extremely troubling to note just how fast illicit (out)flows are growing,” said GFI’s chief economist, Dev Kar. He added, “This underscores the urgency with which policymakers should address illicit financial flows.”
