| Study Finds Crime, Corruption, Tax Evasion Drained $946.7bn from Developing Countries in 2011 |
Illicit Financial Outflows from Developing World Up 13.7% from 2010 Nearly $6 Trillion Stolen from Developing Countries in Decade between 2002 and 2011 China, Russia, Mexico, Malaysia, India—in Declining Order—are Biggest Exporters of Illicit Capital over Decade; Sub-Saharan Africa Suffers Biggest Illicit Outflows as Percent of GDP Study Is First GFI Analysis to Incorporate Re-Exporting Data from Hong Kong and First GFI Report to Utilize Disaggregated Trade Data in Methodology December 11, 2013 Clark Gascoigne, +1 202 293 0740 x222 “As the world economy sputters along in the wake of the global financial crisis, the illicit underworld is thriving—siphoning more and more money from developing countries each year,” said 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. While global momentum has been building over the past year to curtail this problem, more must be done. This study should serve as a wake-up call to world leaders: the time to act is now.” ... Dr. Kar and Mr. LeBlanc’s research tracks the amount of illegal capital flowing out of 150 different developing countries over the 10-year period from 2002 through 2011, and it ranks the countries by the volume of illicit outflows. According to the report, the 25 biggest exporters of illicit financial flows over the decade are:.. For a complete ranking of average annual illicit financial outflows by country, please refer to Table 2 of the report’s appendix on page 24. The rankings can also be downloaded here [XLS | 36 KB]. GFI also found that the top exporters of illegal capital in 2011 were:
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...Possible Policy Solutions
Global Financial Integrity advocates that world leaders implement policies to increase the transparency in the international financial system as a means to curtail the illicit flow of money highlighted by Dr. Kar and Mr. LeBlanc’s research. Policies advocated by GFI include:
- Addressing the problems posed by anonymous shell companies, foundations, and trusts by requiring confirmation of beneficial ownership in all banking and securities accounts, and demanding that information on the true, human owner of all corporations, trusts, and foundations be disclosed upon formation and be available to law enforcement, if not to the public;
- Reforming customs and trade protocols to detect and curtail trade misinvoicing;
- Requiring the country-by-country reporting of sales, profits, and taxes paid by multinational corporations;
- Requiring the automatic cross-border exchange of tax information on personal and business accounts;
- Harmonizing predicate offenses under anti-money laundering laws across all Financial Action Task Force cooperating countries; and
- Ensuring that the anti-money laundering regulations already on the books are strongly enforced.
Contact:
Clark Gascoigne
cgascoigne@gfintegrity.org
+1 202 293 0740, ext. 222 (Office)
+1 202 815 4029 (Mobile)
cgascoigne@gfintegrity.org
+1 202 293 0740, ext. 222 (Office)
+1 202 815 4029 (Mobile)
E.J. Fagan
efagan@gfintegrity.org
efagan@gfintegrity.org
+1 202 293 0740, ext. 227
Black money: In 2011, Rs 4L crore went out, a 24% rise
Subodh Varma,TNN | Dec 13, 2013, 02.28 AM IST
In the decade 2002-2011, India lost a staggering Rs 15.7 lakh crore worth of black money created through crime, tax evasion, dodgy import-export practices and corruption.
In 2011, over Rs 4 lakh crore worth of black money was illegally taken out of India, a new report by the international watchdog Global Financial Integrity (GFI) has revealed. This was 24 percent more than the previous year.
This illegal outflow is nearly one third of the Government of India's total budgeted expenditure in 2011 of Rs.13 lakh crore. It is 14 times the money spent by the central government on health, seven times that spent on education and five times the amount spent on rural development in that year.
The past few years in India have seen a series of exposures of mega-scams like the Commonwealth, 2G, Coalgate, Maha irrigation, Jharkhand mining, and others. This has led to a rising tide of public outrage, symbolized by Anna Hazare's movement against corruption and the dramatic rise of the Aam Admi Party led by Arvind Kejriwal. The GFI report is a sobering reminder that the creation and outflow of illicit wealth gained new heights despite all the outrage.
In the decade 2002-2011, India lost a staggering Rs 15.7 lakh crore ($344 billion) worth of black money created through crime, tax evasion, dodgy import-export practices and corruption. This works out to an average illicit outflow of about Rs 1.6 lakh crore in every year of the decade.
A worrying feature of this loot from India is that it has grown every year in the past decade except in 2009, Clark Gascoigne of GFI told TOI.
"India's outflows increased steadily and dramatically for the whole decade, except for the one-year dip in 2009, during the height of the financial crisis, beginning at US$7.9bn in 2002 and ending up at US$84.9bn in 2011. That is a disturbing trend," he said.
GFI estimates illicit flows by collecting two broad categories of data globally: changes in external debt and trade mispricing. For India, nearly the entire illicit outflow is through trade mispricing. This is how it works: an importer declares a higher import value to the customs department than the value of goods recorded by the exporting partner country. Similarly, an exporter understates the value of goods exported in relation to the imports recorded in the importing partner country. In both cases, the balance of funds is kept abroad. International trade data reveals this by comparing partner trading countries.
Although a more rigorous methodology has been adopted by GFI this time, the estimates are still likely to be "extremely conservative" as trade misinvoicing in services, same-invoice trade misinvoicing, hawala transactions, and dealings conducted in bulk cash are not covered, explained Devendra Kar, formerly a senior economist at the International Monetary Fund.
"This means that much of the proceeds of drug trafficking, human smuggling, and other criminal activities, which are often settled in cash, are not included in these estimates."
According to the GFI report, nearly a trillion dollars flowed out illicitly from developing countries in 2011, up by about 14% compared to 2010. The biggest outflow was from Russia ($191 billion) followed by China ($151 billion) and India ($85 billion).
The report estimates the developing world lost a total of US$5.9 trillion over the decade spanning 2002 through 2011. It found that two regulatory and one governance related factors are the key drivers propelling this continuous drain of resources from the developing world. The two regulatory factors are export proceeds surrender requirements (EPSR) and capital account openness, both of which are driving up trade mispricing. The governance related factor is corruption, as measured by the World Bank's Control of Corruption index. The more corrupt a country, the more funds flow out illicitly.
India has signed up to the automatic exchange of tax information program being established by the G20. That will likely help reduce some of these flows moving forward, once the program is up and running, Gascoigne said. "Next steps would be following in the footsteps of the United Kingdom to create a public registry of all corporate ownership information," he added.
This illegal outflow is nearly one third of the Government of India's total budgeted expenditure in 2011 of Rs.13 lakh crore. It is 14 times the money spent by the central government on health, seven times that spent on education and five times the amount spent on rural development in that year.
The past few years in India have seen a series of exposures of mega-scams like the Commonwealth, 2G, Coalgate, Maha irrigation, Jharkhand mining, and others. This has led to a rising tide of public outrage, symbolized by Anna Hazare's movement against corruption and the dramatic rise of the Aam Admi Party led by Arvind Kejriwal. The GFI report is a sobering reminder that the creation and outflow of illicit wealth gained new heights despite all the outrage.
In the decade 2002-2011, India lost a staggering Rs 15.7 lakh crore ($344 billion) worth of black money created through crime, tax evasion, dodgy import-export practices and corruption. This works out to an average illicit outflow of about Rs 1.6 lakh crore in every year of the decade.
A worrying feature of this loot from India is that it has grown every year in the past decade except in 2009, Clark Gascoigne of GFI told TOI.
"India's outflows increased steadily and dramatically for the whole decade, except for the one-year dip in 2009, during the height of the financial crisis, beginning at US$7.9bn in 2002 and ending up at US$84.9bn in 2011. That is a disturbing trend," he said.
GFI estimates illicit flows by collecting two broad categories of data globally: changes in external debt and trade mispricing. For India, nearly the entire illicit outflow is through trade mispricing. This is how it works: an importer declares a higher import value to the customs department than the value of goods recorded by the exporting partner country. Similarly, an exporter understates the value of goods exported in relation to the imports recorded in the importing partner country. In both cases, the balance of funds is kept abroad. International trade data reveals this by comparing partner trading countries.
Although a more rigorous methodology has been adopted by GFI this time, the estimates are still likely to be "extremely conservative" as trade misinvoicing in services, same-invoice trade misinvoicing, hawala transactions, and dealings conducted in bulk cash are not covered, explained Devendra Kar, formerly a senior economist at the International Monetary Fund.
"This means that much of the proceeds of drug trafficking, human smuggling, and other criminal activities, which are often settled in cash, are not included in these estimates."
According to the GFI report, nearly a trillion dollars flowed out illicitly from developing countries in 2011, up by about 14% compared to 2010. The biggest outflow was from Russia ($191 billion) followed by China ($151 billion) and India ($85 billion).
The report estimates the developing world lost a total of US$5.9 trillion over the decade spanning 2002 through 2011. It found that two regulatory and one governance related factors are the key drivers propelling this continuous drain of resources from the developing world. The two regulatory factors are export proceeds surrender requirements (EPSR) and capital account openness, both of which are driving up trade mispricing. The governance related factor is corruption, as measured by the World Bank's Control of Corruption index. The more corrupt a country, the more funds flow out illicitly.
India has signed up to the automatic exchange of tax information program being established by the G20. That will likely help reduce some of these flows moving forward, once the program is up and running, Gascoigne said. "Next steps would be following in the footsteps of the United Kingdom to create a public registry of all corporate ownership information," he added.