December 17, 2012
Clark Gascoigne, +1 202 293 0740 x222
WASHINGTON,
DC – The Indian economy suffered US$1.6 billion in illicit financial
outflows in 2010, capping-off a decade in which the world’s largest
democracy experienced black money loses of US$123 billion, according to
the latest report released today by Global Financial Integrity, a
Washington-based research and advocacy organization.
The GFI
study, titled “Illicit Financial Flows from Developing Countries:
2001-2010,” ranks India as the decade’s 8th largest victim of illicit
capital flight behind China, Mexico, Malaysia, Saudi Arabia, Russia, the
Philippines, and Nigeria, respectively.
“While
progress has been made in recent years, India continues to lose a large
amount of wealth in illicit financial outflows,” said GFI
Director Raymond Baker. “Much focus has been paid in the media on
recovering the Indian black money that has already been lost. This
focus is for naught as long as the Indian economy continues to
hemorrhage illicit money. Policymakers and commentators should make
curtailing the ongoing outflow of money priority number one.”
“$123
billion is a massive amount of money for the Indian economy to lose,”
said Dr.Dev Kar, GFI Lead Economist and co-author of the report. “It
has very real consequences for Indian citizens. This is more than $100
billion dollars which could have been used to invest in education,
healthcare, and upgrade the nation’s infrastructure. Perhaps last
summer’s electrical blackout would have been avoided if some of this
money had remained in India and been used to invest in the nation’s
power grid.”
Co-authored by Dr. Kar and GFI Economist Sarah
Freitas, the study is GFI’s annual update on the amount of money flowing
out of developing economies through crime, corruption and tax evasion,
and it is the first of GFI’s reports to include data for the year 2010.
The
report—the first by GFI to incorporate a new, more conservative,
estimate of illicit financial flows—found that all developing and
emerging economies suffered US$858.8 billion in illicit outflows in
2010, just below the all-time high of US$871.3 billion set in 2008—the
year preceding the global financial crisis.
“Astronomical sums
of dirty money continue to flow out of the developing world and into
offshore tax havens and developed country banks,” noted Mr. Baker.
“Regardless of the methodology, it’s clear: developing economies are
hemorrhaging more and more money at a time when rich and poor nations
alike are struggling to spur economic growth. This report should be a
wake-up call to world leaders that more must be done to address these
harmful outflows.”
Methodology
As developing countries
begin to loosen capital controls, the possibility exists that the
methodology utilized in previous GFI reports—known as the World Bank
Residual Plus Trade Mispricing method—could increasingly pick-up some
licit capital flows. The methodology introduced in this report— the Hot
Money Narrow Plus Trade Mispricing method—ensures that all flow
estimates are strictly illicit moving forward, but may omit some illicit
financial flows detected in the previous methodology.
“The
estimates provided by either methodology are still likely to be
extremely conservative as they do not include trade mispricing in
services, same-invoice trade mispricing, hawala transactions, and
dealings conducted in bulk cash,” explained Dr. Kar, who previously
served as 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.”
Findings
The US$858.8
billion of illicit outflows lost to all developing countries in 2010 is a
significant uptick from 2009, which saw developing nations lose
US$776.0 billion under the new methodology. The study estimates the
developing world lost a total of US$5.86 trillion over the decade
spanning 2001 through 2010.1
“This has enormous ramifications
for the developing world,” explained Ms. Freitas, a co-author of the
report. “Poor countries lost nearly a trillion dollars that could have
been used to develop economically, a trillion dollars that could have
been used to pull people out of poverty and save lives.”
Dr. Kar
and Ms. Freitas’ research tracks the amount of illegal capital flowing
out of 150 different developing countries over the 10-year period from
2001 through 2010, and it ranks the countries by magnitude of illicit
outflows. According to the report, the 20 biggest exporters of illicit
financial flows over the decade are:
1. China ............ ......... .. $274 billion average ($2.74 trillion cumulative)
2. Mexico ............ ......... ......... ...... $47.6 billion avg. ($476 billion cum.)
3. Malaysia ............ ......... ......... .... $28.5 billion avg. ($285 billion cum.)
4. Saudi Arabia ............ ......... ....... $21.0 billion avg. ($210 billion cum.)
5. Russia ............ ......... ......... ........ $15.2 billion avg. ($152 billion cum.)
6. Philippines ............ ......... ......... . $13.8 billion avg. ($138 billion cum.)
7. Nigeria ............ ......... ......... ....... $12.9 billion avg. ($129 billion cum.)
8. India ............ ......... ......... ......... . $12.3 billion avg. ($123 billion cum.)
9. Indonesia ............ ......... ......... ... $10.9 billion avg. ($109 billion cum.)
10. United Arab Emirates ............ ... $10.7 billion avg. ($107 billion cum.)
11. Iraq ............ ......... ......... ......... $10.6 billion avg. ($63.6 billion cum.)2
12. South Africa ............ ......... ....... $8.39 billion avg. ($83.9 billion cum.)
13. Thailand ............ ......... ......... .... $6.43 billion avg. ($64.3 billion cum.)
14. Costa Rica ............ ......... ......... . $6.37 billion avg. ($63.7 billion cum.)
15. Qatar ............ ......... ......... ........ $5.61 billion avg. ($56.1 billion cum.)
16. Serbia ............ ......... ......... ....... $5.14 billion avg. ($51.4 billion cum.)
17. Poland ............ ......... ......... ...... $4.08 billion avg. ($40.8 billion cum.)
18. Panama ............ ......... ......... .... $3.99 billion avg. ($39.9 billion cum.)
19. Venezuela ............ ......... ......... $3.79 billion avg. ($37.9 billion cum.)
20. Brunei ............ ......... ......... ....... $3.70 billion avg. ($37.0 billion cum.)
For
a complete ranking of average annual illicit financial outflows by
country, please refer to Table 2 of the report’s appendix on page 36, or
download the rankings by average annual illicit outflows here [PDF |
51 KB].
Also revealed are the top exporters of illegal capital in 2010, which were:
1. China ............ ......... ......... ......... ......... ..... $420.36 billion
2. Malaysia ............ ......... ......... ......... ......... .. $64.38 billion
3. Mexico ............ ......... ......... ......... ......... .... $51.17 billion
4. Russia ............ ......... ......... ......... ......... ...... $43.64 billion
5. Saudi Arabia ............ ......... ......... ......... ..... $38.30 billion
6. Iraq........ ......... ......... ......... ......... ......... ..... $22.21 billion
7. Nigeria ............ ......... ......... ......... ......... .... $19.66 billion
8. Costa Rica........ ......... ......... ......... ......... ..... $17.51 billion
9. Philippines ............ ......... ......... ......... ........ $16.62 billion
10. Thailand.... ......... ......... ......... ......... ......... .. $12.37 billion
11. Qatar ............ ......... ......... ......... ......... ....... $12.36 billion
12. Poland ............ ......... ......... ......... ......... ..... $10.46 billion
13. Sudan ............ ......... ......... ......... ......... ....... $8.58 billion
14. United Arab Emirates ............ ......... ......... .. $7.60 billion
15. Ethiopia ............ ......... ......... ......... ......... ..... $5.64 billion
16. Panama ............ ......... ......... ......... ......... ..... $5.34 billion
17. Indonesia ............ ......... ......... ......... ......... .. $5.21 billion
18. Dominican Republic ............ ......... ......... ..... $5.03 billion
19. Trinidad and Tobago ............ ......... ......... .... $4.33 billion
20. Brazil ............ ......... ......... ......... ......... ......... $4.29 billion
An
alphabetical listing of illicit financial outflows is available for
each country in Table 9 on pg. 62 of the report. You can also download
the alphabetical listing of illicit financial flows data for each
country here [ PDF | 64 KB].
Previous Country-Specific Report on India
A
November 2010 GFI report, “The Drivers and Dynamics of Illicit
Financial Flows from India: 1948-2008,” found that the Indian economy
lost $462 billion to illicit financial outflows from 1948 through 2008.
Authored by Dr. Kar, the report measured India’s underground economy as
50 percent of GDP, with cumulative illicit outflows accounting for an
increasing share of the total underground economy.
Possible Solutions
Global
Financial Integrity advocates that world leaders increase the
transparency in the international financial system as a means to curtail
the illicit flow of money highlighted by Dr. Kar and Ms. Freitas’
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;
* Reforming customs and trade protocols to detect and curtail trade mispricing;
* 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.
Funding
Funding
for the new report, “Illicit Financial Flows from Developing Countries:
2001-2010,” was generously provided by the Ford Foundation.