Global Financial Integrity


Illicit Financial Flows

Magnitudes versus Methodologies?

Global Financial Integrity is pleased to note growing interest in the estimation of illicit financial flows and their effect on emerging market and developing countries. We are writing to offer a series of thoughts surrounding the reality of this concern and its political significance.

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Don’t Take a Page out of Their Book: How Illicit Financial Flows Reduce Funds for Youth Education in Malawi

A recent Global Financial Integrity study concluded that measurable illicit financial outflows topped the $1 trillion mark in 2013. The inclusion of illicit financial flows (IFFs) in the Sustainable Development Goals was an affirmation of the detrimental impact these flows have on the development of low income countries. Amongst the most keenly affected are children, who lose out on quality education due to insufficient government funding. I was able to witness just this, when I spent the 2013 academic year at a village school just outside the city of Zomba, Malawi, a country that GFI estimates loses on average US$650 million per year in illicit outflows.

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Illicit Flows and Funding the SDG’s

In adopting the Sustainable Development Goals this past September, UN member states realized two extraordinary achievements. First, the document itself—with 17 goals, 169 targets and 200+ (yet to be finalized) indicators—is a testament to global ambition, a 15-year roadmap toward what is hoped will be unprecedented progress in poverty alleviation. Second, the global community agreed to “substantially reduce illicit financial flows,” which reached $1.1 trillion two years earlier according to a recent GFI study.

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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

Image: Amartya Sen delivers the keynote speech at the Opening Plenary by International Transport Forum [CC BY-NC-ND 2.0], via Flickr.

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

Slum apartment complex Dhaka, Bangladesh. | Image Credit: Zoriah/Flickr [CC BY-NC 2.0]

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

FIFA World Cup 2014 Image: “400-Oz-Gold-Bars-AB-01” by Mariya Butd. Licensed under CC BY-SA 2.0 via Flickr.

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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