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Illicit Financial Flows from Developing Countries: 2003-2012

This December 2014 report from Global Financial Integrity, “Illicit Financial Flows from the Developing World: 2003-2012,” finds that developing and emerging economies lost US$6.6 trillion in illicit financial flows from 2003 through 2012, with illicit outflows increasing at an staggering average rate of 9.4 percent per year—roughly twice as fast as global GDP.

This study is GFI’s 2014 annual global update on illicit financial flows from developing economies, and it is the fifth annual update of GFI’s groundbreaking 2008 report, “Illicit Financial Flows from Developing Countries 2002-2006.” This is the first report to include estimates of illicit financial flows from developing countries in 2012—which the study pegs at US$991.2 billion.



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Overview

Primary Findings

US$991.2 billion flowed illicitly out of developing and emerging economies in 2012, the latest year for which data is available. The illegal capital outflows stem from crime, corruption, tax evasion, and other illicit activity.

The report finds that from 2003 to 2012, developing countries lost US$6.6 trillion to illicit outflows. The outflows increased at an average inflation-adjusted rate of 9.4% per year over the decade—significantly outpacing GDP growth.

As a percentage of GDP, Sub-Saharan Africa suffered the biggest loss of illicit capital. Illicit outflows from the region averaged 5.5% of GDP annually. Globally, illicit financial outflows averaged 3.9% of GDP.

Trade Misinvoicing Dominant Channel

The fraudulent misinvoicing of trade transactions was revealed to be the largest component of illicit financial flows from developing countries, accounting for 77.8 percent of all illicit flows—highlighting that any effort to significantly curtail illicit financial flows must address trade misinvoicing.

Global Development Implications

The US$991.2 billion that flowed illicitly out of developing countries in 2012 was greater than the combined total of foreign direct investment (FDI) and net official development assistance (ODA), which these economies received that year.

Illicit outflows were roughly 1.3 times the US$789.4 billion in total FDI, and they were 11.1 times the US$89.7 billion in ODA that these economies received in 2012.

Country Rankings

China leads the world over the 10-year period with US$1.25 trillion in illicit outflows, followed by Russia, Mexico, India, and Malaysia. China also had the largest illicit outflows of any country in 2012, amounting to a massive of US$249.57 billion in just that one year.

Country Rankings (2003-2012)

By Largest Average Annual Illicit Outflows: 2003-2012
The below table ranks all countries by the highest average annual illicit financial flows over the decade (when data is available).
Download Full Country Rankings (in millions of U.S. dollars, nominal)

RankCountryAverage Annual Illicit Outflows
(Where Data Is Available)
Cumulative Illicit Outflows
All Developing Countries658,7136,587,133
1China, P.R.: Mainland125,2421,252,419
2Russian Federation97,386973,858
3Mexico51,426514,259
4India43,959439,587
5Malaysia39,487394,869
6Saudi Arabia30,862308,620
7Brazil21,710217,103
8Indonesia18,784187,844
9Thailand17,168171,679
10Nigeria15,746157,455
11United Arab Emirates13,530135,300
12South Africa12,214122,145
13Iraq11,13789,098
14Costa Rica9,40394,034
15Philippines9,34993,494
16Belarus8,45384,531
17Poland5,31282,393
18Panama4,84853,124
19Serbia, Republic of4,56648,481
20Chile4,56445,659
21Brunei Darussalam4,29945,639
22Syrian Arab Republic3,76834,396
23Egypt3,76837,681
24Paraguay3,69737,680
25Venezuela, Republica Bolivariana de3,67736,967
26Turkey3,56036,766
27Honduras3,29435,601
28Trinidad and Tobago3,21032,939
29Vietnam2,80532,096
30Aruba2,65428,048
31Zambia2,59725,969
32Kazakhstan2,53825,376
33Bulgaria2,53525,354
34Latvia2,49024,900
35Lebanon2,46224,618
36Kuwait2,46024,596
37Cote d'Ivoire2,40624,061
38Azerbaijan, Republic of2,28522,853
39Ethiopia2,20622,065
40Lithuania2,16221,615
41Togo1,82418,243
42Ecuador1,64516,448
43Bahamas, The1,63416,337
44Equatorial Guinea1,60716,065
45Hungary1,57615,758
46Algeria1,57515,753
47Congo, Republic of1,53515,346
48Nicaragua1,50915,094
49Croatia1,49914,992
50Argentina1,41114,110
51Bangladesh1,31613,161
52Sudan1,29012,904
53Colombia1,21212,124
54Dominican Republic1,20512,050
55Guatemala1,17611,764
56Qatar1,15211,524
57Libya1,07810,783
58Romania1,03410,344
59Morocco9989,977
60Liberia9829,817
61Bahrain, Kingdom of9719,708
62Chad9309,297
63Peru9039,028
64Botswana8568,560
65Uruguay8468,461
66El Salvador7887,875
67Cameroon7837,825
68Nepal7547,542
69Armenia, Republic of7507,499
70Uganda7137,125
71Oman6996,990
72Myanmar6826,817
73Angola6316,312
74Suriname6166,157
75Namibia6036,032
76Turkmenistan602602
77Malawi5855,847
78Ukraine5425,417
79Macedonia, FYR5215,212
80Lao People's Democratic Republic4984,978
81Tanzania4624,618
82Papua New Guinea4334,326
83Madagascar4264,257
84Georgia4204,203
85Mali4114,106
86Bolivia4034,025
87Swaziland3713,710
88Jamaica3653,654
89Gabon3583,584
90Djibouti3543,540
91Burkina Faso3413,408
92Guinea3173,169
93Ghana3163,164
94Congo, Democratic Republic of3013,012
95Montenegro2942,647
96Guyana2812,807
97Fiji2732,726
98Yemen, Republic of2712,712
99Zimbabwe2672,673
100Rwanda2602,603
101Tajikistan2522,520
102Lesotho2492,487
103Moldova2322,323
104Afghanistan, Islamic Republic of2222,223
105Sri Lanka2212,214
106Vanuatu2082,080
107Jordan2052,048
108St. Vincent and the Grenadines1791,790
109Barbados1691,694
110Mauritius1531,532
111Pakistan1431,430
112Samoa1401,397
113Niger1371,365
114Mongolia1351,354
115Albania1281,276
116Solomon Islands1261,256
117Belize1261,255
118Mozambique1151,155
119Dominica97973
120Haiti89890
121Kenya86860
122Burundi75750
123Maldives75746
124Sierra Leone71713
125Gambia, The61606
126Kyrgyz Republic60601
127Guinea-Bissau58583
128Grenada55553
129St. Lucia47468
130St. Kitts and Nevis46462
131Bhutan45312
132Comoros44440
133Benin41413
134Cambodia40400
135Cabo Verde40395
136Seychelles32315
137Tonga28285
138Tunisia28277
139Bosnia and Herzegovina19185
140Sao Tome and Principe18180
141Central African Republic17175
142Timor-Leste, Dem. Rep. of856
143Antigua and Barbuda875
144Kiribati211
145Senegal115

Country Rankings (2012)

By Largest Illicit Outflows: 2012
The below table ranks all countries by the highest illicit financial flows in the year 2012, the latest year for which data is available.
Download 2012 Country Rankings (in millions of U.S. dollars, nominal)

RankCountry2012 Illicit OutFlows
1China, P.R.: Mainland249,567
2Russian Federation122,864
3India94,757
4Mexico59,656
5Malaysia48,931
6Saudi Arabia46,528
7Thailand35,561
8Brazil33,928
9South Africa29,134
10Costa Rica21,553
11Indonesia20,823
12United Arab Emirates19,400
13Iraq14,649
14Belarus13,903
15Philippines9,157
16Syrian Arab Republic8,641
17Nigeria7,922
18Trinidad and Tobago7,414
19Vietnam6,925
20Lithuania6,448
21Libya5,397
22Panama5,341
23Aruba5,293
24Egypt5,093
25Chile5,082
26Paraguay4,811
27Kazakhstan4,469
28Zambia4,272
29Lebanon4,097
30Poland4,067
31Honduras3,872
32Equatorial Guinea3,334
33Azerbaijan, Republic of3,317
34Venezuela, Republica Bolivariana de3,183
35Ethiopia3,117
36Argentina2,955
37Nicaragua2,851
38Latvia2,796
39Algeria2,620
40Sudan2,605
41Serbia, Republic of2,590
42Qatar2,519
43Cote d'Ivoire2,190
44Brunei Darussalam2,063
45Ecuador1,929
46Botswana1,926
47Turkey1,846
48Bangladesh1,780
49Bahamas, The1,763
50Bulgaria1,762
51Dominican Republic1,733
52Guatemala1,588
53Gabon1,542
54Uruguay1,518
55Kuwait1,499
56Namibia1,483
57Chad1,470
58Colombia1,424
59Bolivia1,379
60Armenia, Republic of1,230
61Burkina Faso1,153
62Papua New Guinea1,087
63Cameroon930
64Lao People's Democratic Republic878
65Congo, Republic of876
66Jordan867
67Morocco763
68Oman733
69Tanzania717
70Croatia677
71Uganda633
72Rwanda611
73Bahrain, Kingdom of598
74Swaziland556
75Malawi552
76Lesotho506
77Guyana440
78Djibouti424
79Macedonia, FYR421
80Liberia418
81Suriname413
82Pakistan405
83Mauritius402
84Sri Lanka349
85Mali328
86Angola326
87Vanuatu297
88Niger237
89Solomon Islands210
90Fiji210
91Mongolia195
92Maldives185
93Madagascar178
94El Salvador177
95Dominica171
96Bhutan168
97Comoros165
98Congo, Democratic Republic of148
99Belize144
100Burundi137
101Samoa109
102Nepal106
103Grenada75
104Guinea-Bissau70
105Albania63
106Montenegro62
107Guinea59
108Tonga46
109St. Kitts and Nevis46
110Haiti45
111Sierra Leone43
112Central African Republic43
113Cambodia43
114Sao Tome and Principe42
115St. Vincent and the Grenadines42
116Gambia, The38
117Cabo Verde34
118Georgia23
119Togo0
120Afghanistan, Islamic Republic of0
121Antigua and Barbuda0
122Barbados0
123Benin0
124Bosnia and Herzegovina0
125Ghana0
126Hungary0
127Iran, Islamic Republic of0
128Jamaica0
129Kenya0
130Kiribati0
131Kosovo, Republic of0
132Kyrgyz Republic0
133Moldova0
134Mozambique0
135Myanmar0
136Peru0
137Romania0
138Senegal0
139Seychelles0
140St. Lucia0
141Tajikistan0
142Timor-Leste, Dem. Rep. of0
143Tunisia0
144Ukraine0
145Yemen, Republic of0
146Zimbabwe0
N/AEritrea.
N/AMauritania.
N/ASomalia.
N/ATurkmenistan.
N/AUzbekistan.

Footnote:
  • (.) indicates no available data, whereas (0) indicates a value of 0.

Full Country Data

A full alphabetical listing of illicit financial outflows data is available (with annual breakdowns) for each country on our website here. It can also be downloaded along with the following resources below:

Download all Data from Report (Including all Appendices, Charts, and Tables) Download all Data from Report (Including all Appendices, Charts, and Tables)

Download Full Country Data Download Full Country Illicit Financial Flows Data

Download Country Rankings: 2003-2012 Download Country Rankings: 2003-2012

Download 2012 Country Rankings Download 2012 Country Rankings

Policy Recommendations

Illicit financial flows from developing countries are facilitated and perpetuated primarily by opacity in the global financial system. This endemic issue is reflected in many well-known ways, such as the existence of tax havens and secrecy jurisdictions, anonymous companies and other legal entities, and innumerable techniques available to launder dirty money—for instance, through misinvoicing trade transactions (often called trade-based money laundering when used to move the proceeds of criminal activity).

While policy environments vary from country to country, there are certain best practices that all countries should adopt and promote at international forums and institutions such as the G20, the G8, the United Nations, the World Bank, the IMF, and the OECD.

Anti-Money Laundering

All countries should, at a minimum, take whatever steps are needed to comply with all of the Financial Action Task Force (FATF) Recommendations to combat money laundering and terrorist financing.1

Regulators and law enforcement officials should strongly enforce all of the anti-money laundering laws and regulations that are already on the books, including through criminal charges and penalties for individuals employed by financial institutions who are culpable for allowing money laundering to occur.

Beneficial Ownership of Legal Entities

All countries and international institutions should address the problems posed by anonymous companies and other legal entities by requiring or supporting meaningful confirmation of beneficial ownership in all banking and securities accounts.

Additionally, information on the true, human owner of all corporations and other legal entities should be disclosed upon formation, updated on a regular basis, and made freely available to the public in central registries.  The United Kingdom2 and Denmark3 have made progress on this front recently, with both countries announcing that they would create such public registries of beneficial ownership information–at least for corporations.  Other countries should follow their lead.  In March, the European Parliament voted overwhelmingly in favor of directing European Union member states to create public registries of beneficial ownership as part of revisions to the European Union’s Anti-Money Laundering Directive (AMLD),4 but final adoption of the AMLD is still subject to negotiation and approval by the European Council and Commission, which have both been reticent to approve the transparency measure.5  GFI urges the EU Council and the EU Commission to quickly approve the public registry requirement as part of the AMLD.

Automatic Exchange of Financial Information

All countries should actively participate in the global movement toward the automatic exchange of financial information as endorsed by the G20 and the OECD.  89 countries have committed to implementing the OECD/G20 standard on automatic information exchange by the end of 2018, significant progress since the publication of the 2013 IFF Update.  Still, the G20 and the OECD need to do a better job at ensuring that developing countries—especially least developed countries—are able to participate in the process and are provided the necessary technical assistance to benefit from it.

Country-by-Country Reporting

All countries should require multinational corporations to publicly disclose their revenues, profits, losses, sales, taxes paid, subsidiaries, and staff levels on a country-by-country basis, as a means of detecting and deterring abusive tax avoidance practices.

Curtailing Trade Misinvoicing

Trade misinvoicing accounts for a substantial majority—77.8 percent—of illicit financial flows over the period of this study, meaning that curbing trade misinvoicing must be a major focus for policymakers around the world.

Governments should significantly boost customs enforcement by equipping and training officers to better detect the intentional misinvoicing of trade transactions.

Trade transactions involving tax haven jurisdictions should be treated with the highest level of scrutiny by customs, tax, and law enforcement officials, given the greater potential for abuse.

UN Sustainable Development Goals/Financing for Development Conference

The coming year presents a spectacular opportunity to tackle the scourge of illicit financial flows.  The Millennium Development Goals (MDGs) are set to expire in 2015, and, in September, the United Nations will formally transition to its post-2015 development agenda, known as the Sustainable Development Goals (SDGs)6, which will set the global development agenda for the next 15 years.  With developing and emerging economies hemorrhaging roughly US$1 trillion in illicit financial flows per year—as this report demonstrates—there may be no better area on which to focus the global development agenda in order to achieve sustainable results.  This is why GFI is calling on the United Nations to adopt a clear and concise target stating:

“By 2030, reduce illicit financial flows related to trade misinvoicing by 50 percent.”

Such a narrowly defined goal—focused on trade misinvoicing, the most common method for moving money illicitly, as this report shows—will target more than three quarters of global illicit financial outflows from developing economies.  Similar language should be included in the outcome document of the Financing for Development Conference in July 2015.

References
  1. Financial Action Task Force. The FATF Recommendations: International Standards on Combating Money Laundering and the Financing of Terrorism & Proliferation. Paris, France: FATF, Feb. 2012. http://www.fatf-gafi.org/topics/fatfrecommendations/documents/fatf-recommendations.html.
  2. Government of the United Kingdom. Tough Action Promised on Hidden Company Owners. London, England: The Government of the United Kingdom, April 21, 2014. https://www.gov.uk/government/news/tough-action-promised-on-hidden-company-owners.
  3. Christensen, Johan and Anne Skjerning. “Regeringen vil åbne det nye ejerregister for alle.” Dagbladet Børsen (Copenhagen, Denmark), November 7, 2014. http://borsen.dk/nyheder/avisen/artikel/11/97562/artikel.html.
  4. European Parliament. Parliament Toughens Up Anti-Money Laundering Rules. Brussels, Belgium: The European Parliament, March 11, 2014. http://www.europarl.europa.eu/news/en/news-room/content/20140307ipr38110/html/Parliament-toughens-up-anti-money-laundering-rules.
  5. Global Financial Integrity (GFI). GFI Praises Denmark Commitment to Crack Down on Anonymous Companies with Public Registry. Washington, DC: GFI, Nov. 7, 2014. http://www.gfintegrity.org/press-release/gfi-praises-denmark-commitment-crack-anonymous-companies-public-registry/.
  6. Open Working Group on Sustainable Development Goals. “Goal 16.4.” Open Working Group proposal for Sustainable Development Goals. New York: United Nations, July 19, 2014. http://sustainabledevelopment.un.org/sdgsproposal.html.

Read the Report

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About

About Global Financial Integrity

Founded in 2006, Global Financial Integrity (GFI) is a non-profit, Washington, DC-based research and advisory organization, which produces high-caliber analyses of illicit financial flows, advises developing country governments on effective policy solutions, and promotes pragmatic transparency measures in the international financial system as a means to global development and security. Learn more…

About the Authors

Dev Kar is the Chief Economist at Global Financial Integrity. Prior to joining GFI, Dr. Kar was a Senior Economist at the International Monetary Fund (IMF). During a career spanning nearly 32 years at the IMF, he worked on a wide variety of macroeconomic and statistical issues, both at IMF headquarters in Washington and on different types of IMF missions to member countries (technical assistance, Article IV Consultations with member countries, and Use of IMF Resources). He has published a number of articles on macroeconomic and statistical issues both inside and outside the IMF. Dr. Kar has a Ph.D. in Economics (Major: Monetary Economics) and an M. Phil (Economics) (Major: International Economics) from the George Washington University as well as an M.S. (Computer Science) from Howard University (Major: Database Management Systems). His undergraduate degree in Physics is from St. Xavier’s College, University of Calcutta, India.

Joseph Spanjers is a Junior Economist at Global Financial Integrity. Prior to joining GFI, Joseph conducted international trade research in Minneapolis and supervised a State Department scholarship program in Morocco. Joseph received a BS in Economics and a BA in Global Studies from the University of Minnesota.

Acknowledgements

The authors wish to thank and acknowledge Michiel Bogaert (Intern), Shunquin Chen (Intern), Christine Clough (Program Manager), Clark Gascoigne (Communications Director), Maximilian Kremer (Intern), Channing May (Policy Research Assistant), and Joshua Simmons (Policy Counsel) for their contributions to the production of this report.

GFI and the authors would also like to acknowledge Gil Leigh of Modern Media for his contributions to the layout and design of the publication.