How to track illegal money flows

Crime and corruption are draining a record $1 trillion a year from poor and middle-income nations with the disappearance of dirty money hitting some of the world’s poorest regions hardest, a report showed on Monday.

A record $991 billion in unrecorded funds left 151 developing and emerging economies in 2012, up nearly 5 percent from a year earlier, according to U.S.-based watchdog Global Financial Integrity (GFI) that exposes financial corruption.

GFI’s sixth annual report found between 2003 and 2012, the estimated amount of illicit funds shifted from developing countries totalled $6.6 trillion and rose at an inflation-adjusted 9.4 percent a year – roughly double global GDP growth.

China, Russia, Mexico, India, Malaysia saw the largest outflow of dirty money – the proceeds from shady business, crime and corruption – over the decade and also in 2012.

Sub-Saharan Africa suffered the biggest loss as a share of its economy, with the disappearance of dirty money averaging 5.5 percent of GDP. Nigeria and South Africa were among the top 12 nations with the largest volumes of illicit outflows.

GFI President Raymond Baker said the estimated losses were conservative but were still more than 10 times the total amount of foreign aid these countries received. He called the growth rate “alarming”, having surged from about $297 billion in 2003.

“Illicit financial flows are the most damaging economic problem plaguing the world’s developing and emerging economies,” Baker said in a statement.

“It is simply impossible to achieve sustainable global development unless world leaders agree to address this issue head-on.”

Asia was the region of the developing world with the greatest flow of dirty money over the decade, accounting for 40.3 percent of the world total, driven by China.

But the researchers found growth of illicit flows was faster in other parts of the world, particularly in the Middle East and North Africa and in sub-Saharan Africa, where the growth was seen at 24.2 percent and 13.2 percent respectively.

The GFI research found fraudulent mis-invoicing of trade transactions was the most popular method to move money illegally and accounted for nearly 78 percent of illicit flows in 2012.

Money is moved overseas through trade mispricing by fraudulent underbilling or over-invoicing for goods to avoid tax or to hide large transfers.

Baker called for the United Nations to next year include a target to halve all trade-related illicit flows by 2030 as it negotiates a new set of global goals, the Sustainable Development Goals, to replace the Millennium Development Goals.

The GFI research tracks illegal money flowing out of 151 developing countries using trade and balance of payments reports filed with the International Monetary Fund. Its data provides an estimate as illicit flows cannot be precisely measured.

One of the report’s authors, GFI’s Joseph Spanjers, said the trillion dollars lost from these economies in 2012 could have been invested in local businesses, healthcare, education or infrastructure.

“This is a trillion dollars that could have contributed to inclusive economic growth, legitimate private-sector job creation, and sound public budgets,” he said.

This article is published in collaboration with The Thomson Reuters Foundation. Publication does not imply endorsement of views by the World Economic Forum. 

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Author: Belinda Goldsmith is Editor-in-Chief responsible for Thomson Reuters Foundation’s global news services covering humanitarian issues, climate change, women’s rights, corruption and good governance.

Image: A gambler counts out cash while making a proposition bet on Super Bowl XLV at the Las Vegas Hilton in Las Vegas, Nevada January 27, 2011. REUTERS/Steve Marcus.