Washington based think tank Global Financial Integrity has launched its latest edition of “Illicit Financial Flows from the Developing World: 2003-2012.” The study 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 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.
December 15, 2014 | Global Financial Integrity
Illicit Financial Flows from Developing Countries: 2003-2012
By Dev Kar, Joseph Spanjers
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.
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