What Are Illicit Financial Flows? - Red de Justicia Fiscal de América

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Transcript What Are Illicit Financial Flows? - Red de Justicia Fiscal de América

Illicit Financial Flows, Media,
and the Importance of
Cross-Border Journalism Networks
2014 Financial Transparency
Coalition Conference
Clark Gascoigne
Communications Director
Global Financial Integrity
Lima, Peru
October 13, 2014
What Are Illicit Financial Flows?
Illicit financial flows include cross-border flows
of capital that are:
• Illegally earned,
• Illegally transferred, or
• Illegally utilized.
If the capital breaks the law in its point of
origin, transfer, or absorption, than it can be
classified as an illicit flow.
What Are Illicit Financial Flows?
Some examples of illicit financial flows include
movements of capital stemming from:
Tax evasion,
Capital control dodging,
Terrorist financing,
Drug smuggling,
Illicit wildlife trafficking,
Money laundering, or
Various other crimes.
Cumulative Illicit Outflows from
All Developing & Emerging Countries
US$5.9 trillion flowed illicitly out of developing
economies from 2002 through 2011.
– US$4.6 trillion (or 77.9%) from trade
– US$1.3 trillion (or 22.1%) due to illicit hot money
– Illicit outflows are growing at an inflation-adjusted
rate of 10.2% per year.
Illicit Outflows from
Developing Countries: 2002-2011
(in millions of U.S. dollars)
Components of Illicit Financial Flows
from Developing Countries: 2002-2011
(in millions of U.S. dollars)
How much is due to…
Tax Evasion?
Drug Trafficking?
Other Crimes?
Answer: We don’t really know.
GFI looks at macroeconomic data that allows us to detect illicit flows of
money, but doesn’t allow us to know the underlying motivation for each illicit
GFI Methodology
Two components:
• Leakages in the Balance of Payments (Illicit Hot Money
– Money that disappears from economy (e.g. via unrecorded wire
transfers, direct theft of government revenues, etc.)
• Trade Misinvoicing Outflows
– Detects discrepancies between what a country says it exports
to/imports from its trading partners, and what its trading partners
report as exports/imports.
Trade Misinvoicing outflows are added to Illicit Hot Money
outflows to generate an estimate of total illicit outflows.
How Trade Misinvoicing Works
GFI’s Methodology Doesn’t
Capture All Forms of Illicit Flows
Not Captured:
Domestic money laundering, (Not Cross-Border)
Petty bribery, (Not Cross-Border)
Hawala transactions,
Dealings conducted in bulk cash,
Dealings conducted in virtual currencies (e.g. Bitcoin),
Trade misinvoicing in services,
Same-invoice trade misinvoicing, and
“No-invoice” trade misinvoicing,
Among other things…
GFI’s estimates are very conservative.
Cumulative Illicit Outflows from
Developing Western Hemisphere Countries
US$1.13 trillion flowed illicitly out of developing
Western Hemisphere economies from 2002 through
– US$987.5 billion (or 87.3%) from trade
– US$143.2 billion (or 12.7%) due to illicit hot
money outflows.
Illicit Outflows from Developing
Western Hemisphere Countries: 2002-2011
(in millions of U.S. dollars)
Illicit Outflows from Developing
Western Hemisphere Countries: 2002-2011
(in millions of U.S. dollars)
Illicit Outflows from Peru: 2002-2011
(in millions of U.S. dollars)
Evolutions from 2000 through 2014
A Decade Ago…
• Two Convicted In Drug-Money Laundering Case
Florida Sun-Sentinel, February 17, 2001
• 2 Convicted in Teachers Union Embezzlement
The Washington Post, September 1, 2005
• Metabolife Pleads Guilty in Tax Case
Associated Press, October 6, 2005
• Bank Settles U.S. Inquiry Into Money Laundering
The New York Times, November 9, 2005
When There Was Coverage…
Financial Centres: Offshore and Beyond
the Pale
“Tax havens are an unavoidable part of
globalisation and, ultimately, a healthy one”
The Economist, February 22, 2007
Things Changed
In January 2012:
Corporate Anonymity:
Light and Wrong
“Incorporation with limited
liability is a privilege. It
should not include
The Economist, January 21,
And in a Complete Reversal
A February 2013 special report from The Economist highlights the problems with the
global shadow financial system:
Tax Havens: The Missing $20 Trillion
“How to stop companies and people dodging tax, in Delaware as well as Grand Cayman”
The Economist, February 16, 2013
Special Report: Storm Survivors
“Offshore financial centres have taken a battering recently, but they have shown remarkable
resilience, says Matthew Valencia”
The Economist, February 16, 2013
“Onshore Financial Centres: Not a Palm Tree in Sight”
“Some onshore jurisdictions can be laxer than the offshore sort”
The Economist, February 16, 2013
And many more articles…
International Consortium
of Investigative Journalists
Secrecy for Sale: Inside the Global Offshore Money Maze
Possibly the Largest Cross-Border Collaboration
in the History of Journalism
April 2013-Present
24chasa (Bulgaria), ABC Color Digital (Paraguay), Armando.info/Ipys (Venezuela),
The Asahi Shimbun (Japan), BBC's Panorama (UK), Canadian Broadcasting
Corporation (CBC) (Canada), Center for Investigative Reporting - Investigative
Journalism Center (CIN -IJC) (Croatia), CIPER (Chile), Commonwealth Magazine
(Hong Kong), El Comercio (Ecuador), El Confidencial (Spain), El País (Spain), Finnish
Broadcasting Company YLE (Finland), Fokus (Sweden), Folha de S. Paulo (Brazil),
The Guardian (UK), Hetq - Association of Investigative Journalists (Armenia), The
Indian Express (India), Isra News Agency (Thailand), The Irish Times (Ireland), Korea
Center for Investigative Journalism - Newstapa (South Korea), Kyiv Post (Ukraine), La
Nación (Argentina), La Nación (Costa Rica), Le Matin Dimanche and
SonntagsZeitung (Switzerland), Le Monde (France), Le Soir (Belgium), L'Espresso
(Italy), M&G Centre for Investigative Journalism (amaBhungane) (South Africa),
Malaysia Kini (Malaysia), Ming Pao (Hong Kong), NDR (Germany), New Age
(Bangladesh), NEWS (Austria), Norwegian Broadcasting Corporation NRK (Norway),
Novaya Gazeta (Russia), Novi Magazin (Serbia), Origo (Hungary), Pak Tribune Pakistan News Service (Pakistan), Philippine Center for Investigative Journalism
(Philippines), Premium Times (Nigeria), Radio Free Europe/Radio Liberty (Azerbaijan),
Romanian Centre for Investigative Journalism (Romania), Rustavi TV (Georgia),
Süddeutsche Zeitung (Germany), The New York Times, The Sydney Morning
Herald (Australia), The Sunday Times (UK), Ta Nea (Greece), Trouw (Netherlands),
and The Washington Post (USA)
Secret Files Expose Offshore’s Global Impact
“Dozens Of Journalists Sifted Through Millions Of Leaked Records And
Thousands Of Names To Produce ICIJ’s Investigation Into Offshore Secrecy”
International Consortium of Investigative Journalists (ICIJ), April 3,
Una Investigación Revela Miles de Nombres de Evasores Fiscales
“El Escándalo Afecta a 170 Países y Muestra un Sistema Globalizado de
Evasión que Blanquea Billones de Euros”
El País, April 4, 2013
ChinaLeaks: Los Paraísos Fiscales Esquivan el Cerco
El País, January 20, 2014
Thomson Reuters Foundation
Amount Of Dirty Money Leaving Developing World
Jumped 14 Pct In 2011-Report
Thomson Reuters Foundation, December 11, 2013
(By Stella Dawson)
"Developing countries lost nearly $1 trillion to fraud, corruption and
shady business transactions in 2011, vastly outpacing the foreign aid
they received and the pace of dirty money leaving emerging nations is
accelerating, a new report found.”
Trade Misinvoicing Coverage
Trade and Money Laundering: Uncontained
The Economist, May 3, 2014
Trade is the Weakest Link in the Fight against Dirty Money
Illicit Inflows?
Illicit inflows are not a benefit to an
Flow into the underground economy,
Fuel crime,
Cannot be taxed,
Often it flows in through under-invoicing of
imports, which evades customs duties.
Illicit Inflows?
Chic Nairobi Throbs To The Beat Of
Dirty Money
Thomson Reuters Foundation,
December 10, 2013
"New data calculated for Thomson Reuters
Foundation by Global Financial Integrity
(GFI), a Washington-based financial
watchdog, show the amount of illicit money
entering Kenya from faulty trade invoicing,
crime, corruption and shady business
activities has increased more than five-fold in
a decade to equal roughly 8 percent of
Kenya’s economy – and in recent years the
pace of dirty money inflows has been
Some Mischaracterizations
Reporting on GFI’s data on illicit flows from Kenya, the Daily
Nation wrote:
Multinationals Exploit Loopholes To Evade Tax
Daily Nation (Kenya), September 21, 2013
"It is estimated Kenya loses up to Sh11.5 billion annually as a
result of intricate transfer pricing practices, according to Global
Financial Integrity, a US-based international financial watchdog."
Some Mischaracterizations
Reporting on GFI’s global IFF data, Reuters wrote:
Charities Say Graft, Tax Evasion Hold Back Poor Countries'
Reuters, Apr 10, 2013
"The developing world loses around $1 trillion every year through
practices like tax evasion, corruption and money laundering,
mainly by multinational corporations...."
Some Mischaracterizations
Reporting on a GFI report about illicit flows from
Africa, the International Business Times headline
“Graft Bleeding Africa Of Many Billions: Report”
International Business Times, March 13, 2013
Contact Information
Today’s Speaker:
Clark Gascoigne
Communications Director
Global Financial Integrity
[email protected]
+1 202 293 0740 ext.222 (Office)
+1 202 815 4029 (Mobile)