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Illicit Financial Flows from Developing Countries: 2000-2009

A January 2011 Report from Global Financial Integrity

Overview (View Report Downloads, Data & Media Resources)


 

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Illicit Financial Flows Report Update: Updating its 2008 report, GFI has expanded the range of years analyzed, updated existing figures based on new data, and included a focus on Asia.

 

Report Background


In December 2008, Global Financial Integrity (GFI) released “Illicit Financial Flows from Developing Countries: 2002-2006,” a groundbreaking report which used World Bank and IMF data to estimate the quantity and patterns of illicit financial flows coming out of developing countries. The report found that illicit financial flows out of developing countries were approximately $1.06 trillion in 2006.

 

About the Authors


The authors would like to thank interns, Katarina Lackner and Michael Murphy, for assistance with data research as well as Raymond Baker and other staff at Global Financial Integrity (GFI) for helpful comments. Any errors that remain are the authors’ responsibility.

 

 

Dev Kar, formerly a Senior Economist at the International Monetary Fund (IMF), is Lead Economist at GFI.

 

Read more about Dr. Kar...

Karly Curcio is an Economist at GFI.

 

Read more about Ms. Curcio...

 

 

 

 

 

 

 

Primary Findings


Illicit outflows increased from $1.06 trillion in 2006 to approximately $1.26 trillion in 2008, with average annual illicit outflows from developing countries averaging $725 billion to $810 billion, per year, over the 2000-2008 time period measured.

 

Illicit flows increased in current dollar terms by 18.0 percent per annum from $369.3 billion at the start of the decade to $1.26 trillion in 2008. When adjusted for inflation, the real growth of such outflows was 12.7 percent.  Real growth of illicit flows by regions over the nine years is as follows:

 

  • Middle East and North Africa (MENA) 24.3 percent,
  • developing Europe 23.1 percent,
  • Africa 21.9 percent,
  • Asia 7.85, and
  • Western Hemisphere 5.18 percent.

Asia accounted for 44.4 percent of total illicit flows from the developing world followed by Middle East and North Africa (17.9 percent), developing Europe (17.8 percent), Western Hemisphere (15.4 percent), and Africa (4.5 percent).

 

Top 10 countries with the highest measured cumulative illicit financial outflows between 2000 and 2008 were:

 

  1. China: $2.18 trillion
  2. Russia: $427 billion
  3. Mexico: $416 billon
  4. Saudi Arabia: $302 billion
  5. Malaysia: $291 billion
  6. United Arab Emirates: $276 billion
  7. Kuwait: $242 billion
  8. Venezuela: $157 billion
  9. Qatar: $138 billion
  10. Nigeria: $130 billion

 

IFF Drivers & Trends


  • Trade mispricing was found to account for an average of 54.7 percent of cumulative illicit flows from developing countries over the period 2000-2008 and is the major channel for the transfer of illicit capital from China.
  • Bribery, theft, kickbacks, and tax evasion were the greatest conduit for the illicit financial flows from the major exporters of oil such as Kuwait, Nigeria, Qatar, Russia, Saudi Arabia, the United Arab Emirates, and Venezuela.
  • Oil exporting countries, like Russia, the United Arab Emirates, Kuwait, and Nigeria, are becoming more important as sources of illicit capital.
  • Mexico is the only oil exporter where trade mispricing was the preferred method of transferring illicit capital abroad.
  • With half a trillion in illicit outflows in 2008 alone, Asia accounted for the largest portion of illicit financial flows from the developing world. Over the nine-year period examined, 89.3 percent, on average, of total illicit flows from Asia were transferred abroad through trade mispricing.
  • Financial flows from Malaysia have more than tripled from $22.2 billion in 2000 to $68.2 billion in 2008. This growth rate, seen in few Asian countries, may be a result of significant governance issues affecting both public and private sectors.
  • In real terms, illicit outflows through trade mispricing grew faster in the case of Africa (28.8 percent per annum) than anywhere else, possibly due to weaker customs monitoring and enforcement regimes.
  • GFI projects that in 2009 illicit flows from developing countries will total $1.30 trillion. This represents a significant slowdown from the 18.0 percent rate of growth over the period 2000-2008. This projected slowdown of illicit financial outflows is mainly due to a decline in trade mispricing resulting from a slowdown in world trade in the wake of the global financial crisis.

 

 

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