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Illegal Financial Dealings Rob $1 Trillion from Poorer Nations

teleSUR | December 16, 2014

Global illicit financial flows (IFF), including crime, corruption and tax evasion, hit a historic high of US$991.2 billion dollars in 2012 alone – most of which was funneled out of developing and middle income economies, according to a new report released on Monday.

The new study by Global Financial Integrity (GFI), a United States-based watchdog that exposes financial corruption, reported that this number is a drastic increase from 2003, when illicit financial flows (IFF) totaled US$297.4 billion.

That means IFF increased an average of 9.4 percent (adjusted for inflation) a year – growing twice as fast as global GDP, said GFI President Raymond Baker.

Illicit funds from shady business, corruption and tax evasion have also been growing at an alarming rate in Sub-Saharan Africa and the Middle East and North Africa (MENA), at 24.2 and 13.2 percent respectively – more than double the global growth rate.

The report shows that developing countries lose more money through IFF than they gain from aid and foreign direct investment (FDI) combined.

“As this report demonstrates, illicit financial flows are the most damaging economic problem plaguing the world’s developing and emerging economies,” said Baker

In the time period between 2003 and 2012, the last year that data was available, developing countries lost about US$6.6 trillion dollars due to illicit transactions – what could have been invested in local business, healthcare, education or infrastructure, said one of the report’s authors Joseph Spanjers.

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

Sub-Saharan Africa saw some of the biggest losses as IFF comprised 5.5 percent of the country’s GDP.

China, Russia, Mexico, India and Malaysia saw the largest outflow of illicit funds in 2012.

The GFI study showed that trade misinvoicing – the overpricing of imports and the underpricing of exports – was the most common method to move money around illegally, accounting for 77 percent of illicit transactions.

“Suppose you live in Cameroon,” says Baker, “and want to get money out. As an importer, you ask your supplier abroad to increase the price by 20 percent and invoice you for 120 percent. When you pay that extra 20 percent is put into an account for you.”

To tackle the problem, GFI called for the United Nations to include specific targets to halve all trade-related illicit flows by 2030, as the international body prepares to discuss new Sustainable Development Goals to replace the Millenium Development Goals next year.

December 16, 2014 - Posted by | Corruption, Economics | ,

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