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New Report finds that Illicit Financial Flows out of the Developing World Overwhelm Foreign Aid

April 10, 2009

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A new report by the Task Force’s lead organization, Global Financial Integrity, entitled “Illicit Financial Flows from Developing Countries: 2002-2006,” shows that the developing world is losing an increasing amount of money through illicit capital flight each year.

Moreover, the value of the illicit flows surpasses the amount of Official Development Assistance entering those countries by an order of magnitude.

“Illicit financial flows siphon revenue out of poor countries, robbing them of much-needed assets and forestalling economic development,” said GFI director Raymond Baker. “These new figures reveal that illicit financial flows outpace Official Development Assistance by a ratio of nearly 10 to 1. This is critical to understanding global poverty and developing effective poverty alleviation and economic development strategies,” Baker said.

Primary findings of the report include:

  • Total capital flight exiting the developing world may be as much as $1 trillion dollars per year,
  • Measured against the flow of Official Development Assistance in 2006 poor countries, in aggregate, are losing close to $10 dollars for every $1 dollar they receive in aid,
  • The volume of capital flight from developing countries is increasing at an average of 18.5% a year,

Over the five-year period of this study, illicit financial flows grew at the fastest pace in the Middle East and North Africa region (49.4 percent) followed by Europe (25.4 percent), Asia (15.7 percent), and the Western Hemisphere (2.8 percent). Illicit financial flows from Africa actually declined (-2.9 percent) but this decline is more the result of incomplete data than supportive economic or political factors.

Illicit financial flows refer to money that is illegal in its origin, transfer or use and reflect the proceeds of corruption, crime and tax evasion. Corporate avoidance of customs duties, VAT and income taxes constitute an estimated 60% of the total outflow. The study utilized multiple economic models which were combined and “tested” to determine the most reliable estimates. The findings were based on macroeconomic trade and external debt data maintained by the International Monetary Fund and the World Bank.