Learn About Illicit Financial Flows
Key Terms

Latest

Oct
31

Transparency as Funding for the Millennium Development Goals

Ann Hollingshead

In September at the turn of this century, the leaders of the world convened at the Millennium Assembly of the United Nations. The Assembly was the culmination of nearly a decade of United Nations summits and conferences to address development and poverty. It was in 2000, however, that the world’s leaders adopted the United Nations Millennium Declaration, a commitment to a noble new partnership to drastically reduce poverty worldwide. All 193 member states of the United Nations and 23 organizations have agreed to achieve a set of eight goals by 2015. They are:

  1. Eradicate extreme poverty and hunger;
  2. Achieve universal primary education;
  3. Promote gender equality and empower women;
  4. Reduce child mortality;
  5. Improve maternal health;
  6. Combat HIV/AIDS, malaria, and other diseases;
  7. Ensure environmental sustainability; and
  8. Develop a global partnership for development.

By and large, developed countries and international organizations provide the policy advice, technical assistance, and financial support to achieve these goals. In 2005, members of the G8 also provided enough funds to forgive an additional $55 billion debt owed by Highly Indebted Poor Countries.

Continue Reading »

Oct
29

Will the Berlusconi Sentence Stick?

Valentina Rigamonti

Cross-posted from Transparency International’s Space for Transparency blog.

Silvio Berlusconi, the former prime minister of Italy was sentenced on 26 October to 4 years in prison for fraud but because of Italy’s laws limiting the length of trials, he is unlikely to serve any time.

Headlines around the world read “Berlusconi gets four year jail sentence.” But Berlusconi is unlikely to see the inside of a cell following his conviction for fraud, not because an appeal will overturn the case but because the case will be closed under Italy’s short statute of limitation laws.

How trial limits vary across Europe. Prosecutions for abuse of public function and bribery in Italy must end 7.5 years after the crime last happened. For money laundering, cases can last 15 years. Click the picture for the full report (p. 26).

Under Italian law Berlusconi can appeal to two more courts, a process that is likely to take several years, and as the Financial Times is already reporting, Italy’s strict limits on the length of trials – the “statute of limitations” – means the charges will very probably evaporate at the end of 2013 or early 2014.

If the courts are serious about their convictions, they need to find a way to make the punishments stick. Italy has one of the least effective statutes of limitations in Europe. Portuguese prosecutors get three times as long to finish a bribery case (22.5 years) than their Italian colleagues (7.5 years). The Council of Europe have long called for reform.

Continue Reading »

Oct
26

Raymond Baker in the Huffington Post: China’s Illicit Financial Flows Should Worry Us All

EJ Fagan

Global Financial Integrity’s new report, Illicit Financial Flows from China and the Role of Trade Misinvoicing, was released yesterday. It found that China lost $3.79 trillion–an astonishingly high number–between 2000 and 2011 to illicit financial flows. In just 2011, China lost almost $600 billion. These outflows are the proceeds of crime, corruption, and tax evasion, and threaten Chinese social stability. The report first debuted exclusively in this week’s issue of The Economist.

The report also analyzed trade mispricing between the United States and China, finding that as much as $72 billion flows out of China to the United States every year.

In the words of GFI Lead Economist Dev Kar, ““The Chinese economy is a ticking time bomb. The social, political, and economic order is not sustainable in the long-run given such massive illicit outflows.”

Raymond Baker, Director of Global Financial Integrity and the Task Force, wrote about the problem that illicit financial flows poses for China, and how it could affect the rest of the world in the Huffington Post,

China has seen massive, world-changing, economic growth over the past three decades. However, corruption is undermining much of this growth. The infrastructure that China is building right now should drive growth, and therefore raise living standards for the Chinese people for a century to come. However, many of the brand new bridges, roads, and modern buildings in China have been plagued by shoddy quality and massive amounts of corruption. Our research suggests that much of this money is flowing out of China.

I spent most of my professional life as an entrepreneur in Nigeria, and lived there for 15 years. Despite massive oil wealth and a vibrant, young population, 45% of the population lives below the poverty line. Per-capita GDP has barely risen since I first set foot there in the 1960s. I know far too many people living worse off today than they did decades ago. This is not because the Nigerian economy lacks promise–it has huge oil exports, and the country is filled with good, ambitious, entrepreneurial people–but because crime, corruption, and tax evasion have torn the country apart.

When China is growing at close to 10% every year, China’s median citizen sees their life improving despite endemic corruption and illicit outflows. However, there are serious questions for the political and social stability of China’s economy if growth slows. Will the median citizen continue to tolerate obvious and tragic corruption on the scale that we are seeing when more modest growth is not improving their living standards? When we say that illicit flows drive inequality, it is because money moved illegally out of the economy hurts your average person. That money can’t be spent on schools, infrastructure or basic services. To make matters worse, our prior research finds that illicit flows drive underground economies, resulting in more organized crime, smuggling, and other factors that undermine the Chinese economy.

You can read the whole post here, and access the GFI report here.

 

Continue Reading »

Oct
26

Keeping REDD++ Clean: A Step-By-Step Guide To Preventing Corruption

EJ Fagan

Transparency International today launched Keeping REDD+ clean – a step-by-step guide to guarding REDD+ against corruption, before it sets in.

Many of the world’s most densely forested countries have a poor track record for corruption. Politicians have been known to accept bribes – sometimes huge – to grant companies access to forest zones that should be protected. Meanwhile, some local communities have been forcefully removed from their homes in order to clear the way for forest exploitation, or have been coerced into selling their land for a fraction of its value.

REDD+ will inherit many of the corruption risks that have long beset the forestry sector, but it also brings with it new ones. Carbon is intangible, and so difficult to quantify. This opens the door to mistakes or manipulation – both of data and of people. Given the remoteness of REDD+ sites there may be no easy way of knowing whether a project on the voluntary carbon market is authentic or bogus. And forest communities may be marginalised from decision-making and profits.

At this critical stage in policy development Keeping REDD+ clean walks users through how to identify risks in REDD+ countries and find solutions. The book is already being used by our national chapters in IndonesiaPapua New Guinea and Vietnam.

You can read more about the report here.

Continue Reading »

Oct
25

FCPA Regulation by Prosecution and the World’s New Norms

Ann Hollingshead

In late 1975 a Securities and Exchange Commission investigation into Lockheed Corporation revealed that the aircraft manufacturer had paid at least $22 million in bribes to foreign government officials and political organizations. At the time, this was not illegal and it resulted in a scandal, investigation, and a revelation that hundreds of other businesses were routinely involved in this practice. In response to the Lockheed scandal, Congress enacted the Foreign Corrupt Practice Act (FCPA) in an effort to “bring a halt to the bribery of foreign officials and to restore public confidence in the integrity of the American business system.” The FCPA makes it unlawful for persons and entities to “make payments to foreign government officials to assist in obtaining or retaining business.”

Last year some members of Congress, including Rep. Jim Sensenbrenner, and the Chamber of Commerce brandished a crusade against the FCPA, hoping to weaken it with amendments. Rep. Sensenbrenner spent a great deal of valuable Judiciary Committee time last fall convincing other Congressmen to join him, rather than encouraging a thoughtful debate on the issue.

In a not-unrelated move, early last November, the Assistant Attorney General of the Department of Justice’s Criminal Division, Lanny Breuer, said in remarks at a national FCPA conference that his division expects to “release detailed new guidance on the act’s criminal and civil enforcement provisions,” in what he hoped would be “a useful and transparent aid.” Breuer didn’t promise a timeline, but he did mention the guidance would arrive sometime “in 2012.”

Continue Reading »

Oct
23

Missing From Last Night’s U.S. Presidential Debate on Foreign Policy: Most of the World

EJ Fagan

flickr / CSIS

The United States is about to decide on who will be the most powerful person in the world for the next four years. The two candidates had set lines and issues that they wanted to talk about. These are issues that likely will play a role in determining who wins the election. I can understand that they will act this way as candidates running in a competitive race. But what I can’t understand is how a veteran reporter and moderator like Bob Schieffer can forget about most of the world.

In 90 minutes, the conversation barely strayed away from talking about U.S. national security in the MENA region. A few quick asides mentions China-related policy and some U.S. domestic policy, but that’s it. The closest thing to talking about other important issues that came up were brief mentions of continents. The phrase “Europe and Africa” was spoke once. Governor Romney brought up “Latin America” very briefly. But then the conversation shifted back to MENA national security.

Bob Schieffer should have asked the candidates questions about a range of important issues. We have debates for a number of reasons other than deciding a competitive election, and chief among them is so that we can hold candidates accountable for their actions in office. When the next President takes office, he is going to act on these issues. They need to be on record talking about them.

Obviously, timing is an issue. The debate doesn’t go on forever. But here are three questions that Bob Schieffer should have asked.

What should the United States do to help combat global poverty?

Under Secretary of State Hillary Clinton, the Obama Administration has been quite innovative in some ways on this front. Specifically, their push for domestic resource mobilization in developing countries. Secretary Clinton has supported combating illicit financial flows through extractive industries transparency, helping developing countries collect tax revenue, and fighting corruption.

Continue Reading »

Oct
23

Podcast: Taxcast October Episode

EJ Fagan

In October’s Taxcast episode: Helsinki declares itself a tax haven-free zone, Starbucks joins the tax avoidance Roll of Dishonour and we follow the money: asset recovery, dictators and the selling of secrecy. You can view more Taxcast episodes here.

Continue Reading »

Oct
22

Green Climate Fund: with so much at stake we can’t afford foul play

Alice Harrison

Cross-posted from Transparency International’s Space for Transparency blog. The original version of this article was written last week. Since then, South Korea was chosen to host the planned US$100 billion per year Green Climate Fund. 

Urgency and precaution are not easily reconcilable. The Green Climate Fund – which met last week for the second time – will have to negotiate that balance. As climate negotiations chug along laboriously, this global fund will ensure that much-needed investment is not stalled as a result. By 2020 it could be holding the purse strings for up to US$100 billion in climate money every year.

But not before it is decided how the fund will operate. Events in the lead-up to last week’s meeting in Songdo, South Korea signal an inauspicious start to that process.

Currently the green fund consists solely of its executive board, inaugurated last month. An illustrious group of Finance Ministers, Environment Ministers, diplomats and bankers, board members have been tasked with crafting their fund from scratch – people, policies and systems to allocate and monitor spending. Until the fund becomes operational in 2014, board members will be quite literally writing their own rules.

It is hard to overstate the responsibility entailed. We are entrusting this global fund with spending scarce public resources as efficiently as they can, and leveraging the private capital required to meet the task of climate action. Ultimately these decisions will impact the success of efforts to reduce carbon emissions, raise us above ground level, shield us from storms and tidal surges, and channel water through drought.

Continue Reading »

Oct
17

Trade Mispricing: An Exercise in Vastness

Ann Hollingshead

flickr / ulricjoh

According to Global Financial Integrity (GFI), in 2009, importers and exporters sent $569 billion out of developing countries through trade mispricing. Trade mispricing, in case you’re not already aware, is a process by which individuals can transfer money abroad without detection. By over-invoicing imports and under-invoicing exports, individuals can evade taxes and avert capital controls through routine trade.

Here’s how it works: Suppose a Mexican furniture manufacturer, who wants to send money abroad illegally, imports $100 worth of timber from the United States.  Instead of paying $100, the furniture company reports and pays $200.  The company’s U.S. trading partner takes $100 for the furniture, reports the $100 on its own invoice, and shifts the extra $100 to a secret Delaware bank account (and maybe keeps an extra few dollars as a transaction fee).  Now the furniture company has shifted the $100 to the United States without Mexico’s knowledge.

But the $100 discrepancy is also reflected in the difference between what the United States says it exported to Mexico and what Mexico reports it imported from the United States. So GFI calculates these figures by comparing world trade data. Trade data is bilateral, which means that we can compare what County A says it exported to the world against what the world says it imported from Country A. Of course, these statistics are by no means perfect so some of the observed differences are just the result of statistical errors. But some of the difference is not statistical noise; it’s illicit transfers of wealth. And that’s what GFI tries to measure.

Continue Reading »

Oct
17

Book Launch: Global Corruption: Money, Power and Ethics in the Modern World

EJ Fagan

Event: Global Corruption: Money, Power and Ethics in the Modern World
A Panel Discussion on Corruption, Development and Democracy

Monday, October 29th, 2012, 10:00am – 11:30am
Carnegie Endowment for International Peace
Choate Room
1779 Massachusetts Ave. NW
Washington, DC 20036

Speakers:

Laurence Cockcroft, author
Michael Hershman, President & CEO of The Fairfax Group, former federal fraud and financial crime investigator
Claudia Dumas, President & CEO of Transparency International USA
Raymond Baker, Director of Global Financial Integrity

RSVP:

Send RSVPs to Patrick Benson at pbenson@gfintegrity.org

Corruption is a key factor in sustaining appallingly high levels of poverty in many developing countries, particularly in relation to the provision of basic services such as education and health. It is also a major reason why increases in the growth rate in Africa and South Asia have failed to benefit large segments of the population. Corruption drives the over-exploitation of natural resources, capturing their value for a small elite – whether timber from Indonesia or coltan from the Congo. In the developed world, corrupt party funding undermines political systems and lays policy open to heavy financial lobbying.

Continue Reading »

Oct
17

The Slow But Meaningful Evolution of the G20 on Illicit Financial Flows

Arya Andersen

flickr / Downing Street

The G20, as anyone who is familiar with the slow moving tendencies of international organizations will attest to, has taken quite awhile to get behind the idea of cracking down on tax havens and fighting illicit financial flows from both developed and developing countries. The G20 initially recognized these issues as a problem for the internet national community to do something them in early 2009, but it took a slow evolution of statements over the three years for that recognition to be fully fleshed out into concrete actions and orders.

Illicit financial flows are a global systemic problem, and can only ultimately be significantly curtailed with a global systemic solution. That is why the G20′s progress on the subject is so interesting.

I track statements by the G20 on offshore transparency and tax issues, corruption, illicit financial flows, and their solutions.  Below is the evolution of the bureaucratic discourse.

G20 London Summit, Final Declaration, April 2009

“To take action against non-cooperative jurisdictions, including tax havens. We stand ready to deploy sanctions to protect our public finances and financial systems. The era of banking secrecy is over. We note that the OECD has today published a list of countries assessed by the Global Forum against the international standard for exchange of tax information.”

G20 Pittsburgh Summit, Final Declaration, September 2009

“To take new steps to increase access to food, fuel and finance among the world’s poorest while clamping down on illicit outflows. Steps to reduce the development gap can be a potent driver of global growth.”

Here, we see recognition that secrecy jurisdictions and banking secrecy are a problem, and we get a pledge to take action against tax havens. Then, at the next three summits, we get:

Continue Reading »

Oct
17

‘Fines Only’ Is Not Enough For Money Laundering Victims

Farida Aboulmagd

flickr / Canadian Pacific

Since 1979, but particularly after the invasion of Iran by Iraq, the United States has imposed sanctions against Iran. Whether or not those sanctions are justified or sufficient is not up for discussion, but rather the integrity of American laws and decisions is. Standard Chartered, ING, and HSBC have been circumventing American laws and foreign policy decisions through their lack of transparency and the deliberate lapse of any and all anti-money laundering systems.

Although it is normal to automatically place the blame on the banks, perhaps the blame needs to be distributed in a more representative manner. It is true that the banks are the ones who were complacent in the handling of illicit flows of money and thus were (and perhaps continue to be) collaborators in the rise of financial crime, not to mention the blatant disregard for US law.

In order to accomplish this, they buried suspicious files and hired incompetent and gullible personnel, clearly revealing their intent. What must be noted; however, is that the circumvention of sanctions and other related political decisions is facilitated by the absence of any deterring consequence. Conversely, the respect for political decisions and monitoring mechanisms cannot be expected of firms whose sole purpose of being is money and profit.

So far, HSBC has reportedly set aside $700 million to cover fines (plus $28 million against for the charges raised by the Mexican government against its Mexico subsidiary), ING was fined $619 million, and Standard Chartered agreed to pay $340 million and submit to monitoring in order to settle the allegations levied against it. To put these numbers into perspective, HSBC’s fine is under 5% of their 2012 pretax profit; Standard Chartered paid $340 million in fines on $250 billion worth of transactions. Any simple business model would conclude that this is purely the cost of doing business.

In response to the rise of money laundering and its effect on other crimes, such as drug trafficking and terrorism, the United States established both preventative and criminal measures. It began with the Bank Secrecy Act in 1970, which required individuals, banks and other financial institutions to record and report on their transactions.

Continue Reading »

Pg 31 of 180 First...1020...30313233...4050...Last
Latest Press Releases

New Standard Chartered Settlement Underscores Insufficiency of Fines & Monitoring in Deterring Illicit Activity at International Banks

Global Financial Integrity · August 20, 2014

WASHINGTON, DC – As New York regulators announced that British bank Standard Chartered ...

GFI Welcomes New U.S.-Africa Partnership to Combat Illicit Finance

Global Financial Integrity · August 7, 2014

WASHINGTON, DC – Global Financial Integrity (GFI) welcomed the announcement from the White House and African leaders today regarding the establishment of a ...

GFI Urges Obama, African Leaders to Prioritize Curbing Illicit Financial Flows at U.S.-Africa Summit

Christian Freymeyer · August 5, 2014

WASHINGTON, DC – As African leaders descend on Washington this week for the historic U.S.-Africa Leaders Summit, Global Financial Integrity (GFI) called ...