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Dec
15

From Today’s Report on Illicit Financial Flows: Which Countries Lost the Most Relative to 2008?

Sarah Freitas

Today, Global Financial Integrity released our newest report,Illicit Financial Flows from Developing Countries Over the Decade Ending 2009. In the report, we found that despite the global financial crisis and subsequent drop in international trade and foreign direct investment, illicit financial flows still approached US$1 trillion out of the developing world. This represents a decline from the US$1.55 trillion we estimated flowed out of the developing world in 2008, but still represents a horrible tragedy for developing countries.

Despite this trend, a number of countries actually saw significant increases in illicit financial outflows in 2009. Here are the 10 countries that saw the largest increase:

 

To read more important findings or to download both a PDF of the report and all the data it contains, click here.

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Dec
13

Illicit Financial Flows and the World Bank

Ann Hollingshead

In July of this year the World Bank Group took a big step forward in the field of illicit financial flows with its report Barriers to Asset Recovery. The study explicitly concerns reforms that will “enable the recovery of stolen assets” as the result of corruption. It is a topic which has been given a fair amount of attention this year, particularly in the wake of the Arab Spring. Ben Ali of Tunisia, Hosni Mubarak of Egypt, and Muammar Qaddafi of Libya all hid millions of dollars abroad, money that was frozen and publicized soon after revolutions began in their (respective) countries.

Of course, as I’ve noted, injustice also lives outside the headlines. It is not only countries’ most powerful leaders that steal money from their citizens and stash it abroad. In fact, proceeds of corruption escape the boarders of developing countries from nearly all levels of government. In its paper, the World Bank paper specifically addressed this issue by noting governments and institutions could be more effective in recovering stolen assets if central bank registries “identify the beneficial owner of the account and any power of attorney related to the account. By helping to identify accounts, central bank registries…speed the work of law enforcement authorities in asset recovery cases.”

The flip side of this coin is acknowledging and then seeking to understand the delirious effect these flows of money have on developing economies. Of course, the stolen assets of kleptocrats are only one piece of the pie. There are other avenues by which valuable financial resources escape developing economies—trade mispricing, smuggling, hawala transfers, and good old fashioned tax evasion are some examples of ways criminals rob developing countries. Together, these currents of money are termed “illicit financial flows”

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Dec
12

Philippines Lost $142 billion in Illicit Financial Flows between 2000 and 2009, Global Financial Integrity Finds

Sarah Freitas

Manilla, Philippines - flickr / tEdits

According to an upcoming report that estimates the magnitude of illicit money leaving developing countries, the Philippines lost US$142 billion between 2000 and 2009.  The amount of illicit money that left the economy puts the Philippines in the top 15 countries in outflows during the period.  The report, titled Illicit Financial Flows from Developing Countries Over the Decade ending 2009, will be published by Washington, DC-based research group Global Financial Integrity on December 15.

The study found that the majority of the illicit outflow, US$113.7 billion, is due to the mispricing of imported and exported goods. Trade mispricing is a phenomenon where individuals and corporations use fraudulent commercial invoices to smuggle money out of the country, usually in order to facilitate tax evasion. A large corporation or very wealthy individual in the Philippines will trade with a counterpart in another country, but will manipulate the price and quantity of exported goods to send more money offshore than represented by what they report to the government. The individual or corporation then collects the extra money later, usually in a bank account in a tax haven or secrecy jurisdiction.

This means that while the Philippines has seen significant outflows from corruption, bribery, and kickbacks, their biggest priority when addressing illicit capital flight should be to tackle trade-related tax evasion. Tax revenue loss represents teachers that are not hired, hospitals that are understaffed, and additional taxes levied on those already paying their fair share. We believe that the very real cost in human suffering and loss of life from tax evasion in the Philippines, and elsewhere throughout the developing world, is massive.

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Dec
9

The IFC’s incomplete approach to offshore abuse of aid

Alex Marriage

The World Bank Group’s new policy on offshore financial centers will aim to improve the effectiveness of its private sector arm by helping countries tackle tax evasion but effective rules must be made for partner companies.

As part of the World Bank Group, The International Finance Corporation (IFC) has a mission to promote development. The IFC uses public aid money, to fund private companies’ operations in poor countries, which should generate growth and increased government revenues. But reports by IBIS and Eurodad found these companies using tax havens, taking revenue from those countries that they are meant to benefit.

To prevent is partners from undermining its mission the IFC should require transparency from companies that it funds. Firstly by demanding sufficiently detailed country-by-country reporting and secondly requiring beneficial ownership disclosure; meaning a company must reveal all subsidiary companies that it owns a stake in or exercises control over. By setting an example of good practice for governments to follow the IFC could really leverage its impact and ensure the private sector contributed much more to development by paying its share of tax.

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Dec
9

Friday’s Daily News Digest

EJ Fagan

On International Anti-Corruption Day, the US should not enable corruption
The Hill (Op-Ed), December 9, 2011

India among best in fight with tax evasion
Zeebiz (India), December 9, 2011

Human rights abuses? Blame the parents
The Guardian (blog), December 9, 2011

Statement at the UN High-Level Dialogue on Financing for Development
Statement at the UN General Assembly, December 7, 2011

Wal-Mart Discloses Internal FCPA Review
The Wall Street Journal (blog), December 9, 2011

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Dec
9

Why the UN’s International Anti-Corruption and Human Rights Days Are Back-to-Back

Nick Mathiason

UN Human Rights Day Logo

Is it a coincidence that the UN’s International Anti-Corruption and Human Rights Days follow on consecutively. (Friday 9 and Sat 10 December)? Possibly not. After all, human rights abuse and corruption are linked. Not least by opaque corporate ownership structures that can prevent legal redress

People living in the Niger Delta where land and rivers are indelibly polluted after decades of oil extraction have long suffered violations of several internationally recognised human rights.

These rights comprise the right to food, the right to work, the right to an adequate standard of living, and the right to health and a healthy environment.

The sheer scale of environmental degradation which has wrecked farming and fishing livelihoods in the Delta was confirmed by the United Nations Environment Programme in August when it called for an initial $1bn fund to clean up oil related pollution.

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Dec
9

Why Jon Stewart is Right about Taxes

Ann Hollingshead

In 1992 the U.S. Supreme Court made a decision that directly affected the profitability of future powerhouse online retailers like Amazon.com and Overstock.com. In Quill v. North Dakota, the Court ruled that retailers who have no physical presence (or “nexus”) in a state are exempt from collecting sales taxes in that state. Obviously internet shopping in 1992 wasn’t what it is now. Actually the case dealt with a catalog mail-order company, but online retailers now use the rule to avoid sales taxes.

Of course since e-commerce sales have soared and displaced business of local retailers, this ruling has become am increasingly thorny budgetary problem for states.  According to a study at the Universityof Tennessee, yearly e-commerce sales rocketed from $995 billion in 1999 to an estimated $4 trillion in 2011. These conditions also give online retailers like Amazon and Overstock a pretty nice advantage over the general store down the street, since in some states sales taxes amount to nearly 10% of the purchase price. Or as Bill Dombrowski, president of the California Retailers Association, put it: “You can’t give one segment of retail a 10% discount every day. It’s just not fair.”

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Dec
8

Russians Take to the Street over More than Just a Fraudulent Election

Sarah Freitas
Forthcoming Research from Global Financial Integrity Finds that Russia’s Economy Hemorrhaged US$501.3 Billion in Illicit Outflows Since Putin Took Power
Putin - Medvedev Campaign Poster

Veronica Khokhlova/Flickr*

As tremors of distrust resonate throughout Russia due to widely-believed allegations of fraud in Sunday’s Parliamentary elections, new research reveals that US$501.3 billion in illicit money has left the country in the ten years (2000-2009) following Vladimir Putin’s rise to power.  The forthcoming report, Illicit Financial Flows from Developing Countries over the Decade Ending 2009, is to be published next week by Global Financial Integrity (GFI).  To make matters worse, The Wall Street Journal reports that Finance Minister Anton Siluanov has predicted net capital flight upwards of US$85 billion for this year, further adding to the illicit component of GFI’s estimates.

A statement released by the Organization for Security and Cooperation in Europe (OSCE) described the contest as “slanted in favor of the ruling party,” pointing to “several serious indications of ballot box stuffing.” By Tuesday, police arrested around 800 protesters across Russia, including those defying the rally ban in Moscow, and were bracing for a potential protest of 14,000 this coming Saturday in what could be the decade’s largest opposition demonstration in Moscow.

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Dec
8

Honoring International Anti-Corruption and Human Rights Day Online

Sarah Bracht

It is appropriate that the United Nations officially recognizes Anti-Corruption (9 December) and Human Rights (10 December) on two consecutive days as the two issues are inextricably linked.  Article 25 of the Universal Declaration on Human Rights states that “Everyone has the right to a standard of living adequate for the health and well-being of himself and of his family, including food, clothing, housing and medical care and necessary social services…”  Corruption undermines a society’s ability to attain these basic standards.  When corrupt individuals and institutions steal aid money, or a Multinational Corporation exploits a country’s resources or shifts profits to evade taxes, it is the average citizen that suffers lack of food, education, medical care, and more.

This year the Task Force has been joined by member organizations and Global Financial Integrity Advisory Board member Dr. Thomas Pogge in showing our support of anti-corruption and human rights.  In a piece written for the Task Force, Dr. Pogge examines how corruption contributes to the continued under-fulfillment of basic socioeconomic rights and rising global inequality.  Task Force Members have joined together to discuss how the work of each of their organizations helps promote and defend human rights.  It is important to recognize that we are all in this together.  For this years’ Anti-Corruption and Human Rights days let’s reflect on how greater transparency and accountability in governments, business, and other institutions will help ensure basic human rights and standards of living.

The view the album, click here.

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Dec
8

Featured Video of the Week: Integrity Watch Afghanistan on Aid in Afghanistan

EJ Fagan

Integrity Watch Afghanistan, a Task Force Allied Organization, aims to increase transparency, integrity and accountability in Afghanistan, one of the most corrupt nations in the world.

In this video, Integrity Watch Afghanistan monitors infrastructure projects in Afghanistan. They go out into the field through community monitoring to make sure that projects are done right, and aid money is well spent. At one point, they even directly confront contractors for shoddy work.

Civil society development in Afghanistan is enormously important for the future of the impoverished, war-torn nation, and this video does an excellent job of showing how concerned Afghanis and NGOs are working to build accountable institutions from the ground up.

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Dec
7

Endless Poverty is a Human Rights Failure

Thomas Pogge

Photo Credit: Fotolia

Socioeconomic rights, such as that “to a standard of living adequate for the health and well-being of oneself and one’s family, including food, clothing, housing, and medical care” (UDHR, Article 25), are currently, and by far, the most frequently unfulfilled human rights. Their widespread underfulfillment also plays a major role in explaining global deficits in civil and political human rights demanding democracy, due process, and the rule of law. Extremely poor people — often physically and mentally stunted due to malnutrition in infancy, illiterate due to lack of schooling, and much preoccupied with their family’s survival — can cause little harm or benefit to the politicians and civil servants who rule them. Such officials therefore pay much less attention to the interests of the poor than to the interests of agents more capable of reciprocation, including foreign governments, companies, and tourists.

Contrary to much official rhetoric, these problems are not being overcome. The number of chronically undernourished people, for instance, has risen since the 1996 World Food Summit in Rome where the world’s governments promised to halve it by 2015. Reported at 788 million in 1996, this number has in 2009 broken above 1 billion for the first time in human history.

A key driver of the persistence of severe poverty is rising global inequality. While the top five percent of the world’s population increased its share of global household income from 42.9 to 46.4 percent in the 1988–2005 period, the share of the poorest quarter declined by a third from 1.16 to 0.78 percent — despite all the development assistance.[1] Clearly, and unsurprisingly, the rules of the world economy are better aligned with the interests of the world’s affluent than with those of the poor.

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Dec
7

An Artist’s Stand

Ann Hollingshead

flickr / pinkcigarette

In November of this year, more than 30,000 people, most of them from China, donated about $1.4 million to one man. The donations flowed in all shapes and sizes—wrapped around fruit and thrown into his lawn, folded into paper airplanes, and one even wired in from the German government’s human rights commissioner. The man wasn’t a spiritual leader. He wasn’t ill and he wasn’t going to donate any of it to charity. In fact, he deposited nearly the entire sum into a government account—as a guarantee on his tax evasion charges. The man—not a leader or a humanitarian—is an artist.

His name is Ai Weiwei and the Chinese government claims his design firm, Beijing Fake Cultural Development Ltd, owes it nearly $2.4 million in back taxes and fines. Ai has responded he doesn’t even own the company.

It is likely Ai Weiwei’s true crime is not tax evasion, but dissent. Ai’s art, most of it exhibited abroad, is called “social sculpture” by most of those in the West, but labeled “political protest” at home. For much of his art he uses Twitter and a blog as a platform to reach and interact. His installations include a piece in Germany made of 9,000 children’s backpacks, in memory of the students who died in the poorly built schools in Sichuan that collapsed during the earthquake in 2008.

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Latest Press Releases

TED Prize Winner Charmian Gooch Announces Global Campaign to Abolish Anonymous Companies

Global Witness · March 19, 2014

Vancouver, Canada, March 18, 2014 –This year’s TED Prize winner – Charmian Gooch of Global Witness – has announced that she will use the prestigious million-dollar award “to make it impossible for criminals and corrupt dictators to hide behind anonymous companies.” The announcement was made live and online from the TED stage in Vancouver, with support from leading members of the business, political, law enforcement and campaigning community.

European Parliament Gives Overwhelming ‘yes’ Vote to End Secret Corporate Ownership

Financial Transparency Coalition · March 11, 2014

Joint NGO Media Reaction Financial Transparency Coalition – Eurodad – Global Witness – Transparency International EU Office – Oxfam Brussels, March 11, 2014 – Today, the European Parliament endorsed the creation of public registers of who really owns companies, trusts and other legal structures. This will make it much harder for criminals, tax evaders, corrupt politicians and other money launderers to hide their identity, and their illicitly-acquired assets, behind anonymous companies and trusts.

NGOs welcome MEPs’ vote for ground-breaking changes to fight money laundering

Financial Transparency Coalition · February 20, 2014

Joint NGO media reaction Financial Transparency Coalition – Eurodad - Global Witness - Oxfam A cross political party agreement in the European Parliament ...