Three Simple Rules for Life

Illicit Financial Flows from Developing Countries Over the Decade Ending 2009

Dev Kar and Sarah Freitas

December 2011

Illicit Financial Flows from Developing Countries Over the Decade Ending 2009

Dev Kar and Sarah Freitas1

December 2011

Global Financial Integrity Wishes to Thank The Ford Foundation for Supporting this Project

1

Dev Kar, formerly a Senior Economist at the International Monetary Fund (IMF), is Lead Economist at Global Financial Integrity (GFI) at the Center for International Policy and Sarah Freitas is an Economist at GFI. The authors would like to thank Daniel Robinson who is an intern at GFI for assistance with data research as well as Raymond Baker and other staff at GFI for helpful comments. Any errors that remain are the authors’ responsibility.

We are pleased to present here our analysis of Illicit Financial Flows from Developing Countries Over the Decade Ending 2009. Last year’s report, analyzing flows through 2008, produced a figure for that year of $1.26 trillion. We anticipated that the figure for 2009 might be even larger. However, the global financial crisis and slowdown in world trade combined to reduce illicit flows for the last year of the decade to a range of US$775 billion to US$903 billion. These are still staggering drainages from the poorer countries of the world. The average across the three last years of the decade remains above US$1 trillion annually. We continue to regard these estimates as very conservative, since they do not include smuggling, the mispricing of cross-border services, or the mispricing of merchandise trade that occurs within the same invoice exchanged between exporters and importers. China continues to lead the world, with most of the illicit outflows occurring through trade mispricing. Following are a number of oil exporting countries, with illicit outflows evidenced primarily through balance of payments accounts. For them this indicates considerable weaknesses in...