Developing Nations Loose USD 6.5 Trillion Since 2000

January 24, 2011 International Tax CooperationOffshore BankingOffshore TaxationTax Havens

Cash DepositTax evasion, trade mispricing, bribes, and other forms of illicit financial activity caused nearly USD 1.26 trillion to flow from developing nations into wealthier countries in 2008, with the rate growing by an average of 18 percent since the year 2000.

Last week Global Financial Integrity (GFI), an independent international body aimed at eliminating the occurrence of illicit cross-border flow of capital, released the latest annual report on the severity of illicit outflows across the developing world.

The report stated that the magnitude of illicit capital outflows out of developing nations has increased by 18 percent per year since the year 2000, if viewed in current dollar terms. At the beginning of the decade illicit flows totaled approximately USD 369.3 billion per year, and By 2008 the level had risen to USD 1.26 trillion per year. Over the period between the year 2000 and 2008 cumulatively capital outflows are estimated to be USD 6.5 trillion.

Bribery, tax evasion, theft, trade mispricing and kickbacks were the primary forms in which illicit capital outflows occurred across developing nations. Cumulatively, between the years 2000 and 2008 China underwent the greatest levels of outflows, with an estimated USD 2.18 trillion. Russia was reported to be the second highest, at USD 427 billion, followed by Mexico at USD 416 billion. Saudi Arabia and Malaysia were reported to be the fourth and fifth highest, at levels of USD 302 billion and USD 291 billion respectively.

According to the report, the Middle East and North African (MENA) region experienced the greatest growth in illicit capital outflow levels since the year 2000, at 24.3 percent per annum. Over the same period, developing Europe was reported to have average growth of 23.1 percent per year. Africa, Asia and the Western Hemisphere were reported to have yearly increases of 21.9 percent, 7.85 percent, and 5.18 percent respectively.

According to GFI estimates, the weakened economic conditions seen in 2009 will lead to significantly lowered outflow growth levels in the next iteration of the report. According to the authors of the publication Dev Kar and Karly Curcio, it should be shown that reduced levels of international trade had a deep negative impact on trade mispricing activity and tax evasion. It is estimated that illicit flows will only be shown to have grown by 2.9 percent in 2009, a sharp drop from the levels seen in the previous year.

Photo by Ninja M.