On December 15th the international advocacy organization Global Financial Integrity released Illicit Financial Flows from Developing Countries Over the Decade Ending 2009, a new report examining the extent of illicit capital outflows from developing nations.

According to the report, countries around the world lost over USD 903 billion to illicit outflows during 2009. Previous reports found that in 2008 the extent of illicit flows reached USD 1.55 trillion, however the drop seen in 2009 is being attributed to a decrease in international trade and restricted credit conditions, and not due to direct action by governments.

Over the period between 2000 and 2009, China was found to have the highest level of illicit capital outflows, with a cumulative amount of USD 2.74 trillion. Mexico saw the second highest total amount of outflows, followed by Russia, with USD 504 billion and USD 501 billion respectively. In total, developing countries across the world lost an approximated USD 8.44 trillion to illicit outflows over the years between 2000 and 2009.

The authors of the report calculated that illicit capital movements across the world are growing at approximately 14.9 percent per annum. Regionally, the highest growth levels are being seen across the African continent, where the growth of illicit outflows is approximately 22.3 percent per annum. In the Middle East and North African regions the growth in outflows is approximately 19.6 percent. The countries of Eastern Europe are undergoing average growth levels of 17.4 percent. In Asia the rise of capital outflows is approximately 6.2 percent.

Comparatively, according to thr report, illicit capital movements in developed countries across the world are growing at approximately 4.4 percent.

Across Asia, and in particularly in China, the illicit outflows were derived predominantly from trade mispricing. Bribery and payoffs to public officials were the most common sources for illicit capital in the Middle East, North Africa and Eastern Europe.

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On December 1st Transparency International publicized its annual Corruption Perceptions Index 2011, which ranks countries based on their levels of perceived corruption in the public sector.

New Zealand was once again ranked as the least corrupt country in the world, followed closely by Denmark, Finland and Sweden. Somalia and North Korea were ranked as the most corrupt countries, followed by Myanmar and Afghanistan.

Across the American continent, Canada and Barbados were the least corrupt countries. In the Asia – Pacific region New Zealand and Singapore were the freesest from corruption, followed by Australia and Hong Kong. Throughout Eastern Europe and Central Asia, Turkey and Georgia were seen as the least corrupt. In the EU and Western Europe, Denmark, Finland and Sweden are regarded the cleanest nations. The Middle East and North Africa saw Qatar and the UAE ranked as the least corrupt countries. In the Sub-Saharan Africa region Botswana and Cape Verde were regarded as the least effected by corruption.

Amongst the OECD economies New Zealand, Denmark and Finland were the top three countries freest from corruption, and they are followed by Sweden, Norway, and Netherlands. Australia was ranked 7th in the OECD and 8th internationally. The UK was ranked 15th in the OECD and 16th in the world, and the USA was ranked 19th in the OECD and 24th internationally.

The research conducted by Transparency International uses the 17 separate data sources compiled by 13 international public institutions and NGOs, with the data being gathered in the period between December 2009 and September 2011.

The countries of North Korea, the Bahamas, St Lucia, St Vincent and the Grenadines, and Suriname were included in the 2011 survey for the first time.

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During a speech given on November 11th in front of the regional public-private dialogue on Harmonization of Domestic Taxes for the East African Community (EAC), the President of Tanzania Jakaya Kikwete called for a harmonization of tax systems across the region.

In his speech the President said that increasing tax cooperation and tax systems harmonization between Burundi, Kenya, Rwanda, Tanzania and Uganda will dramatically increase economic efficiency of the countries of East Africa. Reforming the tax systems to closer match the tax and custom regulation of the neighboring countries would serve to reduce the level of economic distortion in the region, and would maximize the effectiveness of efforts to integrate the country’s economies.

During his speech the President conceded that there is still public hesitation towards the idea of integrating tax systems, and the work should be carried out immediately to address these concerns. He added that the success in harmonizing customs duties in East Africa should serve as a good indicator of the potential benefits of tax changes.

Commenting on the potential benefits of harmonizing taxes across East Africa, Secretary General of EAC Richard Sezibera said that the move would further boost foreign investments into the region, and would serve to greatly reduce tax evasion in each country.

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The fight against tax evasion was an important topic at the G20 Summit held in Cannes on November 3rd, with all participating countries pledging their support to the OECD’s Multilateral Convention on Mutual Administrative Assistance in Tax Matters, which was signed by Argentina, Australia, Brazil, Canada, China, Germany, India, Indonesia, Japan, the Russian Federation, Saudi Arabia, South Africa and Turkey.

The Convention was jointly developed by the OECD and the Council of Europe with the aim of implementing a comprehensive set of rules to aid in the fight against tax evasion. According to conditions outlined in the Convention, participating countries will have improved protocols for tax information exchange, simultaneous international tax audits, and assistance in cross border tax recovery efforts.

Commenting on the signings of the new Convention, the OECD Secretary-General Angel Gurría said that the participating countries have taken a major step forward to improve global tax cooperation. The Director of the OECD Center for Tax Policy Jeffrey Owens also commended all of the signing nations saying that they are leading the world by example. He added that over coming months the OECD would be implementing further initiatives to help developing countries prepare the tax infrastructures needed to join the Convention.

According to OECD estimates, participation in the Convention could net G20 nations an additional USD 100 billion in extra tax revenues. Jeffrey Owens said that the tax revenue could grow further, and that there could be approximately USD 1 trillion more in assets and funds currently being held in offshore centers.

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According to a new report released on October 10th by the Subcommittee on Investigations of the US Senate, profit repatriation tax breaks do not benefit the national economy, and will not raise tax revenues or employment levels.

The report examined 20 large US registered companies that utilized the US government’s tax repatriation holiday program in 2004. Within three years of participating in the program, the companies had reduced their workforce by a total of 20,931 employees, and slowed down their spending on research and development projects. The tax holiday resulted in a cumulative tax revenue loss of USD 3.3 billion for the national budget.

The 2004 repatriation holiday program granted US registered companies the opportunity to bring back their overseas profits to the US, and face a reduced tax rate of 5 percent, compared to the normal rate of 35 percent. The program specified that the funds arising from the reduced tax liability should be earmarked for hiring new employees and conducting development activities, and not for executive compensation or stock buy backs.

Commenting on the results of the report the Chairman of the Subcommittee Senator Carl Levin said that there is no evidence that the 2004 repatriation holiday raised employment levels, but there is strong evidence to suggest that it was followed by an increase in executive salaries. The release of the new report comes only days after Senator John McCain and Senator Kay Hagan introduced a new bill to offer US companies reduced tax rates when repatriating their overseas profits.

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