Developing nations losing $1 trillion a year in dirty money: report

A record $991bn in illicit capital left poor and middle-income nations in 2012, with Asia accounting for the biggest outflow of dirty money

Crime and corruption are siphoning a record $1 trillion a year from developing and emerging nations and pinching economic growth in some of the world’s poorest regions, a report from a US-based watchdog showed.

A record $991bn in illicit capital left 151 poor and middle-income nations in 2012, with Asia accounting for the biggest outflow of dirty money, according to Global Financial Integrity (GFI), which tracks financial corruption.

GFI's sixth annual report found between 2003 and 2012, the estimated amount of illicit funds from developing countries reached $6.6 trillion and grew at an inflation-adjusted 9.4 percent a year, or roughly double global GDP growth.

Asia accounted for 40.3 per cent of illicit outflows over the decade, driven by China, followed by developing Europe at 21 per cent and the Western Hemisphere at 19.9 per cent. The Middle East and North Africa accounted for 10.8 per cent of outflows, but saw the highest growth rate over the decade at 24.2 per cent.

“Illicit financial flows are the most damaging economic problem plaguing the world’s developing and emerging economies,” said Raymond Baker, GFI President.

The outflows already outstrip the combined sum of all foreign investment and aid to poorer countries, he noted. “It is simply impossible to achieve sustainable global development unless world leaders agree to address this issue head-on.”

Sub-Saharan Africa suffered the biggest loss as a share of its economy, with the disappearance of dirty money averaging 5.5 percent of GDP. In the MENA region, illicit outflows average 3.7 per cent of GDP.

The GFI report found mis-invoicing of trade transactions was the most popular channel for shifting money illegally, accounting for 77.8 per cent of illicit flows in 2012. Criminals fraudulently underbill or overprice goods or services on customs invoices, GFI said, to allow them to move substantial sums of money across borders.

Baker called for the United Nations next year to include a target to halve all trade-related illicit flows by 2030, as part of its Sustainable Development Goals global framework. The 17 goals, designed to carry on the legacy of the Millennium Development Goals, will be unveiled at the UN General Assembly in September.

“Illicit financial flows have major consequences for developing economies,” said Joseph Spanjers, GFI junior economist and co-author of the report. “[This money] could have been invested in local businesses, healthcare, education or infrastructure.”

Photo credit: Global Financial Integrity