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egan to widen in 2005 and reached a peak in 2008 at the onset of the crisis, closing almostcompletely in 2009 as both licit and illicit outflows fell in tandem. In the last year, both typesof flows recovered along with increase in global economic activity. China, Malaysia, thePhilippines, and India led Asia as the major drivers of licit and illicit flows. The relaxation ofcapital controls by these countries over the years perhaps encouraged more legal or “normal”capital flight accounting for the widening regional gap between the CED+GER and HMN+GERmeasures through 2008. Further research is needed in order to analyze the factors driving licitcapital flows from the various regions. For instance, legal capital flight seems to be drivingthe widening gap between the two measures in the case of developing Europe. In fact, theCentral Bank of Russia as well as the IMF corroborates the existence of large capital flightfrom the country, which are predominantly recorded private sector outflows.a. Normalization through use of filters12. As Chart 1 showed, the HMN+GER approach to estimating illicit flows is more conservativethan the CED+GER approach, which may include some legitimate private sector capital flows.Chart 3. Normalized vs. Non-normalized GER, 2001-2010(in millions of U.S. dollars)!"#$%&'(&)*$+#,-./0&12(&)*343*$+#,-./0&5678&9::;49:;:&(?(&0*,,#$2@&*!!$!!!")!!$!!!"(!!$!!!"'!!$!!!"&!!$!!!"%!!$!!!"#!!$!!!"!"%!!#" %!!%" %!!&" %!!'" %!!(" %!!)" %!!*" %!!+" %!!," %!#!"-./0/.12345678"9:;" -.12345678"9:;"Moreover, Chart 3 shows that the conservative or normalized GER estimates are so closeto the non-normalized estimates that not much would be gained by generating a range.Therefore, non-normalized GER estimates will be used throughout the remainder of the reportin generating both the HMN+GER and CED+GER estimates.8 Global Financial Integrity
III. Trends in Illicit Financial Flows fromDeveloping Countries and Regions13. Table B shows estimates of illicit financial flows from developing countries based on theHMN+GER and CED+GER methods. Using non-normalized estimates, the data indicatethat on average, developing countries lost between US$585.9 billion to US$918.6 billion perannum over the period 2001-2010. In 2010, they lost a minimum of US$858.8 billion and asmuch as US$1,138.0 billion.14. We also observe that the HMN+GER measure has increased at a faster pace than theCED+GER measure (13.3 percent vs. 12.6 percent). The relatively faster rate of increasein purely illicit outflows is worrisome given that there is no reason for human statisticalerrors (included in both the CED and the HMN measures) to have increased in a systematicmanner throughout the decade. In fact, with the increasing availability and adoption of newtechnologies, and the provision of technical assistance by the IMF to developing countries inorder to build their statistical capacities, one would expect the proportion of statistical errorsto decline over the past decade. 5 The implication is that the significant increase in illicit flowsis likely to result from a worsening of governance-related drivers.15. It is somewhat premature to make a definitive judgment as to which method provides amore accurate method for estimating illicit flows. While the HMN+GER method is the mostconservative measure, it may exclude some illicit transactions (such as round-tripped FDI)which show up as recorded private sector flows. We invite our readers to provide commentson the two alternative methodologies and the reasons why one of them should be preferredover the other.16. For the sake of brevity and sharper focus on illicit flows, we shall henceforth confinethe discussion of trends, shares, and country rankings in terms of the HMN+GERestimates. Going by that measure, the increase in illicit flows of over US$500 billion since2001 implies a nominal growth rate of 13.3 percent per annum (Table C). In inflation-adjustedor real terms, illicit flows grew by 8.6 percent per annum on average (Table D), whichexceeded their average rate of economic growth (6.3 percent per annum). About 20.0 percentof total outflows were channeled through balance of payments leakages while the bulk(approximately 80.0 percent) was transferred through the deliberate misinvoicing of externaltrade. Over the decade, the shares of outflows from trade misinvoicing and the balance ofpayments have fluctuated. In 2004, trade misinvoicing reached a peak of 86.1 percent of totalIFFs, dropping to a low of 62.3 percent in 2009. However, in 2010 outflows through trademisinvoicing picked up again to reach 64.2 percent of the total (Table C).5There is no evidence that net errors and omissions have a clear increasing pattern to them; reference IMF Committee on Balance ofPayments Statistics, Annual Report 2011, IMF, Table 1, pp. 17-18.Illicit Financial Flows from Developing Countries: 2001-20109
Page 8: fGlobal Financial Integrity
Page 11: Executive SummaryTwo main issues, w
Page 18 and 19: Table A. The United States and Chin
Page 20 and 21: narrowed followed by some widening
Page 24 and 25: Table C. Illicit Financial Flows by
Page 26 and 27: Table D. Illicit Financial Flows by
Page 28 and 29: 17. Adjusting the outflow estimates
Page 30 and 31: 21. The countries with the ten high
Page 35 and 36: Chart 10. Heat Map of Cumulative Il
Page 37: IV. Special Issues: Sovereign Wealt
Page 41 and 42: V. Conclusions41. This report adds
Page 43 and 44: ReferencesAlbalkin, A. and Whalley
Page 46 and 47: includes gross illicit outflows fro
Page 48: 34 Global Financial Integrity
Page 51 and 52: RankCountryAverage ofall years(wher
Page 53 and 54: Country Names 2001 2002 2003 2004 2
Page 60 and 61: Table 5. CED Non-normalized (Change
Page 62 and 63: Table 5. CED Non-normalized (Change
Page 64 and 65: Table 6. GER Normalized (Gross Excl
Page 66 and 67: Table 6. GER Normalized (Gross Excl
Page 68 and 69: Table 7. GER Non-normalized (Gross
Page 70 and 71: Table 7. GER Non-normalized (Gross
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Table 8. Illicit Financial Flows (H
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Table 10. Normalized Illicit Financ
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Table 10. Normalized Illicit Financ
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Country Names 2001 2002 2003 2004 2
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Country Names 2001 2002 2003 2004 2
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Table 13. Geographical RegionsAfric
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Table 15. Net Errors and Omissions
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Illicit Financial Flows from Develo
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Illicit Financial Flows from Developing Countries ... - culturaRSC.com

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