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Mexico: Illicit Financial Flows, Macroeconomic Imbalances, and the ...

Mexico: Illicit Financial Flows, Macroeconomic Imbalances, and the ...

Mexico: Illicit Financial Flows, Macroeconomic Imbalances, and the

We are pleased to present here our analysis of Mexico: Illicit Financial Flows, Macroeconomic Imbalances, and the Underground Economy. Global Financial Integrity has over the last four years produced reports on global, regional, and national illicit flows. We consider such outflows from developing countries to be the most damaging economic condition hurting the global poor, while at the same time significantly impacting the national security and foreign policy interests of western nations. In this report we examine the generation and movement of illicit money affecting the United States’ neighbor to the south, Mexico. Interestingly, Mexico is the largest emerging market country having a border with a major industrialized democracy, and therefore it is at some level understandable that this border might be rather porous to the movement of money and people. In fact, over a period of years illicit financial outflows from the country have been devastating. Utilizing well established economic models, our analysis indicates illicit outflows from Mexico from 1970 to 2010 at US$872 billion. Across the first decade of this century, these outflows averaged almost US$50 billion a year. Furthermore, this analysis is conservative; it does not include drug smuggling, human trafficking, and some forms of trade mispricing, data for which are not available in the statistics we analyze. Were reasonable estimates of illicit capital generated by these activities to be incorporated into the analysis, the figures would be substantially higher. In the 1990s and 2000s, trade mispricing accounted for about 80 percent of the shift of illicit money out of the country, rising sharply after NAFTA came into being. The free trade regime was not accompanied on either side of the border with adequate mechanisms for monitoring and controlling abusive transfer pricing by multinational corporations or by mispricing between unrelated but cooperating trade partners. Illicit financial flows and the underground economy of Mexico have a symbiotic relationship, each driving the other. Curtailing one will contribute to reducing the other. Cross-border deposits of both licit and illicit financial flows are very difficult to analyze. Most nations that provide such data to the Bank for International Settlements in Switzerland do so with the proviso that amounts received from specific countries will not be further reported. This is a glaring shortcoming in international financial data, not only for the interest of developing countries but for richer countries also. The United States does allow its data to be treated as a single point of absorption, showing that private deposits out of Mexico into only current accounts in U.S. banks have been rising to more than US$12 billion in 2010. Mexico: Illicit Financial Flows, Macroeconomic Imbalances, and the Underground Economy c

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