CORRUPTION

International Affairs Forum Fall 2016
Interview with Raymond Baker
Global Financial Integrity
Would you provide some background about
Global Financial Integrity and its mission?
but it is an indication of what is not being properly
accounted for.
Global Financial Integrity was formed in 2006
for the purpose of addressing illicit financial
flows and the impact of such flows, principally
on emerging markets in developing countries.
There are three sources of illicit money: corrupt,
criminal, and commercial. We work to address all
three of these.
Your group has performed a great deal of
research and analysis on illicit money flows.
Would you expand on your work regarding
balance of payments?
Countries file balance of payment statistics
with the International Monetary Fund (IMF).
We study these statistics to look for gaps in the
data. This is where the funds that are available
to governments do not match up with the funds
utilized by governments. It is, in other words,
where inputs and outputs don’t match and some
money has disappeared. This could be the result
of a statistical error or it could be the result of a
theft of money from government coffers. More
often than not, statistical errors are fairly small,
only one or two percent. So where we see gaps
that are greater than that level, it is suggestive of
a theft of government revenues. It is not proven,
Have you determined dollar estimates of
these illicit financial flows?
Our overall estimate of illicit financial flows
coming out of emerging markets in developing
countries is more than a trillion dollars a year.
The bigger part of this results from trade
misinvoicing. Misinvoicing does not show up in
the balance of payments data, but in the direction
of trade statistics that are compiled by the IMF.
It is our estimate that of the one trillion dollars a
year flowing out of developing and transitional
economies, about eighty percent derives from
the misinvoicing of trade. The remaining balance
of roughly twenty percent represents errors and
omissions, as well as imbalances in balance
payment statistics.
Would you explain how misinvoicing works?
Let us take the simplest possible example.
Suppose a multinational corporation wants to
move money out of a developing country and it
has imports and exports with its parent company.
Now let us suppose it wants to move money
out of the developing country, without going
through the process of declaring profits and
Our overall estimate of illicit financial flows coming out of emerging
markets in developing countries is more than a trillion dollars a year.
Fall 2016
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