CORRUPTION

Interview with Raymond Baker
International Affairs Forum
dividends, or sending dividend payments abroad.
What it can do in its trade relationships with its
parent is to misprice trade, either overpricing
an import, so that it pays an extra amount to
the parent company, or underpricing something
it is exporting to the parent, in order to shift
value to the parent. It is the over-invoicing and
under-invoicing of imports and exports that
gives traders the ability to move money at will.
This enables the muddying of capital and trade
transactions, in order to facilitate the flow of
resources out of emerging markets in developing
countries.
What are the impacts to developing countries
as a result of illicit financial flows?
In my opinion, there is nothing more damaging
to developing countries than the loss of massive
amounts of revenue that are bleeding abroad.
It directly impacts poverty and it is inadequately
addressed. It means that the economy does not
have as much money in it as it would otherwise
have and that governments do not have as much
tax revenue as they would otherwise have. Illicit
financial flows also contribute to inequality of
income and the growth of that inequality. It has
all the negative effects that you can imagine from
massive amounts of monies draining. And, in
most cases, they are drained permanently out of
emerging markets and developing countries.
Much of your work centers on data collection,
research, and analysis of illicit financial
flows. What issues have you experienced
trying to obtain good, reliable data for your
research?
We take a couple of approaches to this. First,
we base our analysis entirely on data filed by
governments with the IMF. We also use UN
Comtrade data, broken down by countries and
commodity groups. However, there can be errors
in this data, such as statistical errors. There can
be intentional holes left in the data, and so forth.
Imperfections in the data can reduce the level of
illicit flows that we measure, or increase the level
of illicit flows that we measure. As previously
mentioned, we think that if we had perfect
data, the data would show more than a trillion
dollars are flowing out of emerging market in
developing countries. The reason for this is that
there are a lot of things not included in the data
that is provided by governments to the IMF. For
example, cash transactions and across border
cash transactions that are used by drug dealers,
human traffickers, and counterfeiters, do not
show up in official statistics.
Secondly, none of the misinvoicing of services
and intangibles shows up in the data because
the IMF does not compile data on the trade of
services and intangibles. That is estimated to
be about twenty-five to twenty-eight percent of
global trade.
Furthermore, in the business of misinvoicing, if
the misinvoicing is agreed to by the buyer and
the seller in a transaction, and that misinvoicing
is included in the invoice that is exchanged
between the buyer and the seller, it does not
show up in our data. The only misinvoicing that
shows up in our data, is where it has been reinvoiced.
In other words, the seller sends the
invoice to, for example, a tax haven entity, which
re-invoices at a higher or lower amount and
sends the invoice onto the buyer. But where the
misinvoicing is agreed to, between the buyer
and the seller, and it’s simply the original invoice
is manipulated, this also does not show up in
our data. So there are a lot of elements of both
the corrupt departmental and the commercial
components that don’t show up in our data. We
believe that if we had better data on those, the
numbers would be considerably higher.
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