- Outflows ranged between 5.3% and 9.9% of total trade in 2014
Ndubuisi Francis in Abuja
Illicit financial flows (IFFs) from developing and emerging economies kept pace at nearly US$1 trillion in 2014, according to a study just released by Global Financial Integrity (GFI), a Washington DC-based research and advisory organisation.
The report pegs illicit financial outflows at between 4.2 and 6.6 per cent of developing countries’ total trade in 2014– the last year for which comprehensive data are available.
Titled: ‘Illicit Financial Flows to and from Developing Countries: 2005-2014,’ the report is the first global study at GFI to equally emphasise illicit outflows and inflows.
According to the GFI report, an average of 87 per cent of illicit financial outflows over the 2005-2014 period were due to the fraudulent misinvoicing of trade.
Illicit financial outflows from sub-Saharan Africa ranged from 5.3 per cent to 9.9 per cent of total trade in 2014, a ratio higher than any other geographic region studied.
Total illicit financial flows (outflows plus inflows) grew at an average rate of between 8.5 per cent and 10.1 per cent a year over the ten-year period.
Outflows were estimated to have ranged between $620 billion and $970 billion in 2014, while inflows ranged between $1.4 trillion and $2.5 trillion.
Each (outflows and inflows) were found to have remained persistently high over the period between 2005 and 2014. Combined, they are estimated to account for between 14.1 and 24.0 per cent of developing country trade, on average.
“The order of magnitude of these estimates, much more so than their exactitude, warrants serious attention in both the developing countries and the wealthier world,†said GFI President, Raymond Baker, a longtime authority on financial opacity.
“Years of experience with businesses and governments in the developing world have taught us that the decision to bring illicit flows into a particular developing country often marks only the first phase of a strategy to subsequently move funds out of the country. Together, illicit inflows and outflows sap the crucial financial resources needed to reach the Sustainable Development Goals,†Baker said.
GFI, in the report came up with a number of recommendations to check illicit outflows and inflows.
Governments, it said, should establish public registries of verified beneficial ownership information on all legal entities, while all banks should know the true beneficial owner(s) of any account in their financial institution.
“Government authorities should adopt and fully implement all of the Financial Action Task Force’s (FATF) anti-money laundering recommendations; laws already in place should be strongly enforced.
“Policymakers should require multinational companies to publicly disclose their revenues, profits, losses, sales, taxes paid, subsidiaries, and staff levels on a country-by-country basis. All countries should actively participate in the worldwide movement towards the automatic exchange of tax information as endorsed by the OECD and the G20.
“To curtail trade misinvoicing:customs agencies should treat trade transactions involving a tax haven with the highest level of scrutiny; governments should significantly boost their customs enforcement by equipping and training officers to better detect intentional misinvoicing of trade transactions, particularly through access to real-time world market pricing information at a detailed commodity level,†the report recommended
GFI said it had developed a product to assist governments in the detection of potential misinvoicing in real time. known as GFTradeâ„¢, a proprietary risk assessment application developed to enable customs officials to determine if goods are priced outside typical ranges for comparable products.
It urged governments sign on to the Addis Tax Initiative to further support efforts to curb IFFs as a key component of the development agenda.
