Illicit Financial Flows out of Latin America

January 21st, 2011

Mexico and Venezuela Lead Region with Most Illicit Outflows

The Center for International Policy‘s (CIP) Global Financial Integrity program (GFI) released a new report this week that estimates the quantity and patterns of illicit financial flows coming out of developing countries. The report, “Illicit Financial Flows from Developing Countries, 2000-2009,” (PDF) finds that approximately $6.5 trillion was removed from the developing world from 2000 through 2008, averaging $725 billion to $810 billion per year.

Most notable for Latin America, the new GFI report, authored by Dev Kar and Karly Curcio, places both Mexico and Venezuela in the top ten countries with the highest measured cumulative illicit financial outflows between 2000 and 2008. According to the new report, from 2000 to 2008 $416 billion in illicit money flowed out of Mexico, placing Mexico third on the list, just behind China ($2.18 trillion) and Russia ($427 billion). Venezuela falls eighth on the list, with $157 billion in illicit financial outflows between 2000 and 2008.

CIP’s Global Financial Integrity program explains that the term “illicit financial flows” pertains to

the cross-border movement of money that is illegally earned, transferred, or utilized. Illicit financial flows generally involve the transfer of money earned through illegal activities such as corruption, transactions involving contraband goods, criminal activities, and efforts to shelter wealth from a country’s tax authorities.

The report does not include estimated amounts of illicit flows leaving countries as a result of strictly cash transactions, which is often how narcotrafficking and organized crime transactions are conducted. As Karly Curcio, one of the report’s authors, states in a recent blog post, “The model is not able to capture illegal, cash-only transactions and smuggling related activities, so the negative economic impact of illicit flows from [Mexico] is almost certainly understated.”

The policy implication, according to GFI, of this huge amount of illicit flows out of the developing world is that for every $1 in economic development assistance that goes into a developing country, $10 is lost via illicit outflows. “Illicit outflows deprive governments of tax revenues crucial for providing public goods like domestic security, … [and] also drain capital needed for various investment projects, poverty alleviation, and economic growth,” writes Curcio. Using Mexico as an example, GFI’s new estimates put the flow of illicit money out of Mexico at some $46.24 billion each year, while, over the last eight years for which data are available, the country received an average of just $212 million in Official Development Assistance. Given the ratio of inflows to outflows, it is unclear how countries like Mexico can address their development needs when such a large amount of money pours out of their economies each year.

While Mexico and Venezuela rank third and eighth in the developing world, here is a list of the average annual illicit financial outflows from Latin American & Caribbean countries, from highest to lowest:

1. Mexico ($46.24 billion)
2. Venezuela (17.5 billion)
3. Argentina ($10 billion)
4. Chile ($7.8 billion)
5. Costa Rica ($4.4 billion)
6. Panama ($3.9 billion)
7. Honduras ($2.8 billion)
8. Brazil ($2.6 billion)
9. Colombia ($2.1 billion)
10. Ecuador ($1.5 billion)
11. Guatemala ($1.5 billion)
12. El Salvador ($1 billion)
13. Uruguay ($837 million)
14. Nicaragua ($774 million)
15. Jamaica ($706 million)
16. Bolivia ($590 million)
17. Paraguay ($476 million)
18. Peru ($311 million)
19. The Bahamas ($121 million)
20. Belize ($43 million)
21. Antigua and Barbuda ($16 million)
22. St. Kitts ($16 million)
23. St. Lucia ($9 million)
24. Dominica ($66 million)

You can find more information about illicit financial flows on GFI’s website.
More information on the report can be found here, or download the full report (PDF).

This post was originally published on the blog of “Just the Facts.”

Written by Abigail Poe

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