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India Loses US$1.6 Billion in Black Money in 2010, Loses US$123 Billion from 2001-2010

December 17th, 2012

Latest Global Financial Integrity Research Places India as Decade’s 8th Largest Exporter of Illicit Capital
Illicit Outflows Cost Developing World US$859 Billion in 2010, Rebounding Rapidly from Financial Crisis

WASHINGTON, DC – The Indian economy suffered US$1.6 billion in illicit financial outflows in 2010, capping-off a decade in which the world’s largest democracy experienced black money loses of US$123 billion, according to the latest report released today by Global Financial Integrity, a Washington-based research and advocacy organization.

The GFI study, titled “Illicit Financial Flows from Developing Countries: 2001-2010,” ranks India as the decade’s 8th largest victim of illicit capital flight behind China, Mexico, Malaysia, Saudi Arabia, Russia, the Philippines, and Nigeria, respectively.

“While progress has been made in recent years, India continues to lose a large amount of wealth in illicit financial outflows,” said GFI Director Raymond Baker.  “Much focus has been paid in the media on recovering the Indian black money that has already been lost.  This focus is for naught as long as the Indian economy continues to hemorrhage illicit money.  Policymakers and commentators should make curtailing the ongoing outflow of money priority number one.”

“$123 billion is a massive amount of money for the Indian economy to lose,” said Dr. Dev Kar, GFI Lead Economist and co-author of the report.  “It has very real consequences for Indian citizens.  This is more than $100 billion dollars which could have been used to invest in education, healthcare, and upgrade the nation’s infrastructure.  Perhaps last summer’s electrical blackout would have been avoided if some of this money had remained in India and been used to invest in the nation’s power grid.”

Co-authored by Dr. Kar and GFI Economist Sarah Freitas, the study is GFI’s annual update on the amount of money flowing out of developing economies through crime, corruption and tax evasion, and it is the first of GFI’s reports to include data for the year 2010.

The report—the first by GFI to incorporate a new, more conservative, estimate of illicit financial flows—found that all developing and emerging economies suffered US$858.8 billion in illicit outflows in 2010, just below the all-time high of US$871.3 billion set in 2008—the year preceding the global financial crisis.

“Astronomical sums of dirty money continue to flow out of the developing world and into offshore tax havens and developed country banks,” noted Mr. Baker.  “Regardless of the methodology, it’s clear: developing economies are hemorrhaging more and more money at a time when rich and poor nations alike are struggling to spur economic growth. This report should be a wake-up call to world leaders that more must be done to address these harmful outflows.”

Methodology

As developing countries begin to loosen capital controls, the possibility exists that the methodology utilized in previous GFI reports—known as the World Bank Residual Plus Trade Mispricing method—could increasingly pick-up some licit capital flows.  The methodology introduced in this report— the Hot Money Narrow Plus Trade Mispricing method—ensures that all flow estimates are strictly illicit moving forward, but may omit some illicit financial flows detected in the previous methodology.

“The estimates provided by either methodology are still likely to be extremely conservative as they do not include trade mispricing in services, same-invoice trade mispricing, hawala transactions, and dealings conducted in bulk cash,” explained Dr. Kar, who previously served as a senior economist at the International Monetary Fund.  “This means that much of the proceeds of drug trafficking, human smuggling, and other criminal activities, which are often settled in cash, are not included in these estimates.”

Findings

The US$858.8 billion of illicit outflows lost to all developing countries in 2010 is a significant uptick from 2009, which saw developing nations lose US$776.0 billion under the new methodology.  The study estimates the developing world lost a total of US$5.86 trillion over the decade spanning 2001 through 2010.1

“This has enormous ramifications for the developing world,” explained Ms. Freitas, a co-author of the report.  “Poor countries lost nearly a trillion dollars that could have been used to develop economically, a trillion dollars that could have been used to pull people out of poverty and save lives.”

Dr. Kar and Ms. Freitas’ research tracks the amount of illegal capital flowing out of 150 different developing countries over the 10-year period from 2001 through 2010, and it ranks the countries by magnitude of illicit outflows. According to the report, the 20 biggest exporters of illicit financial flows over the decade are:

  1. China ………………….. $274 billion average ($2.74 trillion cumulative)
  2. Mexico ……………………………… $47.6 billion avg. ($476 billion cum.)
  3. Malaysia ……………………………. $28.5 billion avg. ($285 billion cum.)
  4. Saudi Arabia ………………………. $21.0 billion avg.  ($210 billion cum.)
  5. Russia ……………………………….. $15.2 billion avg. ($152 billion cum.)
  6. Philippines …………………………. $13.8 billion avg. ($138 billion cum.)
  7. Nigeria ………………………………. $12.9 billion avg. ($129 billion cum.)
  8. India …………………………………. $12.3 billion avg. ($123 billion cum.)
  9. Indonesia …………………………… $10.9 billion avg. ($109 billion cum.)
  10. United Arab Emirates …………… $10.7 billion avg. ($107 billion cum.)
  11. Iraq ………………………………… $10.6 billion avg. ($63.6 billion cum.)2
  12. South Africa ………………………. $8.39 billion avg. ($83.9 billion cum.)
  13. Thailand ……………………………. $6.43 billion avg. ($64.3 billion cum.)
  14. Costa Rica …………………………. $6.37 billion avg. ($63.7 billion cum.)
  15. Qatar ……………………………….. $5.61 billion avg. ($56.1 billion cum.)
  16. Serbia ………………………………. $5.14 billion avg. ($51.4 billion cum.)
  17. Poland ……………………………… $4.08 billion avg. ($40.8 billion cum.)
  18. Panama ……………………………. $3.99 billion avg. ($39.9 billion cum.)
  19. Venezuela ………………………… $3.79 billion avg. ($37.9 billion cum.)
  20. Brunei ………………………………. $3.70 billion avg. ($37.0 billion cum.)

For a complete ranking of average annual illicit financial outflows by country, please refer to Table 2 of the report’s appendix on page 36, or download the rankings by average annual illicit outflows here [PDF | 51 KB].

Also revealed are the top exporters of illegal capital in 2010, which were:

  1. China …………………………………………….. $420.36 billion
  2. Malaysia ………………………………………….. $64.38 billion
  3. Mexico ……………………………………………. $51.17 billion
  4. Russia ……………………………………………… $43.64 billion
  5. Saudi Arabia …………………………………….. $38.30 billion
  6. Iraq…………………………………………………. $22.21 billion
  7. Nigeria ……………………………………………. $19.66 billion
  8. Costa Rica…………………………………………. $17.51 billion
  9. Philippines ……………………………………….. $16.62 billion
  10. Thailand…………………………………………… $12.37 billion
  11. Qatar ………………………………………………. $12.36 billion
  12. Poland …………………………………………….. $10.46 billion
  13. Sudan ………………………………………………. $8.58 billion
  14. United Arab Emirates ………………………….. $7.60 billion
  15. Ethiopia …………………………………………….. $5.64 billion
  16. Panama …………………………………………….. $5.34 billion
  17. Indonesia ………………………………………….. $5.21 billion
  18. Dominican Republic …………………………….. $5.03 billion
  19. Trinidad and Tobago ……………………………. $4.33 billion
  20. Brazil ………………………………………………… $4.29 billion

An alphabetical listing of illicit financial outflows is available for each country in Table 9 on pg. 62 of the report. You can also download the alphabetical listing of illicit financial flows data for each country here [PDF | 64 KB].

Previous Country-Specific Report on India

A November 2010 GFI report, “The Drivers and Dynamics of Illicit Financial Flows from India: 1948-2008,” found that the Indian economy lost $462 billion to illicit financial outflows from 1948 through 2008. Authored by Dr. Kar, the report measured India’s underground economy as 50 percent of GDP, with cumulative illicit outflows accounting for an increasing share of the total underground economy.

Possible Solutions

Global Financial Integrity advocates that world leaders increase the transparency in the international financial system as a means to curtail the illicit flow of money highlighted by Dr. Kar and Ms. Freitas’ research.  Policies advocated by GFI include:

  • Addressing the problems posed by anonymous shell companies, foundations, and trusts by requiring confirmation of beneficial ownership in all banking and securities accounts, and demanding that information on the true, human owner of all corporations, trusts, and foundations be disclosed upon formation and be available to law enforcement;
  • Reforming customs and trade protocols to detect and curtail trade mispricing;
  • Requiring the country-by-country reporting of sales, profits and taxes paid by multinational corporations;
  • Requiring the automatic cross-border exchange of tax information on personal and business accounts;
  • Harmonizing predicate offenses under anti-money laundering laws across all Financial Action Task Force cooperating countries; and
  • Ensuring that the anti-money laundering regulations already on the books are strongly enforced.

Funding

Funding for the new report, “Illicit Financial Flows from Developing Countries: 2001-2010,” was generously provided by the Ford Foundation.

To schedule an interview with GFI spokespersons on this report, contact Clark Gascoigne at +1 202 293 0740, ext. 222 or cgascoigne@gfintegrity.org. On-camera spokespersons are available in Washington, DC.

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Footnotes:

  1. The less conservative, methodology used in previous GFI updates measured US$936.1 billion in illicit financial outflows from developing nations in 2009.  Were the previous methodology applied to 2010, it would have measured US$1.138 trillion in illicit outflows from the developing world, a 26 percent increase over the previous year.  Table 11 on pg. 70 provides a breakdown of illicit financial flow estimates for each country based on the original methodology.
  2. Data for Iraq was not available in 2001-2004, thus the average illicit outflows of US$10.6 billion reflect only the years 2005-2010.  Likewise, the cumulative outflows of US$63.6 billion for Iraq are cumulative outflows for 2005 through 2010 only.

Notes to Editors:

  • More information about the GFI report is available on the GFI website here.  A PDF of the full report can be downloaded here [PDF | 3.3 MB].  An “Explore” page, complete with an interactive heat-map, and .zip files of the report’s data is available here.
  • A tip-sheet for journalists can be downloaded here [PDF 222KB].
  • A PDF with full country rankings by average annual illicit financial outflows is available here [PDF | 51 KB].
  • An alphabetical listing of total illicit financial flows data for each country each year is available here [PDF | 64 KB].
  • A non-India-specific press release for journalists is available here.
  • All monetary values are listed in US dollars (USD).

Contact:

Clark Gascoigne
cgascoigne@gfintegrity.org
+1 202 293 0740, ext. 222

EJ Fagan
efagan@gfintegrity.org
+1 202 293 0740, ext. 227

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Global Financial Integrity (GFI) is a Washington, DC-based research and advocacy organization which promotes transparency in the international financial system.

For additional information please visit www.gfintegrity.org.

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Written by Global Financial Integrity

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