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On the list of the world’s biggest exporters of illicit financial flows from 2003 to 2012, India currently ranks fourth — after China, Russia and Mexico, in that order. Compared with the previous rankings, India and Malaysia have switched positions in terms of cumulative illicit financial outflows, with India moving to the fourth spot and Malaysia to fifth. This was due to a continuation of India’s upward move, which began in 2009, and Malaysia’s downward move, which began the next year. To put the figures in perspective, the $439 billion of outflows come to about 23 per cent of India’s gross domestic product in 2013 ($1.87 trillion).
GFI President Raymond Baker said: “The most troubling... is the fact that these outflows are growing at an alarming rate of 9.4 per cent a year —twice as fast as global GDP,” adding “it is simply impossible to achieve sustainable global development, unless world leaders agree to address this issue head on”.
The study estimates illicit financial outflows from two sources: As a result of deliberate trade misinvoicing, and due to leakages in the balance of payments (known as illicit hot money narrow outflows). According to the study, while trade invoicing accounted for 77.8 per cent of illicit flows from all developing countries over the period, this number was 85.3 per cent for Asia.
The report says it is likely the repatriation and surrender requirements create strong incentives for exporters to under-invoice exports as a way to circumvent these requirements. While the report provides an estimate of illicit flows, it is difficult to say with certainty what is the exact quantum of funds currently stashed abroad. That is because many allege a substantial portion of these illicit outflows are routed back into the country, often via tax havens. But Aman Aggarwal, director, Indian Institute of Finance, disagrees.
He says: “Very little of these illicit outflows actually come back to the country,” adding “the mechanisms through which these illicit gains are made are known, but very little has been done to curb those. There is a need to bring efficiency into the system to check these gains, which cost the country dear.”
GFI’s Joseph Spanjers said: “Illicit financial flows have major consequences for developing economies,” adding these funds “could have been invested in local businesses, health care, education, or infrastructure. Without concrete action to address illicit outflows, the drain on the developing world is only going to grow larger”
